Posts Tagged “honeywell”

Boeing’s Legal Battles will Soon be Overshadowed by Supply Chain Battles with the New UTC

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Boeing claimed a victory from the latest round of WTO rulings – Airbus, of course, differed in their interpretation.  Irrespective, the WTO rulings have no teeth and are largely a game for government officials, bureaucrats, and attorneys.  By the time any decision is taken, appealed, and re-appealed, the original topic is usually moot.  But it appears that the 777X wing factory, built with the largesse of the State of Washington, is safe, as everyone knew it would be.

Boeing also just doubled down on its position against Bombardier.  “In Canada, we face a situation with a competitor, an emerging competitor, that has, yes, long received government support – but that just went beyond the pale in 2016,” said Marc Allen, president of Boeing’s international division. Boeing apparently sees a potential new Airbus in Bombardier.  Apparently, only Boeing does not think this case is as ridiculous as nearly everyone else in the industry since they no longer make any aircraft that competes with the CS100 that Delta purchased.

Boeing has a number of fights to contend with. Their drained financial condition and inability to fund a new narrow-body aircraft to “one-up” Bombardier or Airbus mean that Boeing is likely to continue to go to Washington DC to seek economic protectionism and favors.   But in Washington, the threat to Boeing has also turned as American as apple pie.  Several US lawmakers are already skeptical of Boeing’s claim against Bombardier, particularly the impacts it will have on local congressional districts.  Boeing is no longer just tangling with Bombardier, Canada is joining the fight.  Should the US Department of Commerce decide to impose tariffs on Bombardier, there is a very good chance Boeing will lose its fighter deal with Canada. This is not a win-win situation for Boeing but could be very good news for another fighter OEM.

But then came the biggest news, and next potential battlefield – UTC’s deal to buy Rockwell Collins.  If Boeing fears Bombardier, the UTC deal should absolutely terrify Boeing.  The newer, bigger, UTC will be a manifest threat to Boeing.  Boeing issued a statement indicating: “We intend to take a hard look at the proposed combination of United Technologies and Rockwell Collins.  Until we receive more details, we are skeptical that it would be in the best interest of—or add value to—our customers and industry.”  On an order of magnitude impact, the WTO case just disappeared into a puff of smoke, and Bombardier became irrelevant.

This will undoubtedly turn into a fight that Boeing isn’t used to, a fight between US-based relative equals.  Boeing needs a number of parts and pieces from the new UTC.  No other aerospace company has the same heft, nor as broad a footprint, as the new UTC, except perhaps the new SAFRAN if Thales joins the group as rumored. From engines to avionics, interiors, landing gear, electrical systems and other offerings, UTC could nearly assemble a full aircraft from the parts it provides.  UTC now easily represents more than 60% of the content of the Boeing 787 and is unlikely to be pushed around by the Boeing when the next negotiations occur.

Boeing (and Airbus) are rightly nervous about the new UTC.  Both OEMs have been moving into the services business, much to the annoyance of the supply chain.  As Jim Cramer points out: “Boeing can play off everybody…. but If you own the landing gear, you own the brains, you own the inside, the seating, you can be a player that can say to Boeing ‘we’re not part of your partners’ plan.’ To be able to make you more money, you’re going to make us more money. So it changes the balance of power.”

UTC builds just about everything that goes on an aircraft, with the exception of the fuselage and wings.  But if it seeks to return to its origins in manufacturing commercial aircraft, all it would need is another acquisition – someone like Spirit for example,  with a majority of the aircraft being from the combined UTC – to fully compete with Boeing or Airbus.

The question that needs to be analyzed is where the innovations in aviation come from – the airframe OEMs or the supply chain.  With increasing technological complexity in both airframes and components, the answer is both.  Imagine a Boeing without the combination of products from UTC and its Goodrich and Rockwell Collins acquisitions.  We couldn’t pull together a list of alternative suppliers with the same capabilities and technologies, and a transition would be exceptionally difficult for Boeing.

