Posts Tagged “Airbus”

One year later

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Last year at this time the C Series was not given much respect by the big OEMs. This was not just focused on the aircraft, but the sub 150-seat market.  Airbus had the perfect solution for that segment in the A319neo.  Boeing was upsizing its MAX7 to 150 seats because there was no interest in the ~130 seat version that was currently sold as the 737-700.

Here we are a year later.  What a difference.

The MAX7 first flight has occurred.  No new customers for it though. Though Southwest has bravely committed to the aircraft in the future.  (Southwest, in our view, have not committed beyond four Max7s as they deferred the rest.  Typically the deferral of such an order is made to consider one’s options.  At this stage we bet that most if not all those MAX7s are converted in the future)  Westjet has also made supportive noises.

Then we had the ITC case where Boeing claimed the C Series was a threat to its 737 program.  Boeing said the C Series was a threat to the MAX7.  The ITC (and the rest of the world outside the Boeing orbit) found that claim questionable. Particularly given that there are so few MAX7 orders.  Boeing clearly thought the 100-150 seat segment was very important. But it seemed only to think this after it nearly lost an order at United and was unable to provide Delta with a solution.

What of the A319neo? It has not flown much in its test program, perhaps indicating the focus is less on that program these days. This should be clarified at Farnborough.

The sub-150 seat market is now of much greater interest to Airbus and Boeing as they reach down to Bombardier and Embraer respectively.  We expect to see Airbus include the C Series in its offerings at Farnborough. We understand the collaboration is going very well.   The Boeing tie-up with Embraer is taking more time.

At the summer air show, we expect to see both Airbus and Boeing rediscover the 100-150 seat segment. How they will talk about it will be of great interest.  How big do they see it now?  4,000 or 5,000 or 6,000?  Remember this wasn’t a market worth talking about much last year.

What is the takeaway?  Bombardier and Embraer were right all along.  There is a big market between 100-150 seats.  It is worth over 4,000 replacements. Add to that number because airlines are seeing that right-sizing is logical and that up-sizing is not the panacea it was made out to be.  There are literally thousands of routes that require smaller jets to serve efficiently.  The new generation from Bombardier and Embraer allow this, whereas the MAX7 and A319neo could not.

Moreover, as we have seen with the 787, aircraft with long range and small seat counts can open new markets. That is why the range of the C Series and the E2 are key features.  These new small jets can (and will) create new markets too.

It seems like the past twelve months were rather transformative.

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Brazil Approves Airbus C Series Acquisition from Bombardier

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The acquisition of the C Series program by Airbus is a transaction that is subject to regulatory approvals around the world, given the global nature of the aviation industry.  Brazil, home country to Bombardier’s major competitor, Embraer, has now approved the transaction.  It’s CADE, Conselho Administrativo de Defesa Econômica, Brazil’s antitrust authority, has approved the transaction.   For those of you who read Portuguese, a link of their report follows: Public version – CADE’s clearance decision.  With Embraer and Boeing also in potential merger discussions, similar competitive issues face the Brazilian company, and we also expect any Boeing-Embraer arrangements would also be cleared.

Approvals in Canada, the EU and US are expected to be perfunctory, and it now appears that the Airbus C Series transaction will close earlier than previously anticipated, likely in advance of the Farnborough Air Show in July.  The question now becomes whether the C Series will appear on the Airbus or the Bombardier ramp, and how quickly the transition of employees will occur.  This will be a complex endeavor, but the transaction is moving forward with considerable speed.   Expect to see the Airbus CS100 and CS300 later this year.

The need for a speedy transaction was outlined by Colin Bole at the Singapore Air Show.  He indicated that while long-term sales prospects strengthened as a result of the Airbus deal, in the short term it is causing delays in order decisions, as airlines try to understand the long-run implications of the transaction.  While several campaigns for C Series are active, decisions may be deferred until the Airbus transaction closes, and airlines understand more fully how service and support functions will be integrated into the Airbus networks.

The Bottom Line:  Airbus and Bombardier both understand the need to complete this transaction quickly, and are currently ahead of schedule in that process.  With no anticipated anti-trust regulatory roadblocks, the transaction should move forward quickly and clarify issues airlines are facing in their fleet decision process.

