Archive For The “Aircraft” Category
In another periodic A320neo update, we have some new data. We used FlightAware as our data source.
Starting off with the big picture. The program has been dogged with engine issues. The chart shows where the problem has been focused – Pratt & Whitney. Pratt & Whitney has repeatedly said they have worked through their supply chain issues and engine fixes. It would seem that the tough summer for Airbus and Pratt are moving towards a much better fall and winter. Meanwhile, the data shows the CFM engine allowed the fleet to continue to build flight hours.
Next, let’s look at the fleet size in 2017. In January the fleet was close to even by engine types. By November Airbus had delivered a lot of aircraft, 126 to be exact. As we would expect, the LEAP-powered fleet grew faster than the GTF-powered fleet. The summer engine blues at Pratt & Whitney were surely miserable. However, post-summer, the GTF-powered fleet grow by ten each month from September. The LEAP-powered fleet started to grow by double digits in November.
When we look at flight hours by aircraft an interesting picture emerges. The GTF-powered fleet saw a sharp rise in average hours per aircraft early in the year. But then engine fixes became necessary, driving down hours until September. The CFM-powered fleet saw a more steady monthly utilization between 120 and 150 hours per aircraft. We find the area in the yellow circle especially interesting because this seems to support the more positive note coming from Airbus about the GTF and also supports Pratts’s contention that they have the worst behind them.
Next let’s take a look at the breakdown by airlines. First the GTF-powered fleet. There are three pricipal airlines that drive the flight hours, and two of those are in India. Pratt has pointed out that this is a tough environment for the engine, what with pollution and dust.
As a support for this contention, we can look at the third biggest GTF-powered fleet at Lufthansa. The combination of a cleaner environment (and the backup from the superb Lufthansa Technik) ensured a very smooth operation. Lufthansa is getting more hours per airframe than most airlines. So the combination of the GTF and A320neo can work as promised.
Next let’s look at the LEAP-powered fleet. First note how many more operators there are than for the GTF-powered fleet. Airbus and CFM have six principal customers, twice that of the GTF fleet. So the monthly hour accumulation will be faster for the LEAP-powered fleet. The most active of the six are SAS, Pegasus and Frontier. To CFM’s credit, there have been few interruptions. (Last week there were 31 separate occasions a Leap powered neo was down for at least one day)
In conclusion we think the A320neo program may have seen the worst of the engine issues, especially with the GTF. It appears that, looking at the most recent data, the A320neo fleet is working hard and delivering on its promise.
We took a look at deals for the year through November and found a few tidbits that are interesting. Please note these are transactions – new and previously owned aircraft are included.
November saw the highest monthly number of deals to date. What were deals? Here are the deals for the big four OEMs.
Looking at the top twenty most active airlines for the year, this is what we find. There were 2,906 deals through November. Bankruptcies play a role obviously. But there are some surprises here as some carriers tweaked fleets.
The A380 is somewhat of an enigma. While it is the solution to congested airports, and is well preferred by passengers in survey after survey, it has not sold particularly well. Only one carrier, Emirates, seems to understand how to make money with the A380, which is the mainstay of its Dubai connecting hub for long-haul international travel.
Introduced 10 years ago, some of the first A380s from SIA are coming off-lease are now being replaced with new models. With residual values yet to be set once the first retired A380s are traded. A used A380 could be quite attractive to carriers that favor early availability coupled with flexible financing. (perhaps those folks in Atlanta).
Plus the A380 remains very attractive as a slot consolidation aircraft. For carriers with multiple frequencies into congested airports like London’s Heathrow, the freeing of a slot enabling service to a new airport through frequency consolidation can be a financial windfall. The key question is to what degree frequency and time of service impact demand. Heathrow also provides a special attraction for the A380. The airport’s landing charges now have a noise component. Because the A380 is so quiet, it is cheaper to land at Heathrow than a 777.
Another airport that uses noise levels in its landing fees is Narita, where the A380 shows the same benefit over the 777. Today it’s clear that airports have to deal with more than just terminal limitations or runway slot constraints to maintain or expand operations. Local community noise tolerance is becoming increasingly important. Being a quiet neighbour is now a key requirement to getting the political allies for the future development.
Emirates has taken 100 A380s over the last decade, an average of 10 per year. If we assume they will be replaced after 12-15 years, and replaced with newer A380s, the only aircraft with the same capacity, then Airbus could expect orders for 10 aircraft annually from 2020-2030. That is certainly adequate to keep the production line humming.
The industry expected Emirates and Airbus to announce agreement on a new order for 36 A380s at Dubai that did not materialize. Publicly, Emirates has stated that it wants a commitment from Airbus to keep the A380 line open for another 10-15 years. In addition, Emirates has rejected the A380Plus concept from Airbus, which is detailed here.
Is there something more going on behind the scenes? We believe so. Emirates would like an A380neo, as more modern engines would restore the once-significant seat-mile costs advantage for the aircraft that is now evaporating as new technology aircraft enter the market. Airbus is finding it difficult to justify, even though they, as we, believe increasing airport traffic will make A380 sized aircraft essential at major hubs. However, in Airbus’ defence, they o not have the same step change in engine technologies that allowed for its other neo programs. Both the Trent and GP7200 on the A380 today are relatively new engines. Moreover both engines have seen upgrades to offer better economics. Then there are airframe improvements that need to be considered – and the A380plus is a step in that direction. Airbus is waiting for the right critical mass of technologies to emerge that will enable the 15%+ improvements that a neo require. Emirates may be pushing, but they have to acknowledge that there are no engines ready. Rolls-Royce might have a solution with fan engine but that is going to be ready by 2025.
