Archive For The “Northwest” Category
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).
Airlines have embraced ancillary fees as a way to make up for low fares. One of those fees was the “Reservation Cancellation/Change Fee”. Air travel is an activity that comes with many disruptive factors, as anyone can testify. The US airlines embraced a series of fees. Take a look at how popular this fee has become. (more…)
As Pratt & Whitney’s new engine starts to operate it is interesting to review its long gestation. The start of the GTF goes far back to an engine few recall, named the “SuperFan”. This engine was sold to Airbus for the first A340. It is rare to find an image of the original SuperFan engine. One of the original program’s members shared this drawing with us.
Early and critical work done by Howard Stryker and the IAE team on the SuperFan in the mid-80’s should not be forgotten.
In the early 1980s Pratt & Whitney and Rolls-Royce entered into a joint venture, named International Aero Engines (IAE). The goal of this JV was to develop an all new, mid-size, turbofan aero-engine. The JV included Pratt & Whitney, Rolls-Royce, a consortium of Japanese companies, Fiat of Italy and MTU of Germany. The headquarters of the new company was located in Pratt’s backyard, East Hartford, CT. The Engineering Department was located in Derby, England, home of Rolls-Royce.
The new engine was named the V2500 Turbofan, and offered 24,000lbs. to 30,000 lbs. of thrust. It was to feature both improved fuel consumption and low noise, using the best technologies of both principals. Rolls was responsible for the “cold section” and Pratt the “hot section”. It’s initial target airplane was the forthcoming Airbus A320.
The Pratt & Whitney portion of the team, located at Derby, consisted of fifteen engineers with various specialties, including design and performance. Once the Pratt engineering team was formed and operating, they frequently traveled to Airbus.
On one of these visits Howard Stryker, IAE’s Chief of Performance, was approached by a senior Airbus executive and asked whether, in the future, it would be feasible to improve the fuel consumption of turbofan engines by a large amount— say, up to 15%?
The reasoning behind the question was that Airbus’ design studies for a long range, four engine airplane (to become the A340), indicated that the wing’s fuel storage volume would be marginal for long range operation. That would put a premium on engine fuel burn efficiency. Stryker contacted the Pratt & Whitney Advanced Design Group in East Hartford for their experience and ideas.
Engine fuel efficiency is a high priority item in all aero engine designs. It is affected not only by component efficiencies, but by engine overall pressure ratio, maximum operating temperature, and bypass ratio.
Pratt had been doing studies for other airplane programs and had looked at the possibility of using a reduction gear between the fan and low turbine in order to permit use of a larger diameter fan and thus a higher bypass ratio. Pratt was asked to look at the feasibility of adopting such a system to the V2500 core engine.
After a few weeks of conceptual studies, Pratt and IAE decided that the results indicated that a more detailed study should be undertaken. As a result, the IAE V2500 “SuperFan” Project Team was formed. It was located offsite in Glastonbury CT, near IAE’s home in East Hartford. A team of twenty design and analytical engineers was led by Stryker as Project Manager.
The team spent several months of preliminary design of the SuperFan, including performance, weight, installation concepts and coordination with both Airbus and Boeing. After several months of study, it was concluded that, from an engineering standpoint, the SuperFan should be made an active IAE Program.
Ongoing discussions with the OEMs resulted in a Memorandum of Understanding for installation on the A340 in December 1986, The A340 was configured with the IAE SuperFan as the launch engine and offered to launch customer Lufthansa and others, like Royal Jordanian.
There was a problem, however, the active IAE SuperFan Program directly competed with other engine programs at both Pratt & Whitney and Rolls-Royce. In Pratt’s case it would be with the all-new PW4000. Moreover, the V2500 turbofan development program was experiencing problems and required redesign of the initial configuration. The cold section had problems with titanium on titanium and required significant redesign. This was the first variable HPC stator design for Rolls-Royce and the use of titanium rub strips in the HPC resulted in compressor failures during the development program. Rolls-Royce introduced a new lower pressure ratio HPC that coupled with a revised LPC became build of material.
