Posts Tagged “Airbus”
Like the US, Canada’s head of state aircraft is aging. Unlike the US version, the Canadian one is based on a niche model that has a small installed fleet. While the US Boeing 747 can be supported by either Boeing or the USAF, the Canadian Forces Airbus A310 does not have a local OEM to provide confidential support for the unique capabilities required in a head of state aircraft.
There is an additional complication, the Canadian government A310 fleet consists of five aircraft. They are all ex-airliners and one has been modified to accommodate VVIP requirements and four others are for military purposes, of which two can perform in-flight refueling.
It should be clear to the decision makers that the replacement must be broken into two quite different aircraft. VVIP aircraft are specific to their usage. Mlitary aircraft and especially tankers are also specific use equipment. But because tankers are much larger, they tend to be more multi-purpose than a VVIP aircraft. For example an A330 MRTT is doing work as an airliner at present. The Airbus MRTT and the Boeing KC-46 do more than act as tankers because they have the space to do other tasks.
Canada is in a far better position looking at choices now than they were when the A310s were first bought. For a VVIP Canada has a superb local product in the CS300 that has the requisite range (in VVIP configuration). It is also less likely to break down. Moreover, buying as Canadian product sends all the right political signals. In addition, the CS300, being state of the art, lends itself far better to the needs of in-flight communications than the aging A310 ever did.
For tanker duties, the KC-46 should be a shoo-in. It is clearly the option to refuel the CF-16s and, perhaps one day, the F-35. But the KC-46 is from Boeing and that has certain limits in Canada at present. So, what is plan B? Airbus has the A330 MRTT which is larger than the KC-46. And Airbus, which will soon acquire majority interest in the C Series, is now a major player in the Montréal aerospace cluster.
The article referenced suggests Canada cannot make selection about the tanker until it is clear where the fighter selection is going. That is an odd position because the fighter selection is straightforward and either tanker option would work.
Regarding the VVIP selection, this is no hard decision. The tradeoffs are straightforward. Canada could acquire something like an A340-500 in the market, but that is a very large aircraft that may be too much. If the A310 is already nicknamed the “Flying Taj Mahal” the an A340-500 would certainly keep that moniker. Nobody in the political arena in Canada would fault a CS300 selection. Or even a small fleet of them.
JetBlue finds itself at the center of an unusual situation. It appears the airline is the first to be involved in the new world order of Airbus/Bombardier vs Boeing/Embraer. Reuters has this story. While no formal deals exist between Airbus and Bombardier or Boeing and Embraer yet, from the airline’s perspective, it has to include these relationships in its 20-year view on a fleet update.
This week the airline had a team in Mirabel to view the C Series cabin. News of the visit leaked and created a flutter in the Montreal aviation community. As Reuters points out, a visit to Brazil to see the E2 is next.
JetBlue has 60 E190s (30 owned, 30 leased), making it the world’s largest operator of the type. This represents 12% of the active E190 fleet. Consequently, JetBlue is amid a decision that carries a lot of impact for both sides in the competition.
Embraer created a winner in their E-Jet program. These aircraft took the market by storm and there are over 1,400 in service. The E190 proved to be the more popular model of their two larger models. Currently it is the E195-E2 that is the more popular of the next generation.
However, Embraer had to revisit the aircraft after Bombardier developed its C Series. Embraer’s response is the much improved E2 family, the model has many improvements including the same engines as the C Series but also a new and much-improved wing.
JetBlue wants to replace its E190s. In March 2017, FlightGlobal had an interview with Robin Hayes, the CEO at the airline. In this article, it is apparent that airline has found the E190 operating costs more than expected. In fairness, it was a launch customer for the aircraft. Embraer and GE both stepped up to improve the economics. Bloomberg has this story on the E190 and JetBlue.
It looks like the competition at the airline pits the E195-E2 against the CS100, as both aircraft offers the benefits from upgauging its fleet. The company operates many high-frequency, short-haul routes — primarily in the Northeast — that are ideally suited for a plane of that size. Some of those routes are among the company’s most profitable.
JetBlue appears, quite rightly, to be on the fence regarding its choice. By staying with Embraer, the airline faces very low pilot training costs. In addition, the E2 has much better economics and much-improved range. The E195-E2 would allow JetBlue to reduce CASM difference to A320neo from 17% (E190 vs A320ceo) to 3% (E195-E2 vs A320neo), while offering 20% COC/trip advantage. The E195-E2 is in line with the JetBlue CASM-Ex fuel program reduction with 26% lower CASM-Ex fuel and has 24 more seats.
Converting to the CS100 comes with more changes – pilot training is one of them. But the CS100 has a crucial feature, in that it has more range. It is also by now a known aircraft, with customers having worked through the launch hiccups. Avoiding being a launch customer again may be important to JetBlue. Note that the E2 achieves EIS in April and is likely to have its hiccups sorted out by the time JetBlue would take any deliveries.
