Archive For The “Aerospace” Category

The Meaningless Game of List Prices

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This week both major aircraft OEMs announced price increases.  Airbus raised its list prices by 2%, and Boeing raised its list prices 4%.   With average discounts already above 50% for most airline and leasing company customers, list prices have become meaningless in the industry, except for the announcements of deals at “list prices.”  The reality, however, is quite different than press releases, and margins are not what the PR folks at OEMs would like us to believe they are.

We’ve examined and answered some questions that industry observers might have regarding list prices.

Q:Does Airbus smaller price increase provide it any competitive advantage?
A: No, as airline campaigns are based on projected total economics over the lifetime of the aircraft including operating costs, maintenance costs, and a number of factors.  The  OEMs clearly know how competing aircraft perform, and have mastered the process of  pricing to the point of economic indifference.

Q: Do we need to assume higher discounts from Boeing vis-à-vis Airbus?
A: Pricing of aircraft is on a campaign by campaign basis, often taking queues from competitive behavior. Since nobody pays list price, the competitive market will determine pricing.  But if Boeing is inflating its list prices faster than Airbus, one would, ceteris paribus, expect slightly higher discounts from that artificial number from Boeing.

Q: Do list prices impact residual values of aircraft?
A: Typically, an increase in the list price of an aircraft would be adjusted for discounts by appraisers in their assessment of a market, so the list price provides a replacement cost baseline for new models. But replacement cost is only one factor in estimating the future value of an aircraft, which also needs to consider market demand and relative economics vis-à-vis competing aircraft.  The impact of an increase in list prices on estimates of future aircraft value are minimal if appraisers correctly apply an appropriate discount in their estimation process.

Q: Do increases in list prices result in higher aircraft prices?
A: The relative pricing for aircraft depends on the supply-demand balance in the marketplace for each type. For example, while Airbus has raised the list price of the A380 in recent years, the lack of demand has probably not led to higher sale prices, which are deeply discounted.  By contrast, the A321neo is in high demand, and is typically not discounted to quite the level of its competition, as its suitability for middle of the market roles and economic advantages provide it a leg-up in “pricing to the point of economic equivalence” against less efficient competition.

Q: Why are list prices so high and unrealistic?
A: The trend in discounting of aircraft has changed over the years, with typical discount levels increasing from the 25% range to the 50% range over the last three decades.  Whether as a result of over-estimating inflation, or increasing competitiveness between the major OEMs trying to gain or defend market shares, the gap between actual and list prices has been growing.

Q: Is there a chance that one of the OEMs might break the tradition and utilize a more realistic price for aircraft?
A: We view this as unlikely, as consumer behavior has been shaped around obtaining higher and higher discounts. A large discount makes the customer feel that he’s obtained a great deal, even though everyone gets a similar discount.  While illogical, we see no immediate change in this industry practice.

Q: How much should we now assume for discounts from list price?
A: For most models, about 50%, which discounts of 60% for models that are poor sellers, and in the 40%-50% range for hot sellers in high demand. For most order announcements of $X billion dollars at list prices, we would cut the number in half to provide a more realistic estimate.

Q: What other factors should one consider when thinking about list prices?
A: Aircraft OEMs are likely to follow the model established by the engine makers and bundle services with aircraft to the degree possible.  Engine makers prefer to sell their engines with “power by the hour” to ensure they earn aftermarket revenues.  Their pricing is based on a longer-term revenue stream and typically results in deeper discounts to win the multi-year stream of spares and services.  As aircraft OEMs follow the lead of the engine makers, we will likely see discounts rise even further than today’s levels.  While this will never quite reach razor and blade levels, we’ve seen engine deals, in certain competitions, with discounts into the 90% plus levels to secure the services contracts.  Factors such as services complicate pricing transparency.

The Bottom Line

Aircraft list prices are meaningless numbers and should be ignored.  With services growing in importance, pricing transparency will likely be further obscured as discount levels rise in the future, rendering them even more meaningless in the future.

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Emirates blinks

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[UPDATED]

The Airbus A380 has been under a cloud for some time.  The aircraft has many detractors who took this to mean the end was nigh.   Indeed, it was only a few days ago that Airbus sales guru John Leahy remarked: “If we can’t work out a deal with Emirates, there is no choice but to shut down the programme”.  Hopes for a deal with China also seemed to be going nowhere.   The last A380 order came in 2015 with zero in 2016 and 2017 saw two cancelations.  There was evidence that the doomsayers had a point.

