The reaction to American’s recent fleet order was not positive from the financial analyst community. They have valid concerns regarding the firm’s financials. But in typical fashion, MIT Researcher Bill Swelbar decided to take contrarian view and look at the order from a positive viewpoint. He provides his take on his blog. Take a look at the comments section below for more insight on the order. Bill understands where the financial analysts are coming from but thinks one should take a longer view and see the positive side of the order and its potential for helping the airline improve its operating costs rather quickly as the new planes arrive.
Resin transfer injection (RTI) is about to join resin transfer molding and composite layup as a construction technique used for high volume production of aerospace components. Bombardier’s Belfast operations in Northern Ireland (formerly Shorts) have patented this new technique that is being used to build the wings for the Learjet 85 and Bombardier CSeries. AirInsight had an opportunity to tour the facility and learn more about the processes that are changing the way high technology aircraft are built.
What’s different about this technique? In brief, quality, cost, and economic benefits through a more sophisticated and computer precise manufacturing process. Of course, manufacturing wings requires a massive facility – and this facility is state of the art, as illustrated by the massive clean room.
Existing processes such as resin transfer molding, require two halves of a mold to make a composite part, with carbon fiber placed in the mold, the halves closed, and resin injected into it. The problem is that the resulting product reflects the quality of the tool, which eventually wear out and are expensive to produce – not to mention the substantial machining effort required to trim rough edges created by excess material. In addition, a tool to accommodate the size of a CSeries wing would be so massive it would require huge overhead cranes to lift it into place.
Resin transfer injection, by contrast, uses only one side of a mold to provide the outside outline of the part. As with other techniques, carbon fiber is inserted into the mold, but the difference is that the portion inside the mold is formed by vacuum bagging material rather than simply injecting resin into the tool itself. An ultrasonic cutter precisely cuts each carbon fiber ply into the appropriate shape, which is 3-4 times thicker than typical pre-preg composites, and easier to handle.
This lay-up is then placed in production assembly jigs and vacuum bagged, then placed in the autoclave to bake under high temperature and pressure.
Once baked, the part is sent to a five-axis machine tool for precision trimming, with the piece held in place by “pogo sticks” that apply suction to the part in exactly the aerodynamic profile of the wing while the NC machines precisely trim and finish the part.
The parts are then checked using NDT equipment and painted for the aircraft assembly line. This process has several advantages, particularly in finishing the composite parts that are much closer to final form than other methods after emerging from the autoclave.
The process has been fully tested using a shortened wing that doesn’t include that last 12 feet to the wingtip. That test wing has already been mounted to a test wingbox structure and dummy fuselage and tested to 150% of expected loads. Bombardier is confident, based on their testing, that the initial production components expected later this year will easily meet all certification requirements.
The composite wing for the CSeries should provide a strong advantage in fatigue life, and, because it is made from composites, will not corrode. These elements all contribute to the “design for maintenance” concept for the CSeries, which as the first all-new narrow-body aircraft using 21st century technology, promises a full 15% reduction in overall operating costs when compared to existing models. This is a step above the 15% fuel burn reductions of re-engined aircraft that translate to only 7-9% economic improvements over today’s models, leaving a significant competitive economic advantage for the CSeries.
The new 600,000 square foot facility in Belfast was formerly the site of the Harland and Wolff shipyard, from which the most infamous ocean liner of all time, the Titanic, was built. Today, the former metalworking facility would be unrecognizable, modernized and stocked with high tech composite materials, a massive autoclave, precision cutters, and five axis milling machines. The technology revolution in aircraft manufacturing has arrived, and Bombardier is “injecting” new technologies for large scale composite structures into its global supply chain.
Now that Boeing has elected to follow Airbus and proceed with the re-engining route for its single aisle jet, the 737, Bombardier and Embraer have clarity from which to make decisions.
For Embraer, which has been waiting for Boeing to move, its decision revolves around whether to enhance the current E-Jet line or proceed with an entirely new airplane. For Bombardier, it – and the market – finally know what they are competing against. While analyst response has been split whether this is a good or bad thing for Bombardier, we see this as a net positive.
Embraer made it clear they were waiting for Boeing to make its decision to re-engine or do an NSA. Boeing’s decision has been made. Now Embraer has the clarity it needs to decide whether to enhance the E-190/195, stretch it, re-engine it or proceed with a clean-sheet aircraft.
In a research note issued July 25, Goldman Sachs analysts believe that the company now may have a better case for stretching the E-195 and doing a re-engine as well. The E-Jets sell well and the most recent important win at Alitalia, with stiff competition from a newer generation offering from SuperJet (partially Italian) demonstrates E-Jet economics remain compelling and competitive. Embraer may not feel compelled to rush into anything and conserve its R&D. Once it is clear that an updated GE engine or an appropriate sized P&W GTF is ready, they could move forward. We understand that Embraer has been speaking with both P&W and GE (the E-Jet currently uses the GE CF34) GE is researching the next generation CF34. Since Embraer has made no public statements other than it is waiting to consider its options, it is under no real pressure to do anything now.