What can JetBlue do with these new aircraft? For a start both allow the airline to serve markets much more effectively. For example, transcon routes are possible for markets where the A320 and A321 are too big. Moreover, JetBlue needs smaller aircraft for high frequency routes from JFK and Boston. Or the airline can use these aircraft on thick routes on off-peak hours. In short, these new aircraft offer very useful capabilities to better serve current markets and develop new ones.
As the airline works through the options, invariably the deal is going to pit Airbus and Boeing against each other (as described above). The longer JetBlue takes on the decision, the more Boeing will be drawn in as it develops its JV with Embraer. Airbus and Bombardier are well into the weeds and details on their deal. So while the campaign today is Embraer vs Bombardier, the big OEMs cast a shadow over the next 20 years.
Fortunately for Airbus, it is a well-known entity at JetBlue. Therefore, one might assume this gives the CS100 an advantage. Airbus can ensure, over its service life, that the CS100 delivers. Given the performance at SWISS, this is not a big risk for Airbus or the airline. Moreover, Delta’s choice surely provides significant confidence.
But Embraer will not lose to the CS100 without a knockdown fight. Losing JetBlue would be a painful hit. Fortunately for Embraer, their E195-E2 has the right economics. The flight test program has been remarkable in that there was no news other than “on time, on budget and better than spec”. It doesn’t get better than that. Moreover, looking farther into the future, Boeing would like an Embraer win at JetBlue.
Which brings us back to the rather enviable situation JetBlue finds itself in. It is likely getting a level of attention not seen before. While one might think time on the airline’s side, this may not be the full story. Oil prices are rising and the E190 costs are something JetBlue wants to cut. LCC competitors are creeping into markets. Moreover, JFK is JetBlue’s only hub. When Delta starts to offer CS100 service from JFK, JetBlue is one of the first airlines that will feel the impact.
The airline has some time, but not a lot. A decision before year-end is a must to ensure it is armed and ready for rising fuel costs and tougher competition.
There are claims every year about who’s the biggest in the business. Since everyone wants to be a winner, there are winners by category like orders and deliveries.
But we think, perhaps, the way to look at this question is by the active commercial fleet size. Moreover, rather than looking at each year, how about looking over time?
The chart below shows that, unequivocally, Boeing has been the top dog for a long time. Unless something changes radically in the near future, this is unlikely to change. Airbus has closed the gap considerably since 2005 though. Next, we can see that Bombardier and Embraer are neck and neck.
Taking a different view of the market we get the following chart. With fewer OEMs and showing numbers, we can get a sense of the gaps between the biggest vendors. Airbus was 22% behind Boeing as of 3Q17 and was 55% behind in 2005. Aircraft are long-term assets that seem to last for longer than anyone expected. There could be an argument that aircraft are “overbuilt”. Were they not so robust, the market would have a faster replacement cycle. This could make changes in OEM market share come faster.
The gap between Bombardier and Embraer is much tighter – Bombardier is only 142 ahead. This is the far more interesting race to watch. Bombardier markets six models to Embraer’s three, yet Embraer is closing the gap. Together, Airbus, Boeing, Bombardier and Embraer accounted for 89% of the fleet in 3Q17.
Overall, the story here is that the industry has seen growth every year. Even as some OEMs have left the industry and a few have entered. Those which left take a while to see their aircraft disappear. Those that enter also see a long while to gain traction. The active fleet saw a growth of over 82% between 2000 and 3Q17. This despite regular exogenous shocks like SARS, wars, and spikes in oil prices. It is a remarkably stable industry even though it is hit regularly by all manner of shocks.
Safran reported its 2017 results this week. Revenue of €16.5Bn beat the analyst consensus €16.3Bn. And operating profit at €2.5Bn beat analyst consensus of €2.4Bn.
On the company’s conference call, Safran said it now expects to deliver “at least” 1,100 LEAP engines this year, which is lower than a previous plan for 1,200. Safran’s CEO noted a delivery schedule impact from turbine disc quality. Safran said they expect to be on schedule by mid-2018 because they have not had any technical problems in the past six months.
The narrowbody rate increases proposed by the OEMs to 70 per month are a concern. Mr. Petitcolin said he would be more comfortable making a decision in 2019 rather than today because Safran isn’t sure the supply chain could sustain such a rate. This view is reflected by many people in the industry and was a point of discussion at the recent PNAA event.
The key item for us from this is the recognition that the newest engines, both the LEAP and GTF, are testing materials and technologies under tougher conditions than before. On top of the technical aspects, the demands from Airbus and Boeing are surely a source of intense pressure for the LEAP team. Both the GTF and the LEAP have faced a few hiccups. Because of the rivalry on the A320neo program, the LEAP team and the GTF team give no margin to the other on any potential deal. While LEAP has no competitor on the MAX program, it has to help Boeing on every MAX vs neo campaign, because not every neo will come with a LEAP.
Safran, as a member of the LEAP team, has a multi-sided challenge. Mr. Petitcolin’s low comfort level with a rate increase is well founded. These are not easy times even though the market has exploded with opportunity.