Archive For November 28, 2012
The headlines in one of the local Budapest newspapers, which roughly translates to “Airport Hit Below the Belt” in reaction to Ryanair’s decision to cancel approximately 40% of its flying at Budapest. The photo of the airport worker with hands that almost appear in a defensive position for a kick to the groin emphasizes how some folks in Hungary have reacted to that decision, after welcoming Ryanair as the replacement for Malév, the now defunct Hungarian national carrier. While Ryanair has publicly castigated Hochtief, operator of Budapest Ference Listz (formerly Ferihegy) airport on fees, if one digs beneath the surface, a different story emerges.
If an objective observer took a good look at passenger traffic at BUD, the real reason for the Ryanair pullout becomes apparent. Ryanair was not achieving its target load factors on those routes, and as it normally does, quickly adjusts its route network when a route is underperforming. Funny how it always seems to be the fault of the airport, or regulators, rather than a lack of effective route development by the airline when it comes to Ryanair. Yes, they have been successful with their “take no prisoners” approach to competition, but are now finding route development to be more difficult with increased competition in Europe and folks who would prefer to travel to major, rather than secondary airports at key locations that aren’t an hour or more from where they want to go.
Ryanair cancelled 10 routes, on which only one had direct competition, Malaga with Wizz Air operating less frequent services. On four routes, Hamburg, Dusseldorf, Munich and Oslo, Ryanair used secondary airports (Lübeck, Weeze, Memingen, and Rygge, respectively) as opposed to the main airports. Lufthansa and Norwegian are stepping in with service to the major airports, which Malév formerly served. That leaves five routes in which Ryanair was without competition, and still couldn’t achieve its target 84% average load factor from Budapest. In the peak travel season in August, only Birmingham rose over that level, and then dropped back in September. Traffic to Karlsrue-Baded, Memingen, Weeze, Krakow, Thessaloniki, Bologna and Lübeck only generated load factors well below average and lower than Ryanair’s threshold for profitability, which is the real reason they were cancelled. But of course, ego prohibits Ryanair from ever admitting failure, so it blames airports, regulators, and anyone else it can find, except itself. Perhaps Hungarians don’t like to travel on crowded, uncomfortable aircraft?
In the interim, other carriers continue to fill the gap at Budapest, with Wizz Air offering new services to Tel Aviv, Geneva, and Kiev, SAS offering new service to Copenhagen and Oslo, and Transavia to Rotterdam being added to the schedule, and Lufthansa adding extensive services to Germany. Even with a reduced presence from Ryanair, Budapest has survived the “kick to the groin” and will do just fine, with or without Ryanair.
With a record setting order from VistaJet earlier this week for 56 new Bombardier Global aircraft with 86 options, worth more than $7.8 billion at list prices, it appears that a new leader has emerged in the intercontinental business jet market. This is being called the single largest transaction ever in general aviation, with first deliveries starting in 2014.
One of the happiest people on the planet is Steve Ridolfi, President of Bombardier Business Aircraft who in characteristic Canadian understatement said “By any standard, this is an historic order for Bombardier.”
The new orders will be for 25 Global 5000s with 40 options, 25 Global 6000s with 40 options, and 6 Global 8000s with 6 options. The company is focusing on Russia, China, the Middle East and Africa as growth markets, as well as the East and West coasts of North America for intercontinental travel.
But this isn’t the first large order for Bombardier for the Global. In June of this year, Bombardier received an order from NetJets, which operates competing Gulfstream aircraft, for a then record $7.3 billion portion of a $9.8 billion order for new aircraft. With these two massive orders, and a large backlog, the high end of Bombardier’s business jet line appears to be doing quite well, and with these two massive orders, Bombardier appears to have taken market leadership from Gulfstream in the most profitable segment of the business jet market, large intercontinental jets.
This certainly helps Bombardier in the short-term, as the market for medium sized jets continues to struggle for all players, including its Learjet products. While a full recovery for business jets has not yet arrived, the market in developing countries, which need intercontinental lift, is providing virtually all of the industry growth in 2012.
