Category Archives: COMAC

Singapore Show Orders

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This show follows the usual pattern – orders get announced for maximum media coverage.  And the orders are big. Boeing started with a massive order – it’s biggest ever – Lion Air of Indonesia finalized a firm order for 201 737 MAXs and 29 Next-Generation 737-900ERs. The agreement, first announced last November, includes options for an additional 150 airplanes. Lion is launch customer for the MAX-9. With orders for 230 airplanes valued at $22.4 billion (list prices), the deal is the largest commercial airplane order ever in Boeing’s history by both dollar value and total number of airplanes.

Not to be outdone, Airbus also made an order announcement. ALAFCO Aviation Lease And Finance Company, a Kuwait-based international aircraft leasing company, finalized a purchase order for 35 A320neo Family aircraft bringing its total backlog for the type to 85.  The firm contract is an increase from the previous agreement signed at the 2011 Dubai Airshow for 50 A320neo aircraft.The 2011 neo order included P&W GTF engines so we assume the same applies to the new order as well.

Then another unexpected order popped up. BOC Aviation said it has ordered 20 C919s. There has been little news from COMAC and the C9191 for a while.  And keeping the order game going, Bombardier announced and order for five Q400s.  This follows news last week of an order for up to 24 CRJ1000s. Interestingly the customers have not been announced though the assumption is that the CRJs are going to Garuda.

Big airplane sales mean big engine sales

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This morning CFM provided the following PR: “CFM International (CFM) had a record year in 2011, logging orders for 1,500 commercial, military and spare CFM56 engines and commitments for 3,056 LEAP engines for a combined value of $51.7 billion at list price.

As the company logs record commitments, CFM is also achieving record production rates for the CFM56 product line. The company has built more than 1,000 engines per year since 2006, and the rate has grown steadily. In 2011, CFM delivered more than 1,300 engines, the highest rate in the industry, compared to 1,250 engines built in 2010.  Current plans are to reach more than 1,600 engines per year by 2014.”

This is what a great year looks like.

 

Outlook for Aerospace in 2012

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It is the time of year for prognostication. In that tradition, AirInsight will boldly go where all pundits have gone before – but with better accuracy. With our psychic powers in full swing, here are our fearless predictions for 2012:

1. The world will not end – the Mayan calendar was carved on a stone of a certain size, and they ran out of space. Period.
2. Yes, we will see increasing amplitude in climate, natural disasters, and even the location of limited wars and revolutions, with Syria and Iran currently the most likely candidates. But political change will limit the impact of the powers that be today.
3. We will see interim solutions to the Eurozone crisis, as well as the US dollar, as governments and central banks join forces to salvage the financial system and limit future derivatives and risky behavior. We may go back to investing in whole aircraft again, rather than A,B, and C tranches of bundled EETCs and derivatives, if regulators have the intestinal fortitude to increasingly limit derivative instruments. We believe they will, especially with housing assets.
4. Aircraft manufacturers will increasingly become financiers of last resort – constraining capital for important R&D initiatives and new product development.
5. The business aviation recovery will begin, albeit quite slowly, but business jets and turboprops will increase sales in 2012.
6. The new generation of fuel efficient aircraft engines and high fuel prices fueled by political instability will force Boeing, Airbus, Bombardier and Embraer to increase production capacity to meet new demand. New NB aircraft will be sold out thru 2022 by YE 2012.
7. Just as when jets replaced turboprops, some relatively young narrow bodies with older engines will become economically obsolete at a young age, causing some residual value issues for leasing companies and financial institutions. One can’t assume a 25 year economic life any longer for a new A320 or 737NG delivered in 2012.
8. With American in Chapter 11 bankruptcy, expect the America West management team of USAirways to make a run at American, further consolidating the US legacy carriers.

9. The EU emissions trading scheme will continue to be controversial for the foreseeable future, and will likely impact some Airbus orders for China in retaliation, as well as provoke retaliatory actions by the US Congress in the US — which could negatively impact the Eurozone recovery.  Brussels hasn’t awakened to reality yet, and likely won’t until the Euro collapses, and the British celebration haunts the continent.