Then today, as if by magic, Emirates announced an order.  Watch this interesting video from Bloomberg for context.

A deal between Emirates and Airbus has been cooking in the background for some time.   Emirates’ earliest A380s are going to be retired and the airline’s  appetite for traffic requires an A380 to replace an A380.  Take a look at this Tweet from an EU-based aviation journalist with a picture today on the left and another from the recent Dubai air show on the right.

Airbus and Emirates were close enough at the Dubai air show that a deal was potentially coming.  There must have been sticking points that kept it from going forward.

There are few details on the deal, other than 20 firm plus 16 options, deliveries from 2020 and a list price of $16bn.  The 2020 timeframe gives an idea when the airline starts to retire older models and needs replacements.  The real price is probably closer to 60% less than $16Bn.  To be clear, the definition of what these aircraft are going to be is not set.  Seating, for example, may be quite different from what we see at the airline today.

Today’s order provides Airbus with a pipeline for production to remain in place.  Airbus is committed to keeping the A380 line going.  That works for Airbus because the hope is that by 2020 more airlines will turn to the A380 as a solution for airport congestion and slot constraints.  Airbus has been talking about this and megacities for a while.  Eventually, the scenario will come true because cities don’t want to or can’t grow their airports.  With each slot going up in value, we have to see fewer small jets at big airports and more VLAs.  That just seems inevitable.  Airbus bought some time, even if it comes at a steep price.

For Emirates, this gives them a solution to ensure their growth is supported.  This airline is, by an order of magnitude, the largest A380 operator.  It is more dependent on the A380 than Airbus is.  In the battle of wits between the airline and Airbus, it was a safe bet the airline would capitulate.  But we do not see this as a weak play by Emirates.  The details of the deal will emerge that will show just how much of a deal it managed to secure.  We would be surprised to see these new orders end up being the A380plus. The airline’s president, Sir Tim Clark, has been adamant that he wants an A380neo.  He offered (as the video reminds us) to buy 200 of these if he could get them.

Emirates needs to drive down fuel burn and operating costs on the A380 to ensure they can stay below the A350-1000 and 777-9 that their competitors will deploy while being able to carry over 550 passengers.  Four engines are going to burn more fuel than a twin.  But those four engines work less hard than the two engines on a twin.  Amedeo’s Mark Lapidus explained this before as a point that many miss.  The engine maintenance costs between a super twin and an A380 are similar.

Which brings us to the next phase of today’s deal.  No engine was selected.  That means Airbus and Emirates are going to pressure Rolls-Royce and Engine Alliance to ensure the A380plus is even better than it was projected to be when announced in Paris last year.  Engine Alliance told us they offered Emirates their engine at cost on the last go-round when Emirates came buying.  As the only user of its GP7200, Engine Alliance needs an order even more than Airbus.  But Emirates selected the Rolls-Royce engine for their last A380 order.  The deal offered by Rolls-Royce must have been below their cost.  Buying orders is nothing new in this industry.  The hope is to make up profits from spares.   In 2016 we reported on that deal with some questions about how it went down.

Both engine makers are now going to have to rework their current products to derive even more fuel savings than they envisaged at Paris.  And they have to do this within the next two years.  The GP7200 could see extensive use of GE’s additive manufacturing experience help improve fuel burn.   Rolls-Royce may have some IP from their Trent XWB to push into the Trent 900.  We think the pressure is now off Airbus and squarely on the engine OEMs.

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Embraer’s 2017 O&D numbers

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Embraer announced their 2017 numbers, and following our process, we have built the history to provide context.  First, we look at orders.

2017 was a shade better than 2016 but still well shy of earlier years.  The data shows that the E175 remains the most popular model by far.  This demand is mainly driven by its popularity in the US regional market.  Embraer closed 2017 with a last minute order for 15 E175s which are listed as “Undisclosed”.  Of the remaining 63 orders, 59 are for the US market – of the 59, 45 are for Skywest.  The E175 falls within the US scope clause and US airlines are buying more of them.

Looking at the larger models, the following chart helps illustrate what has been happening.