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An A330neo Freighter

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Bloomberg put out a story that UPS and Amazon are encouraging Airbus to consider an A330-800F.  This is a very important link in the A330neo story so far.

The A330-800 has no current orders.  This is a situation Airbus cannot and will not tolerate – they must move forward with alacrity.  Boeing’s freighter business has picked up.  IATA data shows that freighter traffic is coming back.  The rise in e-commerce is a big part of that story.

Consequently, when we hear that Amazon is looking for a solution, everyone sits up and pays attention.  Amazon has been building its own freighter fleet using pre-owned 767s that are converted to freighters.  As the 767 retires from passenger service, this pool of aircraft becomes available as a low-cost freighter solution.

But fuel prices are rising again.  Older aircraft burn more fuel and require more maintenance.  They may be cheaper than new, but nothings free.  Older aircraft are priced accordingly.  There are no “steals” in this business.

Looking at new aircraft is a logical option.  Most especially when the new aircraft needs orders. There is a confluence of interests here for both Amazon and Airbus.

Amazon is a bit different than UPS, a company with a long history of air freight and running a substantial fleet.  UPS knows the business well and has seen its own business grow on the back of e-commerce.  If even UPS is talking to Airbus, something’s up. UPS has been buying Boeing freighters of late. The lack of any news from FedEx does not mean they aren’t also sniffing.

To get an idea of just how big this market is, consider there were 803 freighters listed as active as of 3Q17 in the United States.

Breaking down that into just the widebody freighters we see the following.

Ignoring the turboprop freighter business, this what the fleet looked like, by operator, in 3Q17.  We highlighted the two operators from the Bloomberg story.

What does the data tell us? The fleet is aging, especially the DC/MD10, A300/310 and 767.  There are 232 freighters of 20 or more years old among these models. Since the USA represents 43% of the freighter market, the OEMs are going to focus very closely on the decisions made by USA operators.  China may be important, but it is not yet the key influencer.  We also note that when it comes to freighters, the largest models don’t make the optimal freighter option.  For example, the 777F is based on the -200 and the A330F is also based on the -200.

We asked Airbus about the Bloomberg story, and their response was: “We are always looking at new concepts based on our existing passenger platforms; this is an integral part of our design philosophy. Also, it is our strategy to study which concepts would make good freighters”. A predictable response under the circumstances.

Amazon is, in our view, the more interesting potential customer. The Amazon Air fleet is operated by Atlas Air.  One move Amazon could make is to simply buy that company.  But that does not necessarily grow their fleet capacity.  Amazon wants to vertically integrate freight into its business.  It is also developing drone deliveries. Amazon will want more aircraft and, given the fleet out there, perhaps a new model works better than conversions?

The A330neo platform offers what any operator wants: good economics plus a reliable airframe from a reputable OEM.  What Airbus wants now is critical mass and Amazon is that rare breed of customer that can pull this off with one order.

The Bloomberg story indicates big things are happening.  Amazon may be about to disrupt another industry.

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Don’t diss the A330

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Yesterday Airbus offered some updates to its A330neo program. The outcome is that Airbus claims the A330-800 is now the longest range aircraft seating between 250-300.  But it has no orders. This last item leaves many scratching their heads.

It would be useful to remember that the A330 has been Airbus’ ace in the hole.  This program has delivered orders year after year.  And Airbus has managed to improve its performance time after time.  This latest variant, the A330neo, fairly leaps ahead of the A330ceo.  Lessons from the A350 have been applied to the wing providing remarkable improvements.  In addition, the new engines are a generation improved as well.

Airbus produced this chart that helps to offer some perspective.

A key item here is to look at when the 787 emerged.  It looked like the 787 was going to outclass the A330 as it did the 767.  But then came the 787 fumbles.  Customers moved to the A330  and orders jumped for the A330.  While the 787 has made a successful comeback, and the 787-9  model shows particular promise, the A330 has kept on winning orders.  The A330neo shows promise.  Of course, that interest to date has been in the A330-900.  The A330-800 is struggling to gain traction.