Boeing recently changed the balance of power with the supply chain with its Partnering for Success program, which was an effective 10-15% price cut in favor of Boeing.  Their second effort resulted in additional marginal gains, and rumors of a PFS III are rampant in the supplier community, wondering when and how hard the next shoe will drop.

When PFS was introduced, UTC balked, and Boeing awarded the 777X landing gear to Heroux-Devtek, a Montréal-based manufacturer that, while capable, has never built a gear quite that large.  UTC heard the message loud and clear.

But instead of playing dead and acquiescing to Boeing’s wishes, it decided that the acquisition of Rockwell Collins, and growing the critical mass represented by UTC to become so large that it is unlikely that any aircraft manufacturer could dare attack their margins again.  They know it, and so does Boeing.  This is a deal that changes supply chain leverage from the OEMs favor towards the supplier, and equalizes the playing field.   Meanwhile, other suppliers are hoping that whatever favors UTC can gain will trickle down to keep the playing field level.

Can Boeing shut off UTC if its demands become too great?  Of course, it can, but it would be like cutting off its nose to spite its face – an ugly arrangement.  The balance of power has shifted, and there is a new 900-pound gorilla in the zoo pounding its chest.  It will be interesting to watch this class over the next few years.

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Premium #339 – Boeing Reversing Course – Re-Establishes Avionics Unit

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The Aero Engine Market

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In a quick review of the market, we can see how the engine market has grown in sympathy with the demand for commercial aircraft.  In the first chart, we show the national origin of the engines.  The numbers for Canada jump in 2009 because our data source added turboprops from that period.  The overall market grew from nearly 14,000 engines in 2000 to close to 27,000 engines by 2016 – a growth of over 92%.

If we break down the engine data by each engine maker we get the following busy chart.  By far the most impressive growth has come from CFM, which went from ~3,600 engines to ~10,750.  The chart is busy because many OEMs share projects or have subsidiaries.

Cleaning up and categorizing the data into specific OEMs, we get the following cleaner chart.  Here we show market share.  The CFM performance now stands out and demonstrates just how big its role in the industry has become.  Supplying the A320 family and being exclusive on the 737 has provided tremendous benefits.   Compared to this, look at UTC which had well over a third of the market in 2000 and now has shrunk to just over a quarter.  This offers a guide as to how crucial the GTF is to the future of the company.  It is no wonder that UTC is deploying so much of its aero engine capital to ensure the success of that program.  Fortunately, it has some superb products, like the PT-6 and PW800, to provide such support.

Rolls-Royce also saw a market share shrink, but a much smaller one.  Tying itself to the A330 and A350 program should ensure growth again.  But with a focus on widebody aircraft, Rolls-Royce missed out on the explosive growth in the single-aisle segment.  On the other hand, GE focused on Boeing’s 777 and 787 programs, which saw high growth over the period.  Being a partner in CFM has obviously helped, too.  It will be interesting to see if the 777X sells anything like the earlier models.  If it does not, GE will need to revisit its strategy.  But with a pending 797 to come, GE does have an advantage of being selected as an engine option given its close relationship with Boeing.  P&W and Rolls-Royce will likely battle to be the other option.

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Premium #330 – Connectivity keeps improving

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We have been tracking demand for aircraft connectivity for some time.  There are several news stories that further underscore the point that demand for connectivity seems to have no upper limit.

  • Icelandair will equip its 737 MAX fleet with ViaSat connectivity. The system will connect aircraft to the ViaSat-2 Ka-band satellite network over North America and the Atlantic, switching to ViaSat and Eutelsat’s Ka-band KA-SAT network over Europe.
  • Gogo business aviation unveiled a suite of smart cabin systems, SCS Elite and SCS Media, which are a highly integrated cabin, IFE and voice solutions that can be personalized to fit the specific needs of passengers on board a given flight.
  • Bombardier announced it is offering Ka-band technology on new Challenger 650 aircraft. The Ka-band high-speed internet system, the industry’s fastest in-flight Wi-Fi connectivity with worldwide coverage, is also being offered as a retrofit on in-service Challenger 604, Challenger 605 and Challenger 650 aircraft.