Airbus knows that airlines don’t like risk and behave in risk averse ways. The two recent C Series orders, coming soon after the Airbus interest in the program, illustrate that. With Airbus now behind the program, several risks, including long-term customer support, have been eliminated, clearing the way for purchases that likely would not have happened as quickly without that assurance.
Airlines don’t like to take the risk of filling large airplanes. Every week has a Tuesday, and every year has a February in which demand will not be as robust as other periods. Many airlines prefer an aircraft they can fill every day, even if they cannot accommodate some traffic, so if slots are available, they would prefer to fly aircraft they know they can fill rather than one that introduces uncertainty. Since Airbus hasn’t been successful at selling the A380 in large numbers, what market conditions would change to enable larger sales of the A380neo? Amedeo has some ideas it is working on that address this challenge.
Another answer is constraints. While megacities are growing, and traffic is growing faster than airport capacity, route dispersion is fragmenting the “hub and spoke” models in Europe and the US. In the early 1960s, flying to Europe meant transferring at Idlewild in NY. Today, many major cities have non-stop service across the pond to multiple destinations. In Europe, even Lufthansa splits its connecting traffic and intercontinental routes between Frankfurt and Munich, which helps eliminate congestion at Frankfurt, but also the need for an A380, since A350s from Munich take some of the traffic.
However the fragmentation thesis is still developing. Among the A380 operators only one airline has two hubs in their home markets. This means those A380 operators are able to exploit and focus the aircraft’s particular capabilities. Which means that connecting megacities will invaribly require VLA aircraft because, as we see across the globe, airport growth is protested. Does congestion impact? The answer is yes, because traffic growth is outstripping airport growth and capacity.
Consequently the absence of a deal at the Dubai show between Airbus and Emirates is not the end of the story. Emirates does not want to drive Airbus into a sub-optimal decision regarding the future of the program. Both firms are tied to each other around the A380. Besides the reason that the likes of BA, Lufthansa and Air France are slowing down their A380 interest is because Emirates has been taking more traffic from them, especially between Asia and Europe. That alone suggests that Emirates will keep acquiring A380s, especially as its older models are retired. Just like Singapore Airlines.
Emirates, as is customary, places orders and makes headlines at the Dubai Air Show. This year is no exception, as the carrier has ordered 40 Boeing 787-10s, and is demanding a production guarantee for the next decade from Airbus prior to ordering additional A380s.
Positive News for Boeing:
The firm order for 40 787-10s from Emirates is good news for Boeing, who secure another major customer for this airframe. While this order has long been anticipated, the finalization cements another type in the Emirates fleet for Boeing, who have already secured a number of orders for the 777-8 and 777-9 from EK. Each of these aircraft will be utilized in missions for which they are optimized.
The 787-10 order is a blow to Airbus, as an order for 70 A350s was cancelled in 2014. Boeing has now won that competition, as the 787 and A350 are similarly sized. In an interview, Tim Clark indicated that over the ranges Emirates planned to utilize the aircraft, the 787-10 had slightly better economics than the A350 in their estimation, although Airbus might disagree. While the 787-10 has a range that is 1,400nm shorter than the A350-900, it has a smaller wing and is lighter, providing more efficiency for shorter-haul routes on which Emirates plans to utilize the aircraft.
Mixed News for Airbus
Airbus was hoping to announce an order for 36 additional A380 aircraft to Emirates. But negotiations are still underway, with Emirates demanding that Airbus continue production of the aircraft for another 10-15 years.
At current rates of less than 1 per month, the A380 order would provide another 4 years of backlog that should enable Airbus to easily continue the aircraft through 2027. One would think a 10 year guarantee would be quite easy to achieve.
But the backlog for the A380 is somewhat deceiving, as a number of order have been deferred substantially and remain at risk of cancellation over the longer-term. Airbus is counting on increasing airport and traffic congestion to fuel additional demand for the A380, but this hasn’t happened yet.
While the growth of traffic at higher rates than infrastructure in China and other areas is continuing, the question is whether this will become critical enough over the next decade to generate orders for the A380. Because smaller aircraft now offer nearly equivalent seat-mile economics with lower aircraft mile costs, the offer less risk to an airline.
If an airline can fill an A380, it is a marvelous and profitable aircraft. But most airlines are quite risk-averse and likely won’t order the A380 until they have little choice due to slot and gate constraints that make large aircraft necessary. It does make sense to consolidate frequencies at London Heathrow and utilize the additional slots for other routes, as infrastructure costs are escalating dramatically. But there aren’t that many airports with Heathrow economics – yet.
It is in the interest of both Airbus and Emirates to come to an agreement on A380 production, and we expect that a deal will get done. But whether that can be done during the Dubai Air Show is another question entirely. Stay tuned, as we expect an agreement will be reached.
The Bottom Line:
Boeing has scored a major victory for the 787-10 over the A350XWB at Emirates. Given that the 787-10 order is for 40, while the cancellation of the A350XWB was for 70 aircraft, there may be further growth potential for Boeing at Emirates.
The influence Emirates wields over the A380 program with Airbus will be tested, as Tim Clark wants 10-15 years of continuing production. Airbus would prefer not to make a long-term commitment to an aircraft that it may not be able to sell a decade from now without an expensive upgrade. Such an upgrade doesn’t appear to make economic sense given the lack of demand for the A380 from customers other than Emirates. While it is in the interest of both Emirates and Airbus to reach an agreement, both parties will need to compromise.