However, it would be prudent not to dismiss the A330 as dated.  Airbus has managed to keep the aircraft current time and again.  The A330 platform has proven to be remarkably effective.  Don’t diss the A330.

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A380 news

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Airbus and Heathrow airport are celebrating the 10th anniversary of A380 operations at the airport. These began March 18th, 2008 with the arrival of the first A380, Singapore Airlines flight SQ308 from Singapore Changi airport making Heathrow one of the first to welcome Airbus’ iconic double-decker.

Heathrow is now the world’s busiest A380 airport by the number of A380 operators with nine airlines operating to 13 destinations on some 50 A380 daily flights. Heathrow serves 78 million passengers a year of which, 10% are traveling on A380 while accounting for ~4% of movements.

Meanwhile early this morning in Toulouse, Airbus got the sections for a new A380 today.

These are the sections for the first ANA A380, originally ordered in 2016.  The delivery is scheduled early in 2019, and this A380 will initially be operated on the Tokyo-Honolulu route.  ANA’s A380s will feature a special “Honu” Hawaiian green sea turtle livery, symbolizing good luck and prosperity.

The Japan-Hawaii market is large.  According to the Hawaiian Tourism Authority in January 2018, there 784,237 arrivals.  Of these 34.7% were international visitors.  Of these international visitors, 43.6% were from Japan.  That’s 1.7 Japanese visitors for every Canadian,  and nearly one Japanese arrival for every American from the east coast.  International flights to Hawaii had an 82.5% load factor for January this year compared to 86.1% last January.   The HVA also reports that about 70% of the Japanese visitors are repeat travelers with about five trips to the islands.

This background explains the decision by ANA to select the A380 for Hawaii service.  The ANA move is likely to set off some sort of market disruption.  Other airlines like JAL and Hawaiian will need to respond because ANA will be able to drive the market because of the A380.  We shall see how the competition responds to this disruption.

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As GTF problems are solved, DCGA pulls the plug in India

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The Pratt & Whitney geared turbofan has had a difficult introduction, with several problems on the PW1100G powering the Airbus A320neo.  The latest problem involves the aft hub knife edge seal within the high pressure compressor, which has resulted in-flight shutdowns.  Pratt & Whitney and Airbus are well aware of the problem, as is EASA, the European safety agency. In early February, they issued an airworthiness directive to not pair two engines with this seal on an airplane, but allowing them to fly as long as one engine on the aircraft didn’t have the knife-edge seal in question. The Indian DGCA has now grounded the aircraft in India.

This comes just as Pratt & Whitney data indicate that they have solved all known problems on the aircraft, are delivering new engines that solve the latest issues, and are reporting better than expected performance, with a 16% improvement in fuel burn, between 1-2% better than the competing LEAP engine on the A320neo family.

There have been three incidents with in-flight shutdowns in 2018 per the DGCA, two involving IndiGo and one with GoAir.  The latest incident, happened on Monday when an IndiGo flight was forced to return to Ahmedabad airport.

So the question is why the Indian authorities have take stronger action than the Europeans?  One reason may be is that India has experienced several in-flight engine shutdowns.  But the strangest part of the order, to us, is that the DGCA has also asked the airlines not to replace the engines, which is the solution to the problem.  That to us, makes no sense whatsoever, as aircraft operating with 1 normal and 1 engine with a faulty seal could be swapped to reduce the number of grounded aircraft and minimize disruptions.  It is almost as if the government is stacking the deck against the OEM to maximize potential economic damages for the airlines operating the A320neo.

The European airworthiness authority developed a pragmatic and logical response to the short-term issue that impacts a very small number of engines, which was not to pair them.  European carriers know how to work with OEMs to solve issues.  Lufthansa also operates the GTF, but we don’t hear whining in the press about problems, but instead see pragmatic sharing of information to help solve the problem, with the recognition they are an early adopter of the technology.

The Indian government and Indian airlines have taken things a step further.  In looking back to the introduction of the 787, there were more technical problems with Air India than any other carrier. Now in looking at the GTF, the majority of issues also appear to be in India.  This trend with two high-technology products might be an omen for OEMs to schedule deliveries to Indian airlines later rather than earlier in the life of their programs, hopefully after products are fully mature.

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