Posts Tagged “British Airways”
A British Airways Boeing 787-8 (G-ZBJG) was struck by lightning shortly after departure from London Heathrow on July 22nd en route to Chennai in India. The flight, BA35, continued on the 9 hour flight to India, but upon landing it was discovered that the aircraft had 42 to 46 holes in the fuselage from lightning strike damage. This was an unusual level of damage to a 787 and the worst outcome to date from a lightning strike to that aircraft type.
While the flight completed the trip safely, British Airways decided to return the aircraft to London on July 29th without passengers to undergo maintenance. A day later, the aircraft was returned to service, a week after the incident.
With metal aircraft, electricity can easily be conducted across the skin to a wing-tip or other edge from which lightning can easily be dissipated. Composite aircraft are built with metal foil, woven wire, or most commonly an expanded metal mesh to dissipate the impact of lightning strikes. The two aircraft with more than 50% composite material, the 787 and A350, utilize different approaches to lightning strike protection for their composite fuselages.
This incident, which caused a one week loss of revenue on a 787-8, indicates that while passengers remained safe, the aircraft required specialized maintenance that apparently could not be performed locally once the aircraft landed, necessitating an expensive ferry flight back to its home base.
Repairing damage to metal aircraft is fairly straightforward, as a “scab patch” is placed over a damaged area and riveted in. Composite aircraft require a more complex repair process that requires removing the damaged composites from affected areas, replacing them with new material that includes new lightning strike protection, and heating that area to cure and chemically bond the new material to the existing composites. This incident shows just how expensive that process can be on the Boeing 787.
Pratt and Whitney and IAG, parent of British Airways, Iberia, Vueling and Aer Lingus, as signed a memorandum of understanding to power 47 of its 200 aircraft neo order with the PW1100G engine. This GTF order from IAG represents an additional 94 engines in backlog. No determination has been made on the other 153 aircraft, nor has IAG stated whether it intends to split the order with CFM International.
Despite initial issues with the GTF engine, this represents a vote of confidence from a major player in the industry, underscoring the strong performance of the engine in service.
Pratt & Whitney has also obtained 180 minute ETOPS certification for the PW1100G-JM engine powering the A320neo from the European Aviation Safety Agency. This follows the previous US FAA ETOPS certification in December 2016.
There was a previous battle in world war two. The next one will not be violent but looks to be as belligerent. The next battle will be in the skies over the Atlantic as the newcomer LCCs pour capacity into the market and upset what has become a comfortable club for network airlines.
The belligerents include the network airlines from the US (American, Delta, and United) and the EU (Air France/KLM, British Airways, Lufthansa, and their partners). On the other side of this fight will be Norwegian, and soon JetBlue, with more to come. To try offset the disruptive role being played by Norwegian, British Airways and Iberia are offering LEVEL. Now Lufthansa is going to extend the reach of its Eurowings brand. Air France is creating something called Boost.
Norwegian probably could never have imagined such a competitive response. The EU competition is rolling out their big guns. LEVEL and Eurowings will deploy A330s. It’s not clear what Boost will deploy, but the bet would be A330s as well. These aircraft are cost effective and paid for. Norwegian will deploy 787s and MAX8s. JetBlue will deploy the A321neo and A321LR. Then there is WOW and Icelandair also growing their reach. These last two have home bases that will allow for disruptive use of single aisle aircraft in the market.
As we have seen numerous times before, the plans at airlines are easily disrupted by labor strife. The big three European airlines about to get into this battle have long histories with strikes. Air France’s decision to hire cabin crew for Boost at 40% less than its mainline has been described as “scandalous”. Lufthansa has just ended a long-running fight with its pilots. British Airways crews are getting annoyed again, too. No wonder LEVEL will be based in Spain.
Jean-Marc Janaillac Air France-KLM CEO noted “We are lagging behind in terms of competitiveness. Since we are a legacy carrier, we are old, with many layers of management. We are not agile and lean enough to be innovative. We need to reduce our unit costs and continue our productivity efforts in order to grow.” And there’s the rub. This comment applies to the network airlines on both sides of the Atlantic. The aircraft will not make the difference. It will be the people. Imagine the reaction at these airlines when and if the sclerotic layers are cut? The US airlines are further down the road on this, and although we have seen better financials, we have also seen what happens when exogenous factors like weather throw operations into a crisis. The management layers are a problem – until you need them. Since airline operations are subject to many exogenous factors, sometimes you need those people.
