Archive For September 25, 2012

It Isn’t Easy Being Green (apologies to Kermit the Frog)

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The GEnx engine deployed on the Boeing 787 and 747-8i was designed as a “green” engine, with advanced technology to reduce emissions and noise. GE has made a significant investment in green technology, and to their credit, emissions and efficiency on the 787 and 747-8i are beating initial expectations.

Unfortunately, despite nothing showing up in extensive certification testing, there have been cracks in the fan midshaft of two GEnx engines for the 787, and while not yet confirmed, an engine failure on a GEnx engine on an AirBridge Cargo 747-8i that is suspected to be a similar problem.

This has resulted in an FAA Airworthiness Directive requiring an inspection every 90 days that will require about 9 man-hours per engine to complete. Using initial findings to date, GE has already changed its production process and will replace its new environmental friendly coating, without lead, to an older dry film coating currently used on the GE90 with lead to protect against cracks caused by galvanic corrosion in a moist environment. They have also changed a lubricant in the manufacturing process.

We are confident that GE will continue to push the frontier for green technology, and that this minor setback is quickly resolved as more 787 and 747-8 models enter service. We applaud GE’s efforts in utilizing more environmentally friendly coatings in the engine, and hope that a solution can be found that isn’t a trade off between reliability and environmental performance as they move the GEnx program forward.

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Comparing the OEM Aircraft Market Forecasts

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Airbus released its Global Market Forecast a few weeks ago.  And, true to form, trying to compare it with Boeing’s Commercial Market Outlook is not easy. The two firms define the segments differently.  This requires some editing liberty on the part of analysts.

Here’s how the two OEMs define the period from 2012 to 2031.  They have a significant difference in their projections of the total number of aircraft to be delivered, with a nearly 6,000 aircraft difference, primarily in single aisle aircraft.  At $75 million per aircraft, there is a difference of about $450 billion between the two companies’ forecasts.  Who is more accurate is the half a trillion dollar question?

There is an important item to note – Airbus does not report on regional jets under 100 seats whereas Boeing does. Airbus responded “…we focus our results and publications on the markets that we are involved in (?100 seat aircraft)”.  We assembled our own view on these two outlooks as follows:

Airbus estimates the VLA market (over 400 seats) to be more than twice as large as Boeing, which has been the case since at least 2000.  Airbus believes in the need for the A380 to serve crowded hubs, while Boeing has touted smaller aircraft and route dispersion.   The difference in forecasts to some degree reflects their market intelligence and competitive positioning resulting from those forecasts.

When we adjust the numbers to be comparable, we produced the following table for freighters.  But even then the 9.5% difference is clearly more subtle when you look at the breakdown.  Boeing includes both 777 and 747-8F in the “large freighter” category and the A330 freighter in the other category.  Once again, the forecasts appear to reflect the company’s product lines and competitive positioning within each segment.

Boeing estimates the VLA freighter market 55% bigger than Airbus.  But Airbus sees the smaller freighter market 58% bigger than Boeing estimates.   Perhaps the absence on an A380 freighter is likely why Airbus large freighter market assessment is so much smaller than Boeing’s — or because the 747-8F is doing far better than the 747-8i passenger version, Boeing emphasizes that sector.

In the single aisle category – which is by far the biggest commercial segment (69% of Airbus’ total and 68% of Boeing’s total) – the two OEMs are 19% apart.   They are much closer on the twin aisle segment with only an 11% difference.

Even if the explanations for the differences are definitional, the overall market difference remains more than 20% apart, which is substantial.  The differences are substantial when one realizes that Airbus estimates the market at $4 trillion and this is the lower of the two estimates.  Removing the regional jet component from Boeing’s numbers the difference shrinks to 11.9% in airplane numbers – which is still substantial.

The question is whether the forecasts are colored by the product lines of each OEM, or whether the product lines have been developed from different forecasting methodologies and assumptions about the marketplace.  Is Airbus gung ho on the 400+ seat market because their A380 is showing strength in the market and they foresee good times, whereas Boeing’s 747-8i is struggling and therefore they are of the view that market is more limited?

Airbus’ VLA-passenger forecast of 1,330 requires orders of 67 per year (747-8i and A380). In the Rolls-Royce-Pratt & Whitney lawsuit, Rolls’ filing revealed Airbus expects to deliver ~650 A380s over 20 years. That is half the amount needed to match its forecast, but matches Airbus’ contention that it will capture 50% of the VLA forecast.  But Airbus does make a compelling case that we are likely to see continued growth in air travel between mega cities.  Currently there are 42 cities (i.e. New York, Tokyo, London, Paris, Frankfurt, etc.) that handle more than 10,000 long haul passengers per day and Airbus expects over 90 by 2031. The A380 is right in the sweet spot to serve such traffic at airports with fixed slots.

