Posts Tagged “Airbus”
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.
Richard Aboulafia, VP Analysis at Teal Group, shares his thoughts on what Delta’s team might be considering and pondering as they view the Airbus neo vs. the Boeing MAX. And the shadow in the corner called C Series.
IATA released data showing that this year airlines across the world connected a record number of cities, with unique city-pair connections exceeding 20,000 for the first time. The annual percentage increase in the number of city pairs served was the largest since 2004 and represents a doubling of services since 1996 when there were fewer than 10,000 city pairs in operation.
The implication of this move should be clear to our readers – the change has been enabled by newer, longer range, aircraft.
Nearly three-quarters of the change between 2016 and 2017 came from within Asia and Europe. Note that more city-pairs were added in the domestic China market in 2017 than within the whole of Europe combined. As IATA notes: “China accounted for 11.4% of all city-pairs globally this year, up from 5.5% a decade ago.”
China is especially interesting because there is a general assumption that high high-speed lows air travel growth. Yet even with a highly developed high-speed rail network in Europe, it too has seen strong air route changes and growth.
The implications are that as markets start to come on stream in China, more aircraft will likely be needed. In September, Boeing released its forecast that states China will need 7,200 new aircraft over the next 20 years. Not just China, by the wider Asian region also needs longer-range aircraft to connect communities. Clearly, the same logic applies in all travel growth markets, Africa being another example.
While one naturally thinks about single-aisle aircraft as being the bulk of the growing demand, bear in mind that as economies develop, urbanization accelerates. It is the big urban areas that generate the greatest economic wealth and these areas also want more travel options. Which brings us to another IATA chart.
Take a look at this presentation from IATA’s media day. Airport growth is not keeping up with urbanization. Slot constraints are going to get worse, especially in the big cities. IATA then takes us through a series of options like slot pricing and auctions.
Of course, the way the problem is most likely to be solved is by deploying VLAs in these markets. The airline offering the highest price for an auctioned slot would best recoup that investment by selling the most seats for that slot. Ergo, the case for the VLA remains as strong as ever.
This morning Bombardier announced that their Aerostructures and Engineering Services won a contract to supply P&W A320neo nacelles to Airbus. Their Belfast plant also won work to develop and manufacture a new thrust reverser to enable Airbus to offer this new, innovative nacelle and its aftermarket support for Pratt & Whitney’s PW1100G engine.
Meanwhile, the big plan for the collaboration on the C Series continues quietly. From what we understand, the people involved with the deal between the firms on the C Series is a tiny group. This group has been successfully kept apart from the rest of the both company’s teams in order to prevent leaks. Since nothing can happen until the deal is approved by regulators, its just as well that any work on what comes after approval is done quietly. It was a leak in 2015 that stopped an earlier attempt cold.
Since Bombardier is already a supplier to Airbus on a number of programs, there are numerous threads tying the firms together already.
Making Boeing Great Again should not be the goal of US trade policy. The trade action by Boeing against Bombardier appears, superficially, to fit well with President Trump’s campaign theme to Make America Great Again. President Trump campaigned against unfair trade practices that are harming U.S. workers and U.S. manufacturers. Boeing alleged that Bombardier is unfairly subsidized by Canada, which has permitted it to sell CSeries aircraft below cost in the United States, undercutting Boeing and the U.S. jobs from Boeing’s most successful aircraft, the 737.
Upon closer inspection, however, it is clear that Boeing’s actions, if successful, could harm more U.S. workers in the broader aerospace and airline industries than would potentially benefit from import tariffs designed to protect Boeing.
Moreover, because Boeing stretched the bounds of appropriate use of the trade enforcement remedies and deployed a host of arguments that are hypocritical or baseless – such as complaining about sales lost to a plane smaller than anything Boeing makes – Boeing risks igniting a trade war or other realignment in the aerospace sector, to the detriment of the US aerospace industry. If Boeing succeeds in its trade case, the only beneficiary will be Boeing itself – while everyone else loses. This strategy is not Make American Great Again — at best, it is Make Boeing Competitive Again.
Perhaps more than any other U.S. manufacturer, Boeing depends on international trade and the U.S. government’s enforcement of fair trade rules abroad. But its trade case against Bombardier now undermines Boeing’s ability to fight unfounded protectionist actions instituted in countries around the world. China, for example, could easily levy massive import duties on Boeing’s planes using the same arguments advanced in Boeing’s trade action against Bombardier. That would be a disaster for Boeing and the U.S. workers who manufacture its planes. Rather than pick on a competitor one-tenth its size, with arguments that are full of inconsistencies and contradictions, detailed below, Boeing should abandon its misguided use of the trade laws and focus on being competitive at the marketplace.
