Archive For December 20, 2010

With Airbus Validation, the Pratt & Whitney GTF is Poised for Market Leadership

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Pratt & Whitney is well positioned to take market leadership from CFM International over the next decade. Airbus selection of the GTF on the A320neo family provides the validation from one of the two large manufacturers to confirm the decision of three other programs that the GTF provides superior economics and performance. Next on the horizon for PW are Embraer and Boeing.

The innovative Geared Turbofan from Pratt & Whitney has now been selected for four new technology aircraft programs, with the Airbus A320neo joining the Bombardier CSeries, Irkut MS-21 and Mitsubishi Regional Jet. With Boeing now leaning to a new program, it is likely that the GTF will be offered, along with the CFM LEAP-X, on the new 737 replacement, as Boeing will be unable to ignore the most efficient engine in the marketplace. While that program is still years away, we believe it will offer two engine options, which airliner prefer to the single option available today.

A New Competitive Landscape

Why has the GTF suddenly changed the competitive landscape for narrow-body aircraft engines? The answer is performance. While the concept of a geared turbofan isn’t new, as geared engines have been around for more than 40 years, PW’s innovation has been making the technology work for large aircraft engines at the appropriate ratios to optimize performance. By optimizing the speed of the fan and shaft of the low pressure turbine engine section separately, small improvements in each area of the engine are literally multiplied in the overall efficiency of the engine. The 20 years PW spent in R&D on the GTF concept has finally paid off with a step-function increase in turbine engine efficiency.

With an all new core, new fan technology, and the gearbox, the PurePower 1000 engine series will begin life with several applications spread over a three year period. The initial application on the Bombardier CSeries will be in 2013, the Mitsubishi RJ in 2014, and the MS-21 and neo in 2016.

Can PW bring four versions of a new technology engine for four different airplanes on time? They’ve done it before, with the venerable JT8D that powered the Boeing 727-100 and -200, Boeing 737-100 and -200, Douglas DC-9-10, -30, -40, and -50, as well as the Aerospatiale (EPA:EAD) Caravelle and Dassault Mercure. While those programs shared a common core and today’s programs will utilize different cores, the GTF technology is scalable, enabling rapid development of various thrust sizes. And of course, the JT8D programs were developed before the days of CAD/CAM systems and the computer technology that drive engineering productivity today. Does Pratt & Whitney have the resources to complete four versions – absolutely.

While performance of the initial GTF will be comparable with the LEAP-X from CFM International, it is the long-term potential for the GTF that has the industry talking. Pratt & Whitney believes that the GTF technology, when mature, will provide fuel efficiencies 30% better than today’s engine, making it competitive with the theoretical, slower and environmentally problematic open rotor solutions being proposed by GE and Rolls Royce. GE and CFM have been silent on the long-term growth prospects of the LEAP-X, which is viewed by industry experts as pushing the limits of existing technologies with little future room for performance improvement. Thus, over the longer-term, the GTF is the likely winner in the narrow-body segment.

Of course fuel burn isn’t the only element of concern to airlines. With the efficiencies gained by the gearbox enabling fewer engine sections, the PW GTF will offer maintenance costs 20% lower than today’s engines, while the LEAP-X, according to the CFM brochure will have maintenance costs similar to the existing CFM-56. The net result, from an economic perspective, is significant enough that PW should gain market share when the two engines are compared head to head. (Maintenance costs are typically about 25% of total operating costs, and engine maintenance about 60% of total maintenance – so a 20% reduction would translate to a net 3% reduction in total operating costs, which is a significant difference to an airline.) With lower noise levels as well, the GTF is well positioned for the next generation of narrow-body aircraft.

Issues related to reliability of the gearbox have been clearly answered with PW’s extensive testing of both the gearbox and now the first production engines. PW and its sister companies at United Technologies have installed gearboxes on more than 54,000 aircraft and have accumulated more than 640 million hours in service. While some uninformed industry critics claim a gearbox is old technology, PW’s innovation has reduced the gearbox to only seven moving parts – a solution that is best described as “engineering elegance.”

Bottom Line:

Airbus selection of the GTF has provided the “major player” validation of the GTF engine, which had already been selected by three other programs. It appears that PW is a Phoenix rising from the ashes in the narrow-body market, and is well poised to capture market leadership.

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Concerns with Bombardier’s Supply Chain

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In light of the experience with supply chain challenges at Airbus and Boeing, the markets have been eyeing the CSeries development program at Bombardier with a well deserved jaundiced view. After all, if the big OEMs can’t get it right, how could a smaller OEM? (more…)

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The impact of the A320neo on Airbus, Boeing, Bombardier

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Now that Airbus has made the decision to proceed with the A320 New Engine Option (NEO), what is the impact on the aviation industry?

First, the decision was long-expected and in many respects overdue. Many initially expected Airbus to make the announcement at the Farnborough Air Show last July. Airbus CEO Tom Enders had to be convinced that engineering resources would not be diverted from the A350 XWB program, which has now officially suffered its first delay from delivery promised in the first half of 2013 to the second half. In the end, Enders became convinced.

So let’s look at Who’s Who and What’s What.


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Qantas and Rolls-Royce – quo vadis?