As Embraer moved from regional jets into what has now been called the “Crossover Jet” market, they saw strong demand for their EJets.  The initial excitement was focused on the E190.   Embraer has told us during a visit that customers are so pleased with the E190, that the E190-E2 was not going to be changed much.  As the chart illustrates they got the E190 just right.  While Embraer has attracted orders for the E2 versions, the challenge is to persuade existing customers with EJets that are rather young, to upgrade.   Is the E2 significantly better? Yes.  But relatively low fuel costs and the overall efficiency of the EJets are such that it may be 2020 or after before we begin to see significant fleet upgrades from the older to newer models.

Embraer needs to focus on switching existing airlines from inefficient early A319s and 737s.  They also need to look for airlines that are growing beyond regional jets and turboprop sizes.  Wideroe was a perfect example of an ideal customer for the E2.  Airlink is another example of such an airline that moved into second-hand EJets.  Succesful operations at Airlink will almost certainly push them into the E2.

It would be appropriate to also express a thought on the potential Boeing deal.  Embraer is admired for their engineering and quality.  The company has developed a strong business, with a global customer base, not only for commercial but for business jets and military aircraft as well.  Embraer is a highly attractive aerospace company and it offers Boeing a lot of advantages.

Boeing has been looking at and cooperating with Embraer for many years and for good reason.  But the Brazilians have built their business on their own.  They are right to be proud of their achievements.  We say Brazilians because Brazilian taxpayers helped get Embraer to where it is today.  Embraer is a great example of state investment that paid off, generating thousands of skilled jobs and a wide local supply chain.  Embraer has brought increasing amounts of its work in-house, further increasing ROI for its owners.  The company has excellent IP in high-tech, including fly-by-wire systems that are state of the art.  It has also developed a first-rate customer support organization with global reach.

The net result is that Boeing needs Embraer more than Embraer needs Boeing.  Brazil is absolutely going to make any deal as expensive as it can and limit Boeing’s power over what may be the finest state investment in Brazil’s history.  Besides Brazil is no doubt aware of how Boeing’s earlier deal with de Havilland went.  Lots of promises were broken.  That “Golden Share” owned by the government is the ace in the hole.

Next, let’s look at deliveries.  The chart shows how Embraer has evolved in the commercial jet airliner business.

Embraer’s regional jets were popular and allowed the company to develop the industrial capacity and engineering to move into larger aircraft.  The switch was well executed, as Embraer rightly identified the “Crossover  Jet” market early on, just as older companies were leaving the industry.  Their EJet was timed well and was a clean sheet design that had everything airlines wanted.  An example here would be KLM, long a fan of Fokker.  Embraer had what KLM needed at the right time, and KLM has gone on to be Embraer’s best EU customer.

However, it is clear that today the E175 is the sweet spot for the EJet line.  Embraer has seen a steady rise in E175 deliveries to the US regional service.  While this is good news, the US scope clause continues to put a damper on any interest in the US with respect to the E175-E2.

The Bottom Line:

Embraer is running smoothly.  Its E2 flight test program is reported to be on time and under budget.  That is a really good news item when Boeing, Airbus, and Bombardier have each experienced major program delays.  The only cloud on the horizon is how quickly can the company identify E2 targets and get them signed up as they transition production to the new models.   With more than 1,400 EJets in service, there is a strong customer base to mine for future growth.

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Airbus 2017 O&D numbers

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In reviewing Airbus’ O&D numbers, it helps to have perspective.  We examined Airbus O&D data from 2000-2017 to provide a longer-term viewpoint.  The results are quite interesting.  Let’s begin with single-aisle orders, as shown in the chart below:

The order levels from 2014 onward are remarkable. Airbus’ sales team continued to build on record backlogs in 2017.  As we noted in our earlier review of Boeing’s year-end results, we expected 2017 to be a “down” year – but it certainly wasn’t.   Perhaps one of the most significant aspect is the substantial rise in A321 sales activity over the last seven years.  The chart shows this to good effect. While neither the Boeing MAX10 nor A321neo provide a true Boeing 757 replacement, the A321 comes much closer to the mark than its competitor and is dominating the high end of the narrow-body market.

The big story in 2014 was the A320neo and the success of this aircraft has continued since then.  While Boeing has seen its MAX orders dominated by the MAX8, Airbus has seen a more balanced interest in the A320neo and A321neo.  Airbus simply has a more effective narrow-body family on offer.