As a result, at a joint meeting of Pratt and Rolls, it was decided not to fund IAE’s SuperFan Program. This decision was ill-timed because Airbus had already committed to the SuperFan and had been successfully pitching the A340 to customers. Bear in mind, Airbus had modified the A340 design for the SuperFan. In 1986, Airbus offered the SuperFan as primary engine. First deliveries were slated for 1992 while McDonnell Douglas and CFM cast doubt on the SuperFan. Airbus had a lot of its pride riding on this engine. Airbus had secured orders for 15+15 from Lufthansa and 20 from Northwest Airlines for their A340.
In 1987 the SuperFan was indefinitely delayed. P&W and Rolls-Royce contended that the SuperFan was no more than an engineering study and that they never committed to develop this engine. Airbus, understandably, was annoyed in extremis by this. The memory of this decision remains fresh with senior people at Airbus. Airbus scrambled to find a replacement and turned to GE for an engine for the A340, and the CFM56 was selected. Airbus then had to add 2.6 meters to the A340 wingspan to ensure more fuel capacity.
The Glastonbury SuperFan Engineering team was disbanded. Team members returned to their respective companies. One would think the awful story ends there.
But limited studies of the concept continued at Pratt. The reduction gear, in particular, was a key element in the concept and a development team was formed for design and rig testing. This team, of necessity, remained small. Their work was hidden in physical and budget terms from the top management at Pratt. The work performed is remarkable when looks back at the way it was undertaken. By 1992 a full scale demonstrator engine was assembled using a PW2000 core and a fan specially built by Hamilton Standard exploiting the benefits of this gear technology. The engine was run at the outdoor test stand at Pratt’s West Palm Beach facility. A large group of interested airline representatives were invited to see and hear the engine in early1992. Howard Stryker received the Aviation Week 1992 Laurels Award for the event. Sixteen years later, in 2008, P&W tested a full scale demonstrator engine using a PW6000 core. Over a twenty-year span, P&W invested over one billion dollars in the geared engine concept. When one looks back, it was the persistence and commitment of these engineers who successfully brought this game changing gear technology to life.
But in order to win support from Airbus for consideration of the new GTF engine on the proposed A320neo, Pratt had to go through a number of twists. Airbus wanted the engine to be offered under the IAE brand. After several unsuccessful attempts to win consensus of the IAE partners, Pratt had to fix that issue decisively. So Pratt bought the share of IAE owned by Rolls-Royce, and brought the IAE program fully under the Pratt brand. Pratt had missed an opportunity on the 737 Classic and it was not about to lose an opportunity of that magnitude again. It was going to win the Airbus selection, recover its reputation and deliver a ground breaking engine. The test GTF engine sent to Airbus for evaluation was flown on an A340-600 test bed. That engine was equipped with an extra oil pump to ensure the gear was well lubricated . P&W expected Airbus was going to test their engine aggressively. As it runs out, the additional pump was never activated as the engine coped with all Airbus’ tests.
Now decades later, what was conceived as the IAE SuperFan, is now called the Pratt & Whitney Geared Turbo Fan engine (GTF) and is going into commercial service on the Airbus A320neo. Ironically the launch customer was again Lufthansa.
Under study are new links between European airports and US that have low fees and taxes. Airports include Edinburgh and Bergen on the European front, and Westchester County Airport in New York and Connecticut’s Bradley Airport north of Hartford in the United States.
Bjorn Kjos, Norwegian Air CEO, said – “return tickets less than €200 compared to the current more than €500 because of the fees charged by the busiest airports.”
The Norwegian company is not the only one interested in low-cost Transatlantic flights: Ryanair in the past has repeatedly expressed such interest about and, more recently, Icelandic’s Wow Air and Eurowings have started working on long-haul low cost.
US airlines have announced record profits – load factors are at all time highs. Fares are higher than you would think necessary with fuel prices down considerably. Consolidation has been excellent news for the US airline industry.