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Qantas is an airline with an incredible safety record.  Its reputation is well deserved and was immortalized in the movie “Rainman”.   Equally impressive is the history of the airline.  Qantas opened for business in 1920 as Queensland and Northern Territory Aerial Services. (more…)

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After NEO

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Now that Airbus’ NEO is official, what next?  We now have three players in the 100-149 seat segment.  The duopoly is over and the segment is now more complex.  Before NEO, Airbus and Boeing vacillated between three options; do nothing, re-engine or do a clean sheet design.  But with NEO here the three players
Below we offer a quick summary of key points in the 100-149 seat segment.

•    Had to refresh the A320 family as it was falling behind
•    NEO is a considerable update – the NEO should be more fuel efficient and quieter than the 737NG
•    Is threatened by the Bombardier CS more than Boeing – and was forced to respond after losing the Republic order
•    May struggle to get customers to pay a premium for NEO
•    Does have a very strong customer base to build on

•    Has held its next 737 decision back as long as it can – but key customers expect a response to NEO
•    Is focused on PIP offering 2% better fuel burn – the focus is on incremental improvement and still not keen to re-engine while thinking of an NG+
•    Is taking the lowest risk approach to next steps – and could wait another 12 months before a decision
•    If the decision is a clean sheet program, Boeing faces high R&D costs with little time for R&D recovery on 787 and 747-8 – potentially some resource constraints
•    Should be able to offer best pricing – the established (est. 1967) 737 program allows for significant financial flexibility now
•    Does have a very strong customer base to build on

•    Has managed to get some sales
•    CS promises to offer excellent performance – quieter, better fuel burn and adequate range
•    But sales have been slow – partly due to the economy, but also because of delayed Airbus and Boeing  decisions impacted the segment
•    Could easily see its sales campaign negatively impacted by Airbus and Boeing pricing
•    Is stuck in the role of outsider in segment

This segment is now being watched closely because it pits the new player against the well established duopoly.  Can Bombardier compete against the two giants?  Each sale stands on its own – but momentum is important.  Which of the three announces the first sale since NEO was announced will achieve an important PR win.

The large customer bases Airbus and Boeing control throw up hurdles for Bombardier.  Fleet switches are complicated and expensive.  Then toss in big discounts and you can see what a new player is up against.   But this assumes things stay broadly as they are; which is not the safe bet.

Here are some variables to consider:
Oil: If oil prices spike again then Boeing is at a disadvantage.  Airbus’ NEO is less at a disadvantage but the earliest these planes achieve EIS is 2016.  Airlines will be clamoring for lower fuel burn immediately and Bombardier might be able to exploit this sooner.  Even now, with oil prices over $90 airlines are trying to recover the cost through higher fares.  But EU taxes are adding to the cost, making the next generation of airplanes something EU airlines are keen to see.
Delays: If the compensation charges for delayed 787s and 747-8s grow, big discounts on 737s are unattractive for Boeing.  Airbus has been hit with A380 delay costs as well as negative impacts from the A400M. The company is watching the A350XWB program closely to ensure careful resource use. Anything that causes Airbus and Boeing to see more delay costs works in Bombardier’s favor.  Indeed the delays at the big OEMs to date have been very useful to Bombardier.

Orders:  As we have seen with the 787 and A350XWB, once a program gathers sales momentum, order slots evaporate fast.  If Bombardier manages to attract a few key orders, then more orders could come in simply to ensure a delivery slot.   Moreover, if oil prices spike then scarce deliver slots become even more important.

Pricing: Clearly Airbus is unlikely to get the premium it wants for NEO – Boeing will ensure this.  Boeing will likely cut prices to offset NEO – just as Airbus cut prices on A340s to fend off 777 competition.  Both Airbus and Boeing have to now consider what pricing Bombardier can offer as it starts at a considerably lower price point.  Bombardier may have to buy some business to seek sales momentum.   Airlines will like lower prices, but will that be enough?  The CSeries has very good “green credentials”, which is becoming more important in the EU.

New Competition: Embraer is unlikely to allow Bombardier to enter the segment without also wanting to compete with Airbus and Boeing.  It might benefit from coming in a bit later after seeing what the others are doing.  Such an entry will further complicate the segment.  Then throw in the Chinese and Russians to make things really interesting.  The segment starts to fragment quickly with probably too little share for a few players.  For some, like China, aerospace is a national priority and therefore economics is secondary.

In conclusion, the post NEO environment is challenging for the OEMs.  They depend on basically the same suppliers, so the costs of new programs have a long tail that reaches across the globe.  Suppliers have to make the same bet the airlines do.  A wrong bet can be fatal.  Airbus’ NEO move has truly opened the market in ways that could provide unforeseen outcomes.  There is going to be a lot of chatter about which of the three OEMs makes the sale where all three are pitted against each other.

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Podcast – USAF Tanker Update

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The current state of the unending tanker war is as it always was – nowhere.  We discuss the situation with Teal Group’s Richard Aboulafia. The conversation starts off talking about Loren Thompson’s information about Boeing feeling like they are losing this war; then we go on to talking about WTO; who looks like winning; the changed political landscape and the likelihood of a protest by the loser. It’s a frustrating conversation because it seems like there has been no progress at all.


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