OVERVIEW
2011 was a boffo year, with record orders at Airbus and outstanding orders for Boeing’s 777-300ER. Had Boeing’s 737 MAX commitments become orders by year end, Boeing would have had a boffo year, too. With the expectation that these commitments will become converted to orders this year, Boeing should easily become more even with Airbus. Having been bolstered by some 1,500 neo orders last year, sales can be expected to slow this year because delivery positions are now well out to the end of the decade.

With cargo statistics beginning to soften dramatically toward the end of last year, this usually is a leading indicator of softening passenger traffic. Might this also depress orders? We’ll see.

But in the USA, the New United Airlines is expected to place an order for 150-200 single-aisle aircraft. Proposals from Airbus and Boeing were due in December. The Old United has a large aging fleet of A319s/A320s and Boeing 757s and a smaller fleet of launch-customer 767-200s. This is going to be a big catch, and it will be interesting to see if Airbus can convince United’s new Boeing-centric Continental Airlines management that it should win at least some of the order. Now that Boeing has the MAX to compete with the neo, the competition is much more even than had it been neo vs 737NG.

This will be an important year to watch for Airbus and the A350 development and for Bombardier and the scheduled first flight of the CSeries. This will be an important year for Boeing and whether it can efficiently ramp up production of the 787 and if it can complete on a timely basis all the rework on those nearly three dozen 787s sitting around Paine Field in Everett.

Here is a company-by-company rundown.

Continue reading →

Highs and Lows in Commercial Aviation in 2011

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AirInsight looks back on the highs and lows in commercial aviation in 2011, all in no particular order.

HIGHS
1. Airbus has runaway success with the A320neo, exceeding its own expectations.
2. After a late start, Boeing clearly shifts into high gear for the re-engined 737 and ends the year with an impressive number of orders and commitments.
3. Pratt & Whitney is back in the small engine game with a series of successes for the Geared Turbo Fan.
4. CFM revamps its LEAP-X after losing key competition to Lufthansa and others and returns with a better design that is more fuel efficient than the first iteration.
5. Boeing has a tremendous year for the 777-300ER order book.
6. Boeing wins the USAF tanker competition, based on the commercial 767, not without controversey
7. Boeing finally delivers the first 787 and 747-8F.
8. Airbus’ success with the A320neo and the monopoly-breaking American Airlines order maneuvers Boeing into abandoning the New Small Airplane replacement for the 737.

SO-SO
1. Bombardier announces new orders for the CSeries but still fails to meet market expectations that are waiting for the “big score.” Broadening the customer base doesn’t satisfy analysts.
2. Embraer plays it safe and foregoes a new, small airplane, opting instead for a re-engine and rewing of the E-190/195.
3. Airbus announces increased payload and a larger engine for the A350-1000, touting improvements—but market reception is decidedly cool.

LOWS

1. “U-Turn” Akbar Al-Baker, CEO of Qatar Airways, stands up Airbus at the Paris Air Show at a press conference where he is to announce orders for the A320neo and A380.
2. U-Turn Al takes his complaints about the A350-1000 public at the Paris Air Show.
3. U-Turn Al stands up Airbus at the Dubai Air Show where he is to announce the order that was to come at the Paris Air Show.
4. U-Turn Al throws a hissy-fit at the Dubai Air Show, claiming Airbus doesn’t know how to make airplanes.
5. U-Turn Al u-turns three hours later and announces the Airbus orders at the Dubai Air Show.
6. U-Turn Al embarrasses Boeing by forcing Cargolux, in which Qatar has a one-third ownership, to cancel delivery of the first
747-8F two days before a media extravaganza/delivery ceremony that includes a rock band. Delivery occurs a couple of weeks later.
7. Atlas Air cancels three 747-8Fs awaiting delivery due to performance shortfalls.
8. IATA elects U-Turn Al to its board of directors.
9. Airbus pushes back EIS for the A350-800/1000 by two years and announces a dix month delay for the A350-900.
10. Boeing is forced to shelve the 737 replacement and proceed with a re-engined 737 MAX after American Airlines defects to Airbus. A clearly uncomfortable Jim Albaugh, CEO of Boeing Commercial Airplanes, has to share the podium with a bubbly John Leahy and Tom Enders as Airbus announces its A320/A320neo order with American.
11. American Airlines finally succumbs and files for Chapter 11 protection under the bankruptcy code.