Boeing Contradicts Itself about the Relevant Market
In the trade case, Boeing claims that there is a separate and distinct market for aircraft containing 100 to 150 seats that are capable of flying 2,900 nautical miles. Unfortunately, Boeing has convinced U.S. regulators of this spurious proposition, despite widespread industry understanding that the aircraft market is a continuum, ranging from the smallest regional jets to the largest wide bodies. Airlines choose a platform of the right size for a given route to optimize their operating economics and right-sizing aircraft to avoid flying planes with empty seats.
Outside of the trade case, Boeing characterizes the market differently. In its Current Market Outlook, Boeing describes a market composed of regional aircraft, single-aisle aircraft, small to medium twin-aisle aircraft, and large twin-aisle aircraft. Reviewing Boeing’s annual forecasts in our archives back to 2005, we find that Boeing’s forecasts consistently reference the single-aisle market, not a market for aircraft with 100 to 150 seats. Indeed, it would be irrational for Boeing to describe the market that way, as its flagship 737 has grown from under 100 to about 200 seats with some models of the 737 MAX, the newest 737 variants.
On September 18, at the 18th Annual Aviation Industry Suppliers Conference (SpeedNews) in Toulouse, Drew Magill, Boeing’s Managing Director, Marketing Europe offered this slide. Boeing describes the competitive situation, when speaking to the people who know the industry, and does not include the Bombardier C Series (or the Embraer E2). Were Boeing to list the Bombardier or Embraer products, they would be laughed out of the room. Nobody from the US Department of Commerce or ITC was in the audience obviously. Boeing has two messages; one for those who know the industry and another for those who don’t.
Over the years, Boeing increased the size of its 737 to provide additional capacity and improved seat-mile economics for its airline customers. The original 737 design, which dates to 1967, had fewer than 100 seats. The 737 MAX line has been optimized around the 162-seat 737 MAX 8. The smallest model, the 737 MAX 7, had 126 seats. This model did not sell well, and last year Boeing redesigned the aircraft to add 12 additional seats – taking it to 138 seats – in an effort to make the aircraft’s economics more competitive.
Seat-mile economics are challenging for the 737 MAX 7 because it is simply too heavy for its seat capacity. The wing and fuselage were designed to accommodate the needs of the MAX 7’s larger brethren. As a result, the 737 MAX 7 is less efficient than more modern designs – such as the C Series – that are optimized around a smaller size and use the latest composite technology that is not used in the 50-year-old design of the 737. Not surprisingly with these economics, the 737 MAX 7 has not sold well. Although Boeing has 3,954 orders for 737 MAXs, only 70 are for the 737 MAX 7.
Although Boeing’s Market Outlook considers the single-aisle market to be a continuum of sizes, it has conveniently based the trade case solely around the least efficient and most unpopular model in its 737 fleet, ignoring the other 3,884 aircraft in its backlog.
Boeing Complains About a Lost Sale but Doesn’t Make a Competing Product
The trade case centers on Bombardier’s sale of CS100 that has a typical configuration of just over 100 seats. Delta is the largest operator of aircraft in this class, operating 91 of the last aircraft Boeing produced of comparable size, the 717-200, which is a rebranded version of the MD-95. Boeing last produced the 717-200 in 2006, and today offers no aircraft in the 100-seat category. As a result, Boeing did not participate in the Delta competition that led to the C Series order.
What does Boeing think Delta should do to serve routes that require 100 to 110 seats? Should Delta have been required to fly an aircraft that is too large to be profitable, simply so that it can fly Boeing? Should Delta charge consumers a higher ticket price to pay for the empty seats on these segments? Other than the C Series, only Embraer makes an aircraft – the E195 – that can serve a 110-seat route. If Delta could not buy the C Series, they would almost certainly have chosen Embraer, further highlighting that Boeing’s alleged harm from a lost sale is entirely fictitious.
Boeing’s Claims of Economic Loss is Baseless
Boeing’s claim that it is suffering an economic harm from the sale of 75 C Series aircraft to Delta is dubious, at best. As noted above, Boeing’s backlog of orders for the 737 is about 4,000 aircraft deep, and it stretches years into the future. Even if Delta decided to fly less efficient 737s with dozens of empty seats on 100-seat routes, Delta would not be able to receive delivery of these aircraft without a lenghtly wait, long after Bombardier could deliver the C Series.