Bombardier is the market-maker in the new narrow bodies; and the reason we have the RE and neo now is because Bombardier started the process when it launched its CSeries. The bigger OEMs either spoke poorly of it (Airbus) or politely ignored it (Boeing), and the Lufthansa and LCI orders didn’t move the needle, but when Republic Holdings placed its CSeries order on behalf of Airbus operator Frontier Airlines, this shocked Airbus. Suddenly the need for Airbus to react was clear – it was likely to be the bigger loser to the CSeries. This led to the introduction of A320neo, the success of which has led to the 737RE.
Bombardier is under a bright spotlight. Some analysts think Boeing’s move is a positive for Bombardier, providing clarity and a clear path for orders. This group argues the CS300 will be more fuel efficient than the 737-700RE and, with 21st century technology, justifies ordering this model over the 737. Others think the 737-700RE will sufficiently close the fuel savings gap as to making a switch to the CS300 not worth the cost of a new fleet type.
In our view, either argument ignores one key element that actually aligns with the Airbus and Boeing theories of up-sizing fleets: regional jets are being retired in favor of larger planes. The day of the 50-70 jet is gone and we think even the days of the 70-90 seat jet are numbered.
This makes the 100-130 seat CS100 an attractive proposition. Sales of the CSeries are slightly weighted to the 130-149 seat CS300, but the CS100 has proved a respectable seller. As airlines move up from the traditional RJ market, the CS100 should prove popular.
The CS300 will be more efficient than the A319neo and the 737-700RE and the CSeries is more passenger-friendly than the E-Jets (larger overhead bins, bigger windows), putting pressure on Embraer.
The other advantage is that Bombardier can deliver aircraft in 2014, two to three years before availability of competing Boeing and Airbus aircraft. With a 15% reduction in total operating costs over today’s aircraft, that represents substantial cash flow. Airbus and Boeing have full production lines with significant backlogs. While both are considering increasing production rates even higher than the 40-42 announced, and while both over-book their sales, there may also be sales driven to another producer simply because Airbus and Boeing can’t offer timely delivery positions.
There are some big opportunities beckoning for Bombardier. First would be Delta, which has an RFP out and is currently evaluating responses, likely to be closely followed by RFPs at United and Southwest. The two former airlines are, we understand, are favorably disposed to CSeries. Southwest is a dark horse right now, but neither Airbus nor Boeing play effectively in the Boeing 717 space, giving Bombardier a potential opportunity should Southwest wish to replace the 717s it is acquiring with AirTran for something more efficient.
Bombardier has an interesting window of opportunity in which it can capitalize on its advantages. Airbus and Boeing are busy with their orders and developing their re-engine programs. There is no Brazil offering yet. China has nothing right now in this space and the Russo/Italian SuperJet has less momentum than CSeries. Experience with new program delays at Airbus and Boeing have made airlines wary – the thinking is if these two messed up schedules, surely Bombardier will do the same. But Bombardier seems to have learned from its competitors, it is currently on schedule, and its CSeries will be flying before anyone else’s planes, and it has production capacity to offer earlier deliveries.
There are several reasons the CSeries hasn’t been selling well to date:
- Market uncertainty – now clarified
- Customer skepticism – still not solved
- Highly competitive prices from Airbus and Boeing – not solved but solvable
- Show me the numbers – P&W recently become credible with its GTF, and Bombardier is just getting there with CS. First flights and performance verification will go a long way in eliminating #2.
Airbus neo has built a market bubble, which Boeing will now try to match. But bubbles burst, which the big guys can handle, but little guys can’t. Bombardier doesn’t need 1,000 orders, just a couple hundred to be where it wants to be, and is likely to get them before the end of this year.
As the chart illustrates, the survey has pretty much run its course. As of this writing, we have 233 responses. Recognizing this is not a scientific survey we also need to accept the responses come from a primarily qualified audience given this site’s traffic sources. So we would tend to consider these results as worthy for consideration. Let’s look at each question.
Over 60% of respondents believe the 737RE will be an economic success for Boeing. This is good news for the firm and with such a strong response one wonders why Boeing did not make the decision to do the re-engine sooner? Respondents clearly feel confident in the airplane and Boeing’s ability to make it work. Given the iterations of the 737 since 1967 this is understandable.