From another perspective, the following chart shows the explosive order tsunami for the neo family of aircraft from Airbus.  Even as the A319ceo and A320ceo slipped in orders, the A321ceo remained a strong player as the neo program gained momentum and production volume.

Airbus has been weaker than Boeing in the twin-aisle market.   The next chart illustrates how this has played out. For Airbus, its primary twin-aisle tool has been the A330.  Airbus tried to work with the A340, but even with a revised generation, a four-engined model was unsuccessful in our two-engine world.   The A380 has not been as successful as Airbus would have liked, and represents only a  small factor in their order numbers.  With their flagship being most expensive aircraft on the market and the seat-mile costs of competing aircraft close to its numbers, the aircraft has not sold well.  It appears that this aircraft was a decade before its time, which will occur as airport congestion increases over the next decade.  But by them, it will likely be too late.

Airbus twin-aisle orders slowed markedly after 2013.  It was in 2013 that Boeing had its first blowout sales year on the 787 after the earlier stumbles.   While the A330 soldiered on doing well as the 787 stumbled, by 2013 Boeing had stabilized the 787 program and found a strong market one the program matured.  Airbus had been working on a response in the A350XWB, but itself stumbled in bringing the aircraft to market on time.

This lack of clarity may be why Airbus twin-aisle orders softened after 2013.  Airbus offered the market a clear vision of what the A320neo program was going to be and the response speaks for itself.  There was a lack of clarity about the A350 which hurt orders.  However, 2013 was also a good year for Airbus as it was the period with the highest order rates for A350 (239).  Prior to 2013, the A350-800 had already lost momentum and the A350-1000 was getting spotty interest.  The A380 remained a niche aircraft despite herculean efforts to win orders.  Airbus’ sales team had the A330-300 which was their best seller and had to wait for the A330neo to see a jump in interest.  In the four years that A330-900 has been offered, it has already won 38% as many orders as the A330-300 which has been on sale for 12 years.  Still, Airbus cannot be pleased that the A330neo program hasn’t been a better seller.  The A330neo program flight test has been going well and perhaps this will rekindle interest from the many A330 customers wanting to update their aircraft.  EIS is expected in mid-year and this might bring in fresh orders.

The following chart provides a different perspective on Airbus twin-aisle order history.  Since the recent peak in 2013, sales have been less than what Airbus had hoped.

Where is Airbus seeing its orders come from? Asia is the fastest growing market, as one would expect.   Airbus has been doing well in Asia for several years.  But Airbus also does well in North America.  Despite all the focus on the Middle East, we can see that it is not a high volume market for Airbus, focusing on twin-aisle aircraft.  However, Emirates is critical to the A380 program as it is the aircraft’s largest operator and one that will essentially dictate the future of the program.

Single-aisle deliveries have not grown as rapidly as orders, as Airbus has been adding incremental capacity in several steps in recent years, and plans additional growth in the monthly production rate to continue through 2020. The A320 continues to be the key program in single aisles, as the A319 fell out of favor some time ago.  The A321 is proving to be increasingly popular, resulting in steady upsizing in capacity.  The case for potentially stretching the A321 on the table and could capture much of the market Boeing is planning to attack with its new middle-market small twin-aisle aircraft.

Looking at twin-aisle deliveries, several items stand out.  The first is Airbus dependence on the A330 is apparent.  The A350 is surging in deliveries as production is slowly being increased.  Airbus got the A350 right, especially the -900.   Larger capacity will be provided by A350-1000.  The A330neo, especially the -900 provide coverage for the smaller end of the market, and will compete with 787 models, trading capital cost against efficiency.

The A380 is on watch as its future is, in our view, subject to a battle of wills between Emirates and Airbus.  The idea of offering China part of the program has not yet elicited a positive response.  Even should Emirates order additional aircraft, the volume of A380s will likely remain small, and the Airbus twin-aisle segment will be dominated by the A350 program, with support from the A330neo.

If Airbus is able to increase interest in the A330-800neo and also stretch the A321, they will effectively bracket the Boeing NMA.  Such a strategic move by Airbus could make the NMA business case considerably tougher at Boeing.

Next looking at where Airbus twin-aisle deliveries go, the chart shows how important Asia is.  Airbus has three primary markets, North America, the EU and Asia.  Note the Middle East is a rather small part of the business, despite the attention it attracts.