However, it is clear that newer airlines like Norwegian are doing things differently. The way they hire people saves the airline a lot of money. In the US, Norwegian faced pushback from local airline unions. And then, suddenly, the problem was gone. Is Norwegian more supple and flexible? Absolutely and the legacy airlines cannot match this. Their labor relations are much more complex and the legacy airlines can’t pivot as quickly. Recall the attempts by Delta (Song) and United (Ted) to invent sub-brands and how that worked out. Corporate culture is not something that grows more flexible over time.
The Atlantic market is getting more crowded and the network airlines are going to lose market share and revenues. Given their high costs, the size of the impact is not clear, but we can be sure the impact will be negative.
News this week about Singapore Airlines not renewing the lease on its first A380 has caused a flutter. The considered opinion is that this is another piece of bad news for the Airbus program. The Wall Street Journal has this view: “But it is another symbolic hit for the double-deck aircraft, for which Airbus has struggled to find customers after investing about $15 billion to develop.”
The news that Malaysian is also offloading its A380s is seen as bad news. But we believe this is not to be a reflection on the aircraft, but more a case of the airline not having the traffic and ability to exploit the A380. Back in 2003, Malaysia was pressed for a quid quo pro to allow its seafood products to have unrestricted access to the EU. While there were no direct links to an A380 order, that certainly helped with negotiations. Even back then this A380 order was seen as overkill for MAS. Perhaps people have forgotten this.
Readers know we have been more upbeat about the A380 than other analysts. Our view on the news is, perhaps, therefore contrarian.
Here is why:
- The earliest A380s all suffer from custom wiring and were overweight. The rocky start to the A380 program may have been forgotten. It was quite ugly, and a number of the early deliveries are virtually custom aircraft.
- Ergo, it makes sense for Singapore to offload these earlier and less efficient models. In Airline Business (July-August 2015) Goh Choong Phong, CEO of Singapore Airlines, said the airline is expecting five more A380s from 2017. The airline seems to have A380 replacement plans, with the newer models significantly lighter and more fuel efficient. The CEO does appear concerned with Trent 900 fuel burn – the pressure is on on Rolls-Royce.
- Other cancellations:
- The Malaysian news is no surprise; the airline should never have bought such a large aircraft.
- Kingfisher’s order was hubris over logic. Same story at Transaero. Virgin Atlantic’s order was also questionable.
- Air Austral’s order was hardly credible. As was Skymark’s order.
- Air France canceling the last two A380s on order reflect financial weakness at the airline rather than an A380 problem.
- Even so, isn’t market weakness is still making the market for the A380 difficult?
- Perhaps, but these cancellations are not all gloom and doom.
- The switch of the Skymark aircraft to ANA was a boost to the program. It is probable that once ANA has the aircraft in service, they might order more. The A380 is an aircraft only the biggest airlines can successfully deploy.
- The Malaysian aircraft finding homes elsewhere (Turkish is said to be interested) will move the A380 from the hand of a weak airline to the hand of a strong airline. There is no doubt Turkish can exploit the A380’s capabilities better than Malaysian.
- The Singapore aircraft are possibly the most interesting. Its owner Doric is talking up the potential – “…some negotiations at an advanced stage”. The bad news there is only one aircraft; but likely with four more coming. The good news is that Doric will take a haircut on the aircraft to put it back into service. This haircut will offset the cost of a cabin refurbishment. More good news – if you were to take a pre-owned aircraft from any airline, Singapore would be among the top three. The aircraft will be in good condition mechanically because Singapore takes good care of its fleet.
- If Doric does get all five back, it will have a good number to re-market. There is talk of Chinese airlines being interested. This is plausible. But there are other airlines too. IAG’s Willie Walsh is on record saying he is looking for pre-owned A380s. The fact the Singapore aircraft have Rolls-Royce power is convenient as so do those of British Airways. IAG will almost certainly be able to take all five, configure them as needed (replacing 744s?) and deploy them out of slot restricted Heathrow. This will make BA’s competitive position even stronger out of London. Doric gets rentals again and the haircut is digestible over another ten years.
- Doric is not dependent on IAG. There are other airlines that will almost certainly give these aircraft a good look. While only IAG looks reasonable in the EU, outside of the EU there are a number of potential candidates.
The Bottom Line:
The emergence of pre-owned A380s could be excellent news for Airbus. Moving aircraft from weaker customers to stronger customers is a good thing. The A380s are not going to the scrap yard. Airbus was able to re-market the two A380 orphans parked in Toulouse to Emirates. Everything can be sold at the right price. The question is where will that price point is.
Yes, the market for VLAs is tough. But the market for 777-300ERs is tough too. Airlines are bottom fishers. If the price is right these A380s, even the initial overweight ones, will be put back to work.