As the old song states, “Liar, Liar, pants on fire, your nose is longer than a telephone wire.” The advertising war between Airbus and Boeing has kicked up a notch, with Airbus showing an Boeing aircraft with a Pinocchio nose and asking why its competitor is stretching the truth in its newest ad. In the ad, Airbus claims that Boeing is utilizing misleading performance comparisons with the 737 against A320 and with the 747-8i against A380.
It has always been true that each manufacturer advertises its products in the most favorable light, and its competitor in the worst possible light. In this blog, we’ve taken each manufacturer to task for various claims, and have published independent economic analyses that show the aircraft to be quite close in economic performance. An example of that is here. Airbus has, in the past, exaggerated the performance of its A330-300 against the 787-9. But recently, Boeing has begun to quote performance numbers that we, and other industry analysts, have been quite skeptical of and have raised our eyebrows. These numbers, particularly for existing aircraft that airlines, those who really know, tell us have quite similar operating costs and tell a different story. Airbus does have a point here. Boeing is claiming that the current 737NG has an 8% fuel burn advantage over the A320ceo, and that a similar advantage will exist for Max against neo. We agree with Airbus that those claims are extremely exaggerated.
The problem has always been apples and oranges in economic comparisons by the OEMs. The range chosen for comparative economic analysis by each manufacturer for public consumption will be the range that optimizes performance for their airplane. Typically, each manufacturer claimed about a 2% advantage, and the net results were about even. But Boeing is now claiming a larger advantage for its current, and future aircraft than it has in the past. Unfortunately, the current case with the A320 and 737NG series is that airlines are reporting operating costs that are fairly equal, and our independent analyses show the aircraft to be remarkably close, with Boeing in the lead over shorter hauls and Airbus leading for longer-haul operations.
So how does Boeing claim an 8% advantage, when the aircraft operators and independent analysts say differently? Boeing’s credibility on economic issues has begun to slide in the industry, but the attack by Airbus appears to indicate that Boeing’s marketing hype may be having an impact. These claims are made not for airlines or leasing companies, who perform their own detailed economic analysis, but for the unsophisticated journalists and Wall Street analysts who don’t have the capability or time for independent analysis. Will that help Boeing’s stock price, or market image? Is Airbus concerned that less sophisticated airlines might be taken in by Boeing’s claims of an 8% advantage for current their narrow-body aircraft, and similar claims for the Max against neo, which are even more troubling since neither aircraft has yet completed design, and are relying on new engines that in the case of the PW GTF are just entering testing and the CFM Leap has not yet been built. While each manufacturer can claim performance improvements to their own aircraft with some credibility, based on their engineering analyses, accurate competitive comparisons are more difficult.
In our view, Boeing’s claims of an 8% advantage for Max over neo also appear to be ridiculous, and Boeing has been publicly challenged at conferences by industry experts. The challenges to “prove it” have been ignored by Boeing, who simply state that they “stand by their numbers” and refuse to disclose how, likely because they can’t.
Cutting through the hype, the bottom line is keeping customers from switching, and Boeing has lost a couple of key narrow body customers to Airbus in recent years, and needs to stop the bleeding. The shared order at American was a huge win for Airbus, and while Boeing also gained orders, the battleground that once tilted in their favor is now neutral. In recent years, Airbus A320 family has outsold the 737NG, and neo has about 1,500 orders to about 1,000 for Max. If the Boeing was really 8% better, Airbus wouldn’t be outselling it.
Similarly, the A380 continues to sell well, while the 747-8i has not been well received in the industry. Among current production very large jets, Airbus has an 86% market share, and a much larger backlog. We recently completed an independent economic analysis of very large airplanes, and examined in detail the Boeing claims of economic superiority for 747-8i over A380. We found it to be an apples to oranges comparison, particularly with respect to seat pitch and the number of seats. Boeing utilized higher density seating in its analysis, rather than similar seating plans from airlines operating the aircraft. Our independent analysis adjusted the number of seats by utilizing the same seat pitch, which yielded different results. We show an aircraft-mile advantage, as would be expected for the smaller 747-8i, but a seat-mile cost advantage for the larger A380, which has significantly more capacity. That is a far cry from the double digit advantage Boeing projects.