Taking a bite out of Ryanair

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(Photo – Virginia Mayo/AP)

Earlier this week Ryanair’s CEO was his usual loquacious self.   Mr O’Leary has been at this growth phase for a long time and has a successful track record to show for it. But every bubble must burst and we suspect that Mr O’Leary’s growth bubble is about to do just that. Continue reading →

Boeing accelerates 737 production

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There has been talk about this for some time. Today Boeing announced it is going to accelerate 737 production from 31.5 planes per month to 35 per month.  It may not sound like much, but that is over 11% faster and consider Boeing delivered 376 737s in 2010.  Increase that by 11% and Boeing could deliver 417 737s per year.  Consider also that such an increase in deliveries drives a lot of extra cash to the bottom line. Boeing needs that cash because of program delays for the 747-8 and 787. There’s the updated 777 coming too, which will need R&D cash. Continue reading →

While Engines Drive Technology – It’s Not Just Engines Anymore

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The re-engining announcement for the 737 by Boeing has given us pause to consider the impacts of both airframes and engines and their impact on commercial aircraft.  Clearly, engines are the driving force for technology in the industry, as fuel burn is approaching 50% of operating costs, and the proportional impact from changes in engine technology are higher than other factors.  But what about other elements, and how can new airframe developments, taken together, impact the economics of aircraft.

The 787 and A350, with composite structures, promise a dramatic reduction in operating costs well beyond the savings from new technology engines.  The same goes for the Bombardier CSeries, which will offer a 15% reduction in overall operating costs, about half from new technology engines and the other half from new airframe technology.  Irkut’s MS-21 and COMAC’s C919 are being designed both for domestic and export, with world class suppliers assisting with their new 21st century designs.  Whether they achieve similar results as Bombardier remains to be seen, but they are quite likely to be better economically than the more dated designs from Airbus and Boeing.

In comparing a re-engined aircraft with an all new technology airframe, the savings for a re-engined aircraft will typically be about half that achieved by a new technology airframe with new technology engines.  The trade-off is capital costs, as Boeing and Airbus can continue to produce existing products with new engines at lower cost than all new aircraft programs, such as the CSeries, MS-21 and 919.  Can the economies of scale and pricing power keep Boeing and Airbus on top?  That is the key question for the next decade, as both of today’s players are betting on yesterday’s technologies.

The narrow-body market will soon undergo a fundamental change, and Boeing and Airbus will be eclipsed as technology leaders.  Let’s examine the current and planned aircraft under development that will enter service before 2021 in the chart below.

It is interesting to note that neither Airbus nor Boeing have a 21st century airframe and engine combination, which all of the new competitors will.  Does that mean that the competitors will offer better overall operating economics?  The answer is quite likely.  That means Airbus and Boeing will need to compete on price, service and support, and reputation rather than technology.  But Bombardier has global support and a strong reputation, and has recently signed an agreement to help COMAC — so the competition may evolve to perceived risk and price.  Once these new aircraft are in service and operating reliably, and risks are removed, the nature of competition will turn to price, and Airbus and Boeing must price to the point of economic indifference.

The current strategy for Airbus and Boeing is to lock up as many orders as possible for neo and RE models, expand production capacity, and try to price the new competitors out of the market through economies of scale.  That may work.  While the Chinese and Russian markets are expected to be most successful in their domestic markets, Bombardier will be an effective and tough competitor.  And if Bombardier pulls the trigger on larger CS500 and CS900 models, for which they have reserved trade names, the competition could become even more interesting.

With Boeing now joining Airbus in putting off building a new airplane and ceding the mantle of technology leadership to Bombardier, the CSeries could be the real beneficiary – now that everyone knows it will be the only established player with a new technology narrow-body program through the middle of the next decade.

