A Commercial Aviation Consultancy

The 2013 Paris Air Show has now concluded, and we can reflect on what the activities at the show will mean in the marketplace and the implications for the industry.  While the last two shows, Paris 2011 and Farnborough 2012, were dominated by the narrow-body neo and MAX, respectively, Paris 2013 is the year of the wide body.

The Year of the Wide Body
The Airbus A350XWB flew at the show, only a week after its first flight, providing a signal that the program appears to be on track with its current schedule.  Orders from United for the -1000 model and the anticipated order from Air France-KLM (held up by a dispute with Rolls Royce, which wanted power by the hour maintenance for all engines on the program) moved the program backlog forward.  Things look on-track for successful EIS next year.

Boeing launched the 787-10, as expected, and gained several orders, including Singapore just before the show and United and two leasing companies during the show.  The largest version of the Dreamliner will incorporate the significant learning that has gone on during the rough introduction of the 787-8, and should provide Boeing a cost-effective platform with a similar seating capacity as the A350-900.

Airbus was buoyed with a leasing company order for 20 A380s, a program which has been seen slowing momentum as newer aircraft offer similar seat-mile economics with much lower risk.  Unlike the halcyon days of the 747, when the tri-engine competitors couldn’t quite match seat-mile economics, today’s new model twins will be just as cost-effective on a per seat basis.  As a result, we now see the A380 (and 747-8) as niche aircraft, rather than mainstream aircraft, that will focus on constrained airports that require high capacity aircraft.

Boeing dropped additional hints about the 777-X, but is waiting to officially launch the program.  Perhaps a launch order from Emirates could result in an announcement at Dubai in November, or Farnborough next July.

A Significant Regional Launch
Embraer successfully launched its E2 series of EJets, which had become economically obsolete only 7 years after entry into service.  While a re-engining of a program that young is quite unusual, competition from the Mitsubishi Regional Jet in the 70-90 seat range and the Bombardier CSeries in the 100-135 seat range forced Embraer to either revise its aircraft or see sales continue to erode.  The largest E-195 model includes a 12 seat stretch to increase capacity and better compete with the Bombardier CS300.

Their major launch order in the regional sector is with Utah-Based SkyWest for 100+100 of the smallest 75 seat airplanes, subject to an out clause in the event SkyWest does not secure a Capacity Purchase  Agreement with a major player.  Embraer also secured an order from ILFC for 50+50 of the larger E-190/195 models in the 100-130 seat size, a vote of confidence from the leasing community.

With an large installed base, we would expect the re-engined E2 series to be popular with existing customer for reasons of fleet commonality.

Pratt and Whitney Gaining Momentum with the GTF Engine
The PurePower geared turbofan engine from Pratt & Whitney gained further momentum with the  Embraer launch and has now been selected for five programs, the CSeries, Airbus neo, Mitsubishi MRJ and Irkut MS-21 in addition to the E2.

The order book at the show indicated clear momentum for the GTF, particularly on the Airbus neo, where it is gaining market share and appears to be now clearly winning the battle with CFM.  Prior to the show, PW had a slight lead on neo with a 599-589 lead over CFM.   At the show,  PW gained slightly over 2/3rd of orders, and post show has a 37%-31% market share lead, with 32% remaining to be announced.  On the largest Airbus model, the A321, the market share is about 75%-25% for the GTF, as the LEAP appears to be more limited in higher thrust applications.

We believe the growth potential for the GTF is higher than for the LEAP, and expect a performance gap to emerge over the next five years as PW prepares its first technology insertion program.  PW expects that it will be able to offer a 1% improvement each year over the next decade in fuel economy, and that it will be able to retrofit half of those improvements into existing engines as those improvements are developed.   The growth potential for the engine appears to be a major differentiator in the airline decision process and economic modeling favoring the GTF over LEAP at several airlines we have spoken with.

Electronic Taxi Systems Come of Age
SAFRAN/Honeywell demonstrated their engine-off electronic taxi system at Paris, using only the APU to push back and taxi the aircraft with electric motors on the main landing gear.  This is more than a year after WheelTug demonstrated its own system using a nose wheel electric motor in a competing configuration.

The benefits are significant, in terms of fuel savings, as well as time savings during a turnaround by eliminating the tugs and enabling the pilot to taxi out himself.  Using a “twist” maneuver and enabling use of two jetways or stairs at front and rear, turn times can actually be significantly reduced, increasing aircraft productivity and airline profitability.

While SAFRAN/Honeywell announced no new customers (they announced an MOU with Air France), WheelTug has received commitments from 11 airlines for nearly 600 aircraft.  We expect to see these program gain significant momentum in 2013, and a David vs. Goliath battle in this market.

QUIET SHOWS
The show was relatively quiet for Bombardier and Rolls Royce, neither of which made a big splash at the show, but continue to drive forward.  Bombardier revealed a previously unannounced customer for its CSeries but no new orders, but expects first flight later this month and the ability to verify the economics projected for the aircraft.  Rolls Royce, which competes well in the wide-body market and is the sole power plant for A350 and an option on 787-10, is well positioned, but maintained their understated British reserve at the show.

The new international competitors, Irkut and COMAC, were very quiet at the show.  We understand that Irkut is moving ahead with their program but likely to have a schedule slip, and that COMAC still lacks the integration skills needed to coordinate the design elements outsourced to Tier 1 suppliers, and that a substantial, 787-like schedule slip is looming.

IMPLICATIONS
We’ve come away from the show with a clear indication that innovation wins.  The new technology wide-bodies continue to sell well, and with A350 flying and 787-10 now launched, the success of aircraft designed with advanced materials is quite clear.

On the narrow-body side, the new MRJ and CSeries models will compete against the re-engined small neo, MAX and E2 series, that won’t offer the same level of technological innovation.  When we see completely new designs competing against re-engining programs, the new designs win economically.  It will be interesting to see how well the 777-X will be able to compete against the all new A350 when it hits the market next year.

While the MRJ and CSeries haven’t yet taken off in terms of orders, there is a degree of “show me” that remains in economic performance that can’t really be determined until the aircraft fly, which in the case of the CSeries will be later this month.  We would expect that all new designs will outperform re-engined designed, and that these two new airplanes will, once proven, achieve market success.

In the engine market, the Pratt & Whitney GTF, with an innovative configuration, is gaining the lead over its more conventional competitors, and appears to be the leapfrog technology Pratt & Whitney was looking for.  But with Rolls Royce exclusive on A350 and GE exclusive on 777-X, and GE/RR competing on 787, there isn’t much room for a wide-body GTF at the moment.

The future of the industry looks bright, and Paris 2013 was upbeat.

© 2013, Ernest S. Arvai. All rights reserved.

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