Archive For The “Douglas” Category

Pondering the US DoC tariff on Bombardier

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If one limits the active airline passenger fleet In the United States to between 100-150 seats, then as of 2Q17 there were 1,671 aircraft.  Of these, 699 were Airbus, 794 were Boeing and 178 were Douglas.  Please bear in mind that even as we are in the 3Q17, the data is for the previous quarter.

Breaking this down further, the top eight airlines account for 93% of the fleet. The table lists the top ten, and the yellow highlights are airlines that have publicly opposed Boeing’s complaints to the DoC.  We should highlight at least one more, but cannot since this was not made public.

Looking at the market by model, we see the following.

Of the fleet, the Douglas aircraft are oldest.  Boeing is next.  Airbus has the youngest fleet.  Boeing’s tension about the sub-150 seat market is understandable.

Now take a look at this. This was Delta’s fleet at the end of 2Q17.  Is there any surprise they are moving on the CS100 and have an interest in the CS300?  Delta is clearly not enamored with the 737-700 or the A319.  Even its A320s are aging (ex-Northwest) and Delta has shown interest in the A321 and the 737-900ER which are outside this segment.  But there are 115 Douglas aircraft that are quickly approaching their appointment with the desert. Neither Airbus or Boeing offer what Delta wanted.

As Delta’s CEO said this morning on their earnings call:  “I think my words were very clear – we will not pay the tariff that are being discussed or debated. First of all, those tariffs are preliminary, as I mentioned. In our opinion, it is very difficult for Boeing or any other US manufacturer to claim harm with a product we purchased that they did not offer and that they don’t produce. In fact, they ended the production of the 717, which would be the closest, ten years ago. When we went through the RFP to select the C Series, Boeing competed very hard for the order. Except they were competing with not their own product but a Brazilian product, an Embraer product, that wasn’t even new, it was used E190’s, ironically from all places, from Canada. So, as you look through this and try to see how exactly a harm case is going to be developed, particularly to justify the type of tariffs that are being discussed, to us it’s unrealistic, a bit nonsensical. We’re working closely with our partners at Bombardier.”

In summary, we can understand Boeing’s concern about the sub-150 seat segment.  They have lost their traditional leadership role. Airbus has won business and its fleet is younger so less likely to be replaced for a while.  The Douglas fleet, a natural for Boeing to win, is not attracting Boeing orders.  Bombardier is a threat to Boeing and Airbus in the sub-150 seat segment.  So is Embraer, which will be coming into the 100-150 seat segment within 18 months.

The MAX7 (and A319neo) have not attracted a lot of interest. But the C Series and E2 have and will continue to do so.  In the US market, suing Bombardier does not look like winning Boeing any MAX7 orders. Southwest’s MAX deliveries will be MAX8s for a while still.  We wonder if they will ever take a MAX7.  American does not look like a MAX7 buyer, nor does United which changed its last 737-700 order.  Delta, we are quite certain, will not buy the MAX7.  In short, Ray Conners’ concern is a reality already.

In the US market, suing Bombardier does not look like winning Boeing any MAX7 orders. Southwest’s MAX deliveries will be MAX8s for a while still.  Southwest has 30 MAX7s on order compared to 170 MAX8s. We wonder if they will ever take a MAX7.  American does not look like a MAX7 buyer, nor does United which changed its last 737-700 order.  Delta, we are quite certain, will not order the MAX7.  In short, Ray Conners’ concern is the reality already.  The US market does not look like MAX7 friendly territory.

All the noise at the DoC claiming damage and a threat from Bombardier is too late.  Boeing lost the sub-150 seat battle before the Delta order for C Series.

Airbus has a strong portfolio over 150 seats and does not seem worried about Bombardier or Embraer.  Boeing also has a strong portfolio over 150 seats.  So what, exactly, is all the fuss about?  Boeing’s concern about the sub-150 seat segment is understandable (they are losing some business there) but seemingly irrational (they are winning big above 150 seats).

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Premium #342 – Aircraft transactions through July

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Premium – A Fleet Review of Air France/KLM

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Air France and KLM merged in 2004.  The joint company has hubs in Amsterdam and Paris.  Because of their long histories in aviation, these two airlines have a reach to every corner of the globe.  Both companies have numerous subsidiaries that cover regional and cargo services.  In this analysis, we only looked at the mainline passenger fleets.