The Coming Feeding Frenzy

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American Airlines did a brave thing today with its amr-aircraft from Airbus (260+365) and Boeing (200+100).  If you are a fleet planner at United, Delta or Southwest, your stomach just took a very unpleasant turn. The US domestic fleet (except at US Airways and Continental) tends to the aged side. These airlines missed out the last order wave because of poor financials plus a soft demand.  However the cost of fuel and rising MRO costs are forcing hands – they cannot wait much longer and must renew fleets. This is what Airbus and Boeing have been waiting for – the coming feeding frenzy.

Well its here now. But American was not only brave, it was strategic too – it has bottled up just about every production slot Airbus and Boeing could have.  Boeing has the P-8 line which can be harnessed (it will have to) to increase 737 production to reach a goal of 60 per month.  Airbus has a China factory but that won’t be used for this frenzy we think – it is much more likely that Airbus will now go ahead with its Alabama factory, originally planned for the tanker. This will allow Airbus to also reach about 60 planes per month.

There will clearly be a lag before we see 120 single aisle planes coming out of factories every month – 2016 or maybe even 2017.

US airline fleet planners must be choking to realize it will be closer to 2020 before they can hope to get their hands on new more fuel efficient airplanes.  American has a lock on delivery slots for 737NGs and REs – plus Airbus’ neo production is surely stretched into the mists of 2018 by now.  This strategic move by American could mean it operates the most fuel efficient, and quietest, fleet for years before the US competition catches up.

The pressure on Airbus and Boeing to hire will be prodigious. Supply of the skills required is limited and the pool they are going to shop in is the USA. This is possibly the happiest day at aerospace unions in decades. There is going to be mountains of work and labor rates are going to be higher – Airbus and Boeing demand will ensure this.  Unions will know that the other airlines will be part of the feeding frenzy within months so they are going to be busy for years. Throw in the myriad parts suppliers and you can only imagine the limited supply of skilled labor  – its time to get work in aerospace again! This is an industry that forgets slumps faster than a sardine forgets the last circle it swam. Its all sunshine and morning in America today.

As much as Boeing celebrates yet another 737 rebirth (we cannot see the Boeing board turning down the RE now) they have to be fuming – they lost exclusivity at American and worst of all, Airbus has not only won a foothold at American, this foothold is now probably a beach head in Alabama.  In fact, this American order could be seen as a loss for Boeing – they could and should have had it all, but for the dithering on NSA vs. RE.

There is even more to consider. If airlines cannot get their hands on the “neo “versions of single aisle planes, what are they to do? Ryanair is toying with COMAC and now may just take the plunge.  Others will likely follow that lead. There is also IRKUT’s promising MC-21 on the upper end to consider.  At the lower end, the American order has to be excellent news for Bombardier which now represents not only the new technology (and the original disruption creator of the feeding frenzy) – it crucially has production capacity and delivery slots. Delta and Southwest are now surely going to revisit the CS as an option.

American’s order is a tectonic plate shifter.

Ryanair and COMAC – Part III

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In the event we are to believe the naysayers here at the Paris Air Show, Michael O’Leary and his airline are behaving like they are serious about the C919. The considered opinion among the considered in Paris is that Ryanair is playing a grand game to make Boeing blink.  Airbus is less likely to blink given, shall we say, history.

As Mr O’Leary states in the linked article “….we remain in continuing discussions with both Boeing and now COMAC…” There is no mention of Airbus. And he goes on to say “…today’s announcement won’t affect our long standing relationship with Boeing…” Well what is it?  A game of chicken?

COMAC has nothing to lose. Indeed, Mr O’Leary is apparently not a patient man and he is dealing with the most patient people in business.  They will outlast and tire him.  COMAC’s C919 is more likely to run late than say the MC-21.  But IRKUT is not as hungry.  COMAC obviously thinks they have manageable risk.  Even if – and its likely – Ryanair stiffs them, they are likely to learn a lot about satisfying the most demanding LCC in the world.

The linked MOU is mainly fluff.  We are comfortable that both sides know this.  Actually everyone knows this. But Ryanair has thrown down a gauntlet to Boeing.  This would be laughable under normal circumstances. No doubt there are lots of giggles among Team Boeing.  However, it would behoove Boeing not to make too much fun.  The Airbus neo is cleaning up in Paris.  Even though Boeing has secured some 