The Bottom Line:
This is much ado about nothing, as airline customers will do their own homework. We would find it hard to believe that Boeing would present exaggerated numbers to sophisticated customers, who would then in turn ask for performance guarantees and penalties for not meeting those projections. But PR battles and market image are important, and Boeing is trying to win over journalists and investors, if not customers, with their claims. While Airbus has point, the market has already spoken by giving them the lead in each of the categories in which Boeing is attacking, and that lead is likely to continue.
Apparently, it has gotten to the point that Airbus has had enough, and will counter-attack. It will be interesting to see how Boeing reacts as the nastiness factor in this battle has just increased by an order of magnitude.
This week, Airbus began expanding its testing program for its “Sharklets” to include the A319 in addition to the A320. With that announcement, Airbus provided some initial feedback regarding the testing completed so far on A320, which indicate that performance is running better than expected, particularly for long-range cruise, the flight regime in which winglets are most beneficial. Airbus initially projected a 3.5% fuel burn improvement on long-haul sectors, so beating that target implies performance in the 3.75%-4% range.
Of course, the key phrase in examining the economic benefits of winglets, or sharklets at Airbus, are the words long-haul. Winglets do not help fuel burn in short-haul operations nearly as much, as they provide little if any benefit in take-off and climb performance. If you are flying coast-to-coast, a 3.5% to 4% improvement in fuel burn can be expected – but on a 200 nautical mile east coast shuttle flight, a benefit of only 0.5% to 1% could be expected, given the limited time at cruise, which occurs at lower altitudes. While both Boeing and Airbus will advertise the maximum benefit achieved in one flight regime, it is important to compare those numbers to those for the actual flight regime being flown. Very few players operate narrow-body aircraft exclusively long-haul, and while winglets do have a benefit, that benefit is nowhere near the advertised numbers for short-haul operations.
We had a chance to spend time with an aerospace pioneer. Stanley Fishkind is a retired NASA Chief Engineer and CIO. Mr Fishkind spent twenty years at NASA. Prior to this he spent twenty years as an engineer working for Westinghouse Defense Corp, Johns Hopkins University, Israel’s Ministry of Defense and Operations Research. Forty years in aerospace covers a lot of ground. In the near one hour we got to listen to some amazing stories; how many people have you heard from who reversed engineered a SAM 6? Mr Fishkind also shares stories from his time at NASA during the Space Station and Shuttle programs.
Today Boeing announced it has finished defining, in broad terms, the 737 MAX, completing a major milestone in development known as ‘Firm Concept’. The bump at the nose wheel door is now gone. There are a number of tweaks that enable a 13% improvement in fuel burn. On the analyst call this was explained to mean that the 13% is an improvement on the earlier stated numbers and this means the MAX should be 19% more fuel efficient than the NG.
The fuel burn improvements come from the new CFM LEAP engines, the new tail cone and advanced winglets. CFM achieved architectural freeze in September, by freezing fan size and core size. The final LEAP design freeze is expected in April 2013. Other tweaks include an electronic bleed air system to be supplied by Honeywell and large-format flight deck displays, supplied by Rockwell Collins.
Boeing will add a transition line in Renton for the MAX in 2015 and this line is likely to be an additional production line if the company reaches beyond 42 per month. Boeing is planning for detailed design in mid-2013 and EIS in 2017.
An very interesting item that came up in the Q&A is that Boeing will go for amended type certification. They do not see need for re-certification and are working closely with the FAA and EASA. Of course this fits with the original idea of minimal changes from NG. But just how minimal is minimal now? Clearly Airbus would prefer to see the MAX be put through a re-certification program as this likely to move EIS out more to the right. But Boeing are masters at amended certifications (737, 747). Airbus is also watching scope creep on its neo for the same reason.
[Update: Boeing sent us a note to clarify the fuel burn numbers we mention above. “What was shared on the call yesterday is that the 737 MAX will be 13% more fuel-efficient than today’s most efficient Next-Generation 737s (the ones rolling out of the factory now). Chief Project Engineer Michael Teal said that you have to remember that we’ve continued to improve the NG since it was introduced into the market. These improvements add up to 6% fuel-burn improvement. So if you were to compare a 737 MAX to the first NGs that were delivered, the MAX would be 19% more efficient.”]