In the twin aisle market (250 and 400 seats) both OEMs are closer in market estimates.  This is the area where the A330 and A350 battle the 787 and 777.  For most airlines these aircraft are their primary long range tools and both OEMs make a lot of money in the segment.  Airbus has a highly developed product in the A330 which is delivering better results than probably either OEM expected.  A350 development continues apace and it appears Boeing is biding its time on a 777 update.  But, as experience has shown, (most recently neo vs MAX) dithering on development can bite.  Despite unsettling comments from airlines in the Gulf, Cathay voted for the A350 over waiting for updated 777.  The 11% difference between forecasts for this segment, while relatively small, appears to indicate both OEMs will continue to fight over every order.

The backup information both firms provide does not give an indication of precisely how they develop their forecasts.  Clearly the methodologies are not going to be shared publicly. The table below is a guide we find somewhat comparable. The table on the left comes from Boeing while the two charts on the right are from Airbus.  Both make it clear the future lies in the Asia market.  Boeing shows its results for estimating airplanes by market – but Airbus does not.

Airbus sees a global passenger fleet growth between 2012 and 2031 at 109% compared to Boeing’s 100%.  But Airbus says the 2011 passenger fleet was 15,560 while Boeing says it was 19,890 – so they differ by 28% before they even get to 2012.  Perhaps this is because Boeing includes regional jets in its analysis, and Airbus does not. But the net result is that differing by 21% in 20 years’ time brings them closer rather than farther apart.

Airbus says that 2/3 of the passenger fleet flying today will need to be replaced by 2031 (10,350 aircraft out of the 15,560 in service). Boeing says that 70% of the fleet will be replaced by 2031 (14,110 out of 19,890 in service today).

Even as they disagree on definitions and therefore overall numbers, there are a few things they agree on:

  • Emerging markets are where the growth will be
  • Growing middle class drives travel demand
    • Particularly in Asia
  • Fuel costs are manageable
    • Boeing sees rising supplies
    • Both OEMs cite rising efficiency of new airplanes
  • The biggest growth segment will be single aisle fleets at more than two-thirds  of orders
    • This will be driven by LCC growth
    • Boeing believes LCCs will account for 19% market share by 2031

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Podcast – Are regional airlines threatened?

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Dublin-based Patrick Edmond is a former CityJet GM Commercial (part of Air France).  Recently Patrick wrote an article for Airline Business in which he makes the case that while regional airlines are threatened by industry structural changes, they remain viable. We go on to discuss right sizing, emerging airplane programs and the potential of replacing the ~30-seater turboprop.


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United Accepts first 787 Dreamliner

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Yesterday, United Airlines took delivery of the first of 50 Boeing 787s it has on order, and the first of five expected to be delivered in 2012. United is the first US airline to operate the Boeing Dreamliner, and takes its first delivery nearly a year after the first 787 was delivered to Japan’s All Nippon Airlines.

The 787 aircraft to be delivered in 2012 will be initially based in Houston for training purposes and will be first deployed domestically on services between the airline hubs at Chicago O’Hare, Houston, San Francisco Newark, Cleveland, Denver and Washington Dulles.  It is expected that after the introductory period, the aircraft will be re-deployed on international routes. 787 routes are already listed on United’s reservation system, with flights from Houston to Chicago beginning in November.

United will configure its 787s with 36 First -Business class seats, 72 Premium Economy, and 111 Economy class seats, for a total of 219 seats.  These aircraft will replace older Boeing 757 and 767 aircraft in the fleet that are being retired.   United has chosen GEnx engines for its Dreamliners, which are being modified after 3 recent incidents with new engines and a mandatory FAA inspection every 90 days.  GE has already modified the coating for an engine shaft suspected to be the problem, and we expect those engines to perform well once initial issues are sorted out.

We look forward to the Dreamliner in domestic service, and the opportunity to provide a first-hand report on the aircraft in the near future.

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The Rapidly Changing World of Electronic Flight Bags

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Probably no single new technology is capturing more attention among airline pilots than the Electronic Flight Bag (EFB).  And recently the EFB market has become captivated by Apple’s iPad®.  These facts were manifestly underscored at the recent EFB workshop in Dallas, Texas.

Operational pressures on airlines are at the most intense levels ever. Airlines are desperate to save money and are leaving no stone unturned in attempts to cut costs.  Airlines have leaped into leveraging technology in order to save costs. Tablet computers have attracted airline staff attention. The 2011 airline survey by AvIntel, an industry consultancy, showed that half of the respondents mentioned the iPad as one of the primary options for their EFB projects.


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Podcast – Electronic Flight Bags

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EFBs, as they are known, are a big item coming to flight decks. We discuss these with Joe Ayson, Director of Business & Corporate Development at Allegiant Systems Inc., a part of Allegiant Travel Company.


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