But what has this meant for the air traveler? It seems fair to say that what is good for an airline’s bottom line is the opposite for what is good for a passenger’s bottom.
Take a look at this chart which lists the number of flights reported by US airlines on a monthly basis from January 2010 through June 2015. The trend line tells us the big story. In summer we see more flights as one would expect and winter sees big declines. But overall flights are down. Oligopoly at work is clear to see. No wonder load factors are at all time highs. (more…)
The US DOJ, various state attorneys general and the District of Columbia have filed challenging the American Airlines (AA)–US Airways (US) merger. This news was not what was expected by industry followers. The previous merger between Delta and Northwest went through without a hitch, followed by United and Continental and then Southwest and AirTran, all of which were approved. How is this merger any different?
It can’t be competing routes. Delta and Northwest had 12 overlapping non-stop routes, United-Continental 11, and Southwest-AirTran 18 routes. USAirways and American overlap on 12 – so that certainly can’t be the reason. It appears that the DOJ has decided, after three mega-mergers, that a fourth will be anti-competitive and change the nature of the industry.
Up to now the US has been leading the airline industry in turning around its profitability. This has been enabled by two key issues; consolidation and capacity discipline. Capacity discipline has led to much higher load factors and, even with high fuel costs, helped airlines improve their efficiencies.
The following chart illustrates the recent performance of this industry on two factors, yield and load factor. Running an airline is a risky, perishable commodity business, with cash flows easily interrupted by exogenous factors. This industry has seen players routinely bankrupted, and needs either regulation or consolidation to endure. Its history as a destroyer of capital means that the few survivors need to operate in a more rational way. Ergo, consolidation and capacity discipline.
If the AA/US merger is not approved, we will almost certainly see these two airlines struggle to attract traffic to the same extent as Delta, United and Southwest. The airline business is volume driven, and the players each want the biggest slice of the pie. Profitability comes from getting as many paying customers through the system as possible. Domestically, without a merger, neither AA nor US can effectively compete with competition on a national scale for the lucrative business travel market.
Therefore one can understand the chagrin within the management teams at these two airlines. They are not going to accept the DOJ’s antitrust position without a fight. American said it would “vigorously defend” the merger and the US Airways CEO said “we will fight them.” Bill Baer, the assistant attorney general in charge of the DOJ’s antitrust division, argued the merger lessens competition and results in higher fares and less service. One has to ask, where was this view with the previous mergers? It was plain as day that once one merger took place the others had to follow. Surely the DOJ has access to people who understand oligopoly economics. The DOJ position is hard to defend.
As the chart above illustrates, US airline consolidation has provided greater financial stability. The most recent years show yields and load factors improving. Yes fares are higher but the economy has not been strong – yet people are flying more every year. And a more stable airline sector is going to create jobs, something the US economy dearly needs.
The concern with rising fares needs to be seen in context. The US airline club, Airlines for America (A4A), provides a useful historic view. To keep it simple we selected the average fare in constant 2000 dollars. As A4A describes it, “From 1979 to 2012, the U.S. CPI rose from 72.6 to 229.594 or 216 percent. That means that in constant Year 2000 dollars (in “real” terms), the average round-trip domestic fare fell from $441.69 in 1979 to $266.82 in 2012. Including reservation change fees and bag fees, the average round-trip domestic journey price fell from $442.88 in 1979 to $283.97 in 2012”.When looking at the tradeoff in terms of public policy it appears to us that the airline industry deserves a break. It has had to suffer tremendous capital destruction – both in financial terms and human terms. Taking a job with an airline is not the attractive option it once was. The US airline industry has been hampered with taxes unlike any other industry as well – politicians see air travel as a well that never empties. Much as airlines are an unending source of jokes, the reality is that this industry has been hammered for decades.
Public policy is not being served by denying the AA/US merger. Fares would need rise by over 200% to get back to 1980 levels. That is hardly a big fear. But there are thousands of people who could use a job.