On a recent call with investors, Boeing CEO Dennis Muilenburg was asked whether the company would consider entering the 100-seat market with a new aircraft or joint venture with another manufacturer. Muilenburg dismissed the idea and said, “with 4,400 aircraft in backlog, we’re very confident in the position we have and the fact that we’re oversold on our production line capacity.” Muilenburg concedes that Boeing has sold more aircraft than it can possibly produce and deliver, yet it has the gall to go before the U.S. government and claim that it is experiencing economic harm from a 75-aircraft order from Bombardier.
Boeing Practices the Same Pricing Strategy that it Denegrates
Creating an entirely new aircraft design takes a tremendous amount of upfront investment, and that investment is recouped over decades, as the aircraft is produced and sold. The first plane produced in a program, therefore, is sold dramatically below the cost of producing it. Moreover, production costs drop quickly, as the manufacturer moves down the learning curve associated with repeated production of the aircraft.
Even beyond these economic realities, new aircraft programs face additional barriers. Airlines are hesitant to be the “guinea pig” to help debug early faults. New aircraft platforms also bring greater costs to the airlines in terms of flight crew training, new ground handling equipment and procedures, the distribution of maintenance supplies throughout the airline’s network, training of technicians, and uncertainty about the long-term availability of affordable parts.
These additional costs and uncertainties for airlines limit demand for new aircraft platforms, and the reduced demand causes aircraft manufacturers to offer significant discounts to the first airlines to purchase a new platform. This practice, which is deployed by every aircraft manufacturer, is so common and well established that it is named: launch customer pricing.
Boeing’s launch of the 787 is a perfect example of this practice. The first several hundred 787s sold by Boeing were reportedly sold below the cost to make them. Analysts wonder whether Boeing will ever break even on the 787 program on a cash flow basis, and recoup its $30 billion investment.
Bombardier only recently started delivering its first C Series planes, and it is far from moving down the learning curve to a mature cost position for the aircraft. Ironically, Bombardier could not even respond to the U.S. government’s questions about the cost of producing the C Series aircraft for Delta. It has not yet built enough aircraft to know what its final cost will be. How can a manufacturer be dumping product into the United States below cost when the manufacture does not yet know the final cost of production?
Boeing Ironically Complains about Government Subsidies
Boeing states that it does not receive government subsidies. But its military division develops new technologies at government expense, and then shares those technologies with its commercial operations. Boeing also receives tax breaks and aid from the states in which it operates, and it has requested even more aid from the State of Washington to keep manufacturing jobs near Puget Sound.
Given the massive costs associated with developing new aircraft programs and the long time horizon for recouping any investment, it is impossible today for any company to develop a new aircraft program without some government support. The governments of all major aircraft manufacturers recognize this and all of them provide some form of support. Indeed, international law recognizes this reality. International trade rules do not outlaw all government subsidies – just those that are unfair. Boeing acts as if the Quebec and Canadian investments in Bombardier are de facto a violation of international law, but that is just not the case.
What Really Scares Boeing and Motivated the Trade Action
Boeing’s filings do not mention it, but we believe that Boeing’s greatest fear is that Bombardier might stretch the C Series into a larger aircraft that really does compete with Boeing’s bread and butter 737 MAX 8. Given its more modern design and advanced composite components, a stretched CSeries might actually compete against the 737 MAX 8 and take market share from Boeing’s massive backlog. In other words, the trade case is a preemptive action designed to kill the C Series program in its infancy before it has a chance to mature.
Boeing already has two aircraft under development, the 777X and 797, and it cannot afford to launch a clean-sheet design of a new aircraft in the 737’s size category. It could perhaps undertake such an initiative in the 2025 to 2030 timeframe. In that regard, Boeing may be perfectly happy with any outcome in the trade action, provided that it distracts Bombardier, discourages near-term customers to buy the C Series because of its future uncertainty, and pushes C Series deliveries a few more years into the future.
Boeing may have had a greater fear that Bombardier would join with an aerospace manufacturer in China that could use the C Series technology as a platform to build a competitor to the 737. A significant portion of Boeing’s projected revenue growth comes from sales to China. A competitor to the 737, manufactured in China, would be a significant threat to the company. That process, however, would have taken a number of years to unfold, and in trying to forestall it, Boeing miscalculated miserably. In attempting to block a long-term threat from China, Boeing drove Bombardier to a formidable competitor with the ability to unleash the C Series threat immediately.
Airbus’ decision to join with Bombardier provided the C Series a massive boost in credibility and eliminated any doubt about the programs continuing viability. The Airbus partnership came with an added benefit – Bombardier and Airbus can manufacture the C Series in Alabama, putting the C Series beyond the reach of the import tariffs that Boeing sought in the trade action.