Looking at deliveries,the following chart shows that Airbus is more concentrated in Asian deliveries than Boeing.  Airbus has nearly half its deliveries in Asia compared to 27% for Boeing.

Bottom Line

Airbus has its single-aisle programs humming both in terms of orders and deliveries.  It was first mover with the neo, and has moved ahead of Boeing and also managed to acquire the Bombardier C Series program.  With the C Series to become part of the Airbus arsenal, Airbus will be very strong from 100 to 250 seats, with multiple offerings.  The potential for a larger A322neo would all but lock up the high end of the narrow-body market.

In the twin-aisle segment, Airbus has two offerings in the A350 and A330neo.  But this combination is not optimal to fend off the Boeing 787 and 777X. The gap between the A350-1000 and A380 is quite large, and Airbus lacks a direct competitor to the 777-X models in the 400 seat range. The future of the A380 remains uncertain and dependent on Emirates.

Airbus is strong at the low end of the market, and has effectively bracketed Boeing’s 787-8 and potential 797/NMA in the mid-range with the A321, potential A322, and A330-800.  But it is unclear if the A350-900 and -1000 will become the favored solution for airlines wanting to replace their existing 777s. vis-a-vis the 787-9, 787-10, and 777-X models from Boeing, which has the lead in the twin-aisle segment.

With more orders than Boeing for the last several years, Airbus is slowly increasing production and should pass Boeing for leadership in deliveries by 2020.  Airbus appears well positioned for the future, and has the capital to launch one or two new programs quickly.  Boeing, with the 787 overhang, 777-X, and potential 797, is not in a position to launch another new program in the near future.  As customers tend to gravitate to newer and more efficient models, the question is where and when Airbus plays “leapfrog” with a new program.  Stay tuned.

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Doing business in Iran is taking more time

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We asked an official at Iran Aseman Airlines about expectations regarding their fleet renewal, which has slowed.

  • How long do you think it will take for OFAC to approve the deal?
    It was expected 9 months after signing MOA but it seems we need to be more patient since there is no firm date yet. It will damage our planning to loan the money from available sources since they cannot keep the credit forever.
  • Is your sense that the Trump administration is a hurdle or slowing things down?
    He is slowing, there is no OFAC issuance after Trump. The biggest one was released during last month of former government which was issued for Iran Air deal. There is not even an OFAC license for Documents updating services after Trump. I think this condition is making more difficulties since there is no firm plan to follow up. If they will reject or issue, we will make our own decision to follow.
  • What made your airline select the MAX over the neo?
    Due to our successful experience by operating Boeings, spares are more and cheaper in the market, the aircraft is easier to maintain. The Boeing sales team approach to Aseman was really straight and friendly. They taught us all facts and figures about Boeing Max with no exaggeration. They have been in very regular contact and communication with us to learn about Boeing and its services. We had many expertise meetings with them to learn what the Boeing constraints are in performance and what we have to do to make a successful business model to operate. When we learned we selected precisely.
  • You are quoted as saying Boeing will fund 95% of the deal – how will they do this?  Is it a lease through Boeing Capital?  Is the deal in US$?
    Yes Boeing is supporting us to find financiers for PDP and delivery payment, however, we shall do it by ourselves as well. Finance will be followed with respect to all rules, guarantee, and regulations. So there are no extra services. The deal is in US$.

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Boeing’s MAX7 – slim prospects

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This aircraft is at the center of a serious trade allegation by Boeing against Bombardier and is being viewed by many as, at best, a niche aircraft.  What are the facts that might us to better understand the situation and competitive dynamics?

First let’s look at the MAX7s predecessor, the 737-700.  The following chart is based on Boeing delivery data. Deliveries matter more than orders because airlines and leasing companies may order one model, but another may be delivered.   Often, leasing companies will reserve the smallest model, with the right to move upward, and pay a smaller deposit as a negotiating position.  Delivery data shows us what is really happening.

The chart below shows that Boeing has successfully replaced each generation of 737s with successor models.  The 737-700 had a better run than earlier models.  At its 1997 entry into service, it represented 2%  of 737 deliveries which reached a high point in 2004 at 56%.  But that is 13 years ago.  The 737-700 was eclipsed by the far more attractive -800, which became the best selling 737 model.  In 2017, 78% of 737 deliveries were -800 variants.  At the same time, 737-700 deliveries slowed to a trickle, with very few deliveries in recent years.  It is notable that in each generation the best seller has been larger than the previous generation.  The -800 and MAX8, each larger than the MAX7, lead the current sales statistics.