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Russia’s aviation industry gets a haircut

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[UPDATED]

One of the primary reasons the Russia state decided to merge its various aerospace companies was to ensure they did not spread national resources too thin.  After the fall of the Soviet Union, money became real and budgets became serious.  UAC became a joint stock company in 2006 with the state owning just over 80%.  UAC is now the owner of legendary names like Ilyushin, Irkut, Sukhoi, Tupolev, and Yakovlev. In fact, UAC now also owns Voronezh Aircraft Production Association, Beriev, Irkut, Mikoyan, Aviastar-SP, KNAAPO and TAPO.  This combine effectively covers the entire range of aerospace.

A report from Russia explains what has happened with the UAC budget.  The budget cut is only part of the problem – The state expects that the industry (essentially UAC) will produce 457 fixed-wing aircraft including 296 commercial airliners plus 154 military, cargo, and specialized aircraft, and seven GA aircraft.  Under the old budget, UAC was expected to deliver 298 civilian and military airframes through 2025.  This will be very difficult to achieve.  But, of course, there’s more. The share of Russian-made aircraft in the country’s major airlines is also targeted –  the state wants this figure to reach 27.2% by 2025.  But as the following chart shows, that will be tough.

The smaller satellite countries of the CIS are more dependent on Russia and their airline fleets reflect this.  So the big nut to crack will be Russia itself, where 32% of the fleet is from Western OEMs.  As the next table illustrates, Russia has some very old aircraft.  The aircraft listed account for 83% of the listed active fleet. The only Russian aircraft under 20 years old are the SSJs and IL-96s.

If we look at the Russian fleet of Russian-made active airline passenger aircraft,  we can see why the Russian state feels they can set the higher target for Russian-made aircraft.  We can also see why the Russian and Chinese are interested in developing the C929 for the larger seat capacity segment.

If we consider the active Russian airline passenger fleet of Western aircraft we see the following.  At the top end, Russia does not have an option to replace Western aircraft.  There is another gap between what the SSJ and MC-21 offer.  Does the SSJ get a stretch to close the gap? We would expect so. Then in the turboprop arena, there is also a gap.  Formerly this could have been handily done by deploying Antonov aircraft, but those days are gone.  UAC contacted us to point out that they have a turboprop solution with the IL-114-300, which seats up to 60 passengers.

If Russia can use the SSJ, MC-21, and C929 as shown, they would be able to reduce the Western sourced aircraft in the Russian fleet to 23%.  This fits comfortably inside the goal set by the latest state plan.  However to meet this plan UAC will probably need more, not less capital.  A stretched SSJ will require R&D funding.  The MC-21 becomes a crucial part of the replacement of Western aircraft but it also means the full MC-21 family needs to be deployed.  This will require funding for development.  Then there is the C929 where R&D is shared with China.  Even with a partner, Russia will need to provide UAC with its share of this cost.

Can the Russian state do anything else to support UAC’s ability to reach its targets? Yes – Russian needs to set about replacing very old Russian-made aircraft with products from UAC immediately.   What else could support this effort?  The state can lean on its banking and finance sectors to provide UAC with competitive leasing options for export customers.   These financial sources could own the aircraft and lease them to customers outside Russia.  With UAC’s ruble costs covered in local currency, UAC does not have to bear the financial risk.  The finance sector can manage this risk and effectively profit from financing the exports.

But to get all these parts of the aerospace sector functioning in concert requires the state make the first step.  And step #1 is not to cut the financing without offering a quid pro quo.  After all, few sectors of the Russian economy are better placed to reach the manufacturing export goal of 40%.  Supporting UAC helps it to achieve the goals set.

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Delta’s 787 decision

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Yesterday’s 787 decision by Delta was not unexpected.  The original 787 order was from Northwest Airlines. Once Northwest merged with Delta, it was Delta’s fleet plan that took precedence.

As of 3Q16 Delta’s fleet looked like this.  Boeing represented 58% of the fleet, so Delta remains a major Boeing customer.

But taking a deeper look at Delta’s fleet we can see the impact of the Northwest merger.  Northwest was not an airline with a modern fleet. It was famous for keeping 30+ year old DC-9s in service.  In the single aisle category one can see the merger immediately aged Delta’s fleet.  As the older aircraft have been retired and newer Boeing models acquired, the fleet average age has started to fall even as the fleet has seen strong growth. (more…)

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Premium #301 – The Parked Fleet

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