Boeing’s Statements about Airbus’s Alabama Assembly Facility Boomerang
The Airbus-Bombardier deal on the C Series, which will close around mid-2018, effectively eliminates the effect of any import tariffs that Boeing manages to convince the U.S. government to impose on the C Series. C Series planes built in Mobile, Alabama, are U.S. products and thus not subject to import duties.
Rather than accepting that the trade laws worked as intended and promoted U.S. manufacturing and U.S. jobs – the threat to which was the premise of Boeing’s original complaint – Boeing is now suggesting that import tariffs should be applied to planes that are made in the United States.
The only problem is that Boeing has already argued the opposite and the company again faces a contradiction of its own making. In its initial complaint in the trade action, Boeing stated that Airbus aircraft built in Mobile qualify as domestic manufacturing. Discussing the Airbus A319, the only Airbus aircraft that fits in Boeing’s artificial 100- to 150-seat market category, Boeing said, “the Airbus A319 would also be included in the domestic [production category] if Airbus were to produce it at its facility in Alabama.” If building an A319 in Mobile is domestic manufacturing, it’s hard to understand why a C Series built there would not be.
The Bottom Line
Somebody in Boeing’s Chicago office apparently determined that the complaint against Bombardier would be effective in thwarting a competitor. Instead, it has backfired, resulting in Boeing being roundly criticized around the world, and creating a black eye for the United States with respect to free trade. It’s not too late for Boeing to acknowledge the complaint was ill founded and seek to regain its reputation for fair play. If it does not, AirInsight hopes that the ITC will see through Boeing’s hypocritical, contradictory, and absurd claims when it renders a final decision.
Airbus reported this morning that the A330-800 assembly has begun.
“Final assembly of the newest member of the A330neo Family, the A330-800, has started and is on track for the first flight planned in mid-2018.
The A330-800 complements the A330-900, the largest member of the A330neo Family. With its 242-tonne Maximum Take-Off Weight (MTOW) as base variant, the A330-800 can operate routes of up to 7,500nm and with the recently launched 251-tonne MTOW variant the aircraft can operate ultra-long-range routes of up to 8,150nm. Together, the A330neo variants are part of the world’s most comprehensive twin-aisle, twin-engine aircraft family from 260 to over 360 seats which includes the A350 XWB Family.
The most visible new features of the A330neo wings are the specially developed curved wingtip Sharklets – which draw on A350 XWB technology, extending the wingspan to 64m, providing state of the art aerodynamic characteristics.
Airlines will benefit from 25% less fuel burn per seat compared to previous generation competitors, reduced maintenance costs and the A330’s market-leading 99.5% operational reliability. Passengers will enjoy the award-winning all new Airspace cabin inspired by the A350 XWB. On top of latest generation In-flight entertainment and connectivity, passengers can look forward to a new welcoming entrance area, spacious overhead bins, mood lighting and exceptionally quiet flights.
With close to 1,700 orders, the A330 is the most popular wide-body aircraft ever, having flown nearly 1,000,000 annual flights. Today, over 1,300 aircraft have been delivered to 117 customers worldwide on a wide range of routes, from domestic and regional flights to long range intercontinental services. Offering the lowest operating costs in its category, and thanks to continuous investments in latest innovations, the new generation A330neo will be the most profitable and best performing aircraft in its size category.”
Moving ahead with this program might be on time, but is there a market? Hawaiian placed an order in 2014 for six. Since then, crickets. What does the fleet data show that gives Airbus confidence in the A330-800?
For a start, the predecesor A330-200 program has been a success. As the data illustrates the percent of the fleet that is active since 2000 has averaged 97%. This suggests the A330-200 is an aircraft size that has a strong market demand. Airbus got this model right.
Next, why the slow orders for the A330-800? Perhaps the answer is simply that the current active fleet is young and still delivering the level of performance operators want. There may simply no urgency to jump on to delivery slots.
Where are the potential opportunities for the A330-800? Looking at the current active A330-200 fleet we can see there are certain markets that warrant attention for replacements. As of 2Q17, only 28 were parked with an average age of 10.9 years.
Will the A330-800 sell as many aircraft as the A330-200? There is a good argument that the answer is no. But Airbus could sell enough to warrant the development. Besides, looking at the current operators, there is no obvious replacement other than the A330-800.
These operators represent half the total fleet. The A330-200 offers the ability to deliver widebody loads over long hauls at low cost. The A330-800 will do more of the same; more payload (4%) and more range (3.5%). And accomplish this at 12-14% better economics than the older model.
While the A330-800 may not sell as well as the A330-200, it should offer many A330-200 customers the right combination of performance and costs. It is too soon to dismiss the A330-800.