The next table shows where the 700 is headed, but does this give us any clues as to the MAX7?  The current MAX7 is 12 seats larger than the original MAX7, that was the same size as the -700.  The aircraft was not selling well, and Boeing increased seating capacity to improve its relative economics against the competing A319neo, C Series, and E195-E2.  Even with the increase in capacity, the larger MAX7 has not sold well and appears to be, at best, a niche airplane.

Based on Boeing’s delivery data the -700 has been a success.  The largest operator of the model is Southwest Airlines, which took delivery of 362 from Boeing.   The table lists the top 14 737-700 customers for new deliveries from Boeing.  These customers account for 75% of 737-700 new deliveries by Boeing.

We think that the future of the MAX7 is limited, and an inkling of its future can be distilled from the next table and the MAX7 order book.  Southwest Airlines is the prime example.  The table shows the fleet at Southwest, by model, over the last 17 years.  While Southwest is a 737-only airline, the mix of aircraft and their average size is increasing as the airline has now retired early 737-300s and -500s in favor of larger -800s and MAX8s.  This is how Southwest’s fleet looked in 3Q17.  The airline retired its last 737-300s in 2017.

It is notable that while Southwest took factory delivery of 362 737-700s as new aircraft, they are flying many more than that.  The other aircraft came from the second-hand market, as the airline was able to secure attractive deals because the -700 has been falling out of favor vis-a-vis the -800 and they were much better priced than buying new aircraft.

The 737-700 continues to dominate Southwest’s fleet.  But the -800 and the MAX8 are spurring fleet growth.   Is it not a surprise that Southwest has deferred the MAX7 and converted some orders to MAX8, given their need for low seat-mile costs to remain economically competitive.

Based on the data it seems to us that:

  • The MAX7s ordered are unlikely to be delivered to Southwest Airlines.
    • Southwest has deferred 23 aircraft for later delivery, which we believe will be converted to MAX8s
    • Meanwhile, by 2023, the deferral date, any potential Embraer deal with Boeing would be securely in place.
  • With its biggest MAX7 target customer effectively out of the market, Boeing will have a tougher time convincing others to go for the MAX7.
  • However, it is clear that Southwest sees the need for a ~140 seat aircraft because it has added to its -700 fleet, even though it went to the second-hand market.
  • This means when it comes time to replace the -700s it will have to consider the E2 and CS or stick with larger Boeing models.
    • The last 737-300s and 737-500s were ~25 years old when retired.
    • Southwest’s oldest -700 are about four years away from that vintage.
    • Will up-gauging aircraft continue, or will the MAX7 actually find a niche with 737 operators, despite superior economics from the E2 or C Series?

We reached out to Southwest with a question about the 140-seat market and got this response.  “The 140-150 seat market is very important to Southwest Airlines, and we expect it to be for the foreseeable future. The Boeing 737-700 represents approximately 70 percent of our fleet”.

The Bottom Line

The MAX7 will clearly not be a best seller or match the success of the -700.  As a shrink of the MAX8, the model around which the MAX series was optimized, it will suffer the same fate as the 737-600, which was a shrink of the -700, the model around which the NG series was optimized.  Smaller models don’t sell well.  Effectively, the MAX7 is economically obsolete when compared to its competitors. (As is the A319neo)

With respect to the trade case, Boeing has limited its complaint to the 100-150 seat segment.  Boeing has been successful with their MAX line, with orders for more than 4,000 aircraft. But about 85% of those orders are for the MAX8 which has 162 seats and is outside of the trade case segment.  By cutting the trade case at 150 seats, and ignoring the successful 162 seat MAX8, Boeing focused their claim of “economic loss” to a segment in which they lack a competitive product. Boeing also chose a peculiar range limit for the case, but that is beyond the scope of this article.

The MAX7 and A319neo will be the next generation’s equivalent to the 737-600 or A318 – shrink models of larger aircraft that carry too much weight for their size and cannot effectively compete with aircraft specifically designed for that market segment.  We don’t expect many 737 MAX7 deliveries over the life of the program.

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