2017 is when most respondents see the 737RE entering service. American, as first customer, expects its first 737RE’s in 2018. Given OEM program delays this is a sensitive issue. But the RE, depending on just how many changes Boeing decides to go for, should be considerably less complex than the NSA. Rumors of a 787 style flightdeck and obviously accommodating the bigger engines are the main changes. The 737 already has wing 4% larger than the A320 which helps provide 9% more fuel. Boeing’s 737 wing is said to be up to 5% more efficient than that on the A320. So we would expect Boeing to ensure wing advantages are maintained even with newer, bigger/heavier engines.
Having discussed the 737′s advantages in its wing, it is interesting to see that nearly 60% of respondents (who we assume know of the 737′s wing) still do not see the 737RE being more economically efficient than the A320neo. This could be due to Airbus removing one toilet in back of the cabin, and adding a row of seats, plus the fact that the neo will not need to compromise its fan diameter for either of the two engines offered. We may also be seeing here the expectation that Airbus will improve the A320 wing somewhat to close the gap with the 737. Moreover, Airbus could make use of newer materials to reduce the neo’s weight – the A320 is supposedly heavier than the 737.
This question obviously is an attempt to understand market reaction to the evolving situation now that we have an neo vs. RE world. We see nearly half the respondents believing the RE will not be helpful to Boeing’s market share. 47% of respondents think Boeing’s market share will decrease.
The result in this chart needs to be contrasted with the previous one. Here 53% of respondents do not see existing 737 customers switching away from Boeing. Yet in the previous chart suggests Boeing will not lose market share. Doing a cross-tabulation of these two questions provides some additional insight.
Among respondents who believe that Boeing customers will switch, two thirds also believe neo will be more economically efficient. Among respondents who think Boeing customers will not switch, fewer believe (still over 50% though) the neo will be more economically efficient. Interestingly, among the non-switch respondents, the number who believe the RE will be economically competitive with neo is 57% greater than those who do nor think the RE will be as economically competitive.
We hope you enjoyed this poll.
Two senators wrote to Richard Anderson, CEO of Delta Air Lines and chairman of the Air Transport Association. The letter addresses the ticket taxes which airlines are still collecting even though the partial shutdown means the government is not collecting that money.
“Although this policy may increase your bottom line in the short term, we are afraid it will have long-term repercussions for the industry,” wrote Senator Jay Rockefeller, chair of the Transportation Committee, and Senator Maria Cantwell, chair of the Aviation Subcommittee. “We urge the nation’s airlines to put all of the profits that they are making from the lapse of the aviation taxes into an escrow account so they can be transferred back into the AATF (Airport and Airway Trust Fund) when Congress reinstates the taxes. We have heard from airlines for many years, these fees, all of which are passed onto the consumer, depress the demand for air travel,” the senators wrote. “We are left to conclude that your previous assertions were incorrect about the impact of taxes and fees on the industry.”
The US government is not currently collecting a 7.5% sales tax on US air tickets and a 7.5% sales tax on the purchase of frequent flyer miles. Taxes on jet fuel are also reduced. During this lapse the US government is losing $200m in tax revenues per week.
Kestrel Aircraft has chosen the Honeywell TPE 331-14 engine for its new turboprop aircraft currently under development. Kestrel is headed by Alan Klapmeier, former CEO and founder of Cirrus Design.
For this application, Kestrel will utilize a version of the engine de-rated from the normal 1,760 shp to only 1,000. This should provide wide margins for takeoff and climb performance, as well as improve maintenance costs, since the engine will be working at only slightly more than half its full capacity. The TPE-331 was selected over the Pratt & Whitney Canada PT-6.
Kestrel recently located its headquarters and manufacturing facilities at the former Brunswick Naval Air Station in Brunswick, Maine, and anticipates a strong market for the aircraft, which will be priced between $2.5-$3 million per copy.
Airbus just announced an order from International Airlines Group (IAG). This firm order of eight A330s for Iberia’s fleet follows the preliminary MoU signed earlier this year. General Electric (GE CF6-80E1) engines have been selected as well. It appears the -300 model is the version acquired. Willie Walsh, IAG chief executive, said: “The A330s will be more cost effective and fuel efficient than the aircraft that they replace with improved environmental performance”. He does not state which airplanes these A330s are replacing but it would seem they will replace A340s. The A330s will be the only widebody twin in Iberia’s fleet.
The A330 continues to serve Airbus very well and, for now, is the only game in its segment.
Note this survey is not scientific. That said, this site’s traffic is highly focused in terms of traffic sources. Our readers are typically from within the industry. Therefore as much as we need to start with a disclaimer, we also want to say that what we see in the results is not something to ignore. The opinions are worth noting at the very least.
As of this writing, there are 210 responses. In a perfect world, with a random sample of responses, this response rate should provide a confidence level of between 6% and 7% given site traffic since we posted the poll on Friday. With that backdrop, here is what readers have shared so far.