These data points must be seen in context.  It’s not just airlines.  Any operator is going to seek ways to add its aircraft to their existing IT infrastructure.  This concept may not have been pioneered by Embraer, but to our knowledge, they were the first to articulate it.

Icelandair already has a unique connectivity option on its 757s, it uses two systems.  Moving to the ViaSat solution the airline is following the choice at American.  ViaSat claims it does not have any bandwidth capacity constraints because of Ka.  Gogo has its 2Ku solution which it claims can match or beat the Ka.  The fact that operators have the choice of 2Ku or Ka is a tremendous improvement over what existed even just two years ago.

The Gogo solution being offered to business jets demonstrates that operators of even small aircraft desire the “always on” connectivity.  Bombardier’s selection of Ka underscores Gogo’s announcement.  Once again, we have operators being able to choose from the two approaches.

On a visit to Embraer, we were shown their approach to aircraft health management.  The system is impressive to an outsider.  But it must be truly special if a customer has added its non-Embraer aircraft to this system!

We have mentioned before the growing importance of connectivity at another airline deep into this solution, Norwegian.  Passengers receive this connectivity for free.  Norwegian utilizes the GEE solution which also uses the Ku system.  GEE’s solution uses Ku because it is said to be lower cost than Ka.  We reported on the Ka vs Ku battle in 2016.  Although dated 2013, here is another useful guide to this issue.  The chart below summarizes the tradeoff between these two.

Regardless of where one ends up in the debate about connectivity, we can be reasonably certain of a few things: satellite is the way forward, e-Enabled aircraft will demand connectivity to upload and download data in-flight and passengers are going to expect “always on” connectivity.  Even Southwest Airlines boasts about its “gate to gate” connectivity, even though while your bags fly free, your data connectivity is not.

Another source of connectivity is Honeywell, which offered this amusing video.

Connectivity is now a “nose to tail” issue.  Everything about an aircraft benefits from connectivity.  MRO and Flight Ops are able to monitor an aircraft and undertake proactive measures to keep it in service.  Flight Ops can communicate with the flight crew at much lower cost than using ACARS.  This decision support is not seen as important until it becomes critical.  Flights can be disrupted by many issues, and low-cost communications enables improved content and context.  Airlines, for example, can dispose of satellite phones.   There are even issues of tracking aircraft, which post-MH270, are obvious.  Then there are the more obvious cabin impacts with e-commerce in real-time and passenger entertainment.  While we do not spend much time on passenger experience, it is clear that given the increasingly uncomfortable airline cabins in economy and no frills classes, anything that transports the mind elsewhere is a benefit.

SITA offers a useful guide to how their solutions impact airlines and connectivity.  As we move towards modern ATC and see e-Enablement given full expression, the connectivity issue will come into full bloom.

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Missing Airplanes – Why Real-Time Tracking of Airplanes Won’t Happen Quickly

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Air travel is a very safe mode of travel, with few accidents and a trend line that points to increasing safety year by year.  The following chart shows worldwide airline fatalities per million passengers from 1976 through 2014.  The trend line shows that safety is continuing to improve for the industry as a whole. (more…)

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Aeropatent – a neat industry resource

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We spoke with London-based Philip Robinson, founder of Aeropatent.  With a number of year’s experience in the patent world, Philip created Aeropatent to focus on the many patents being filed by the aerospace industry.  He explains what they do.

It quickly becomes clear why the industry needs to be paying a lot of attention to this source of industry insight.  If you know what your competitor filed, it provides an excellent insight to what that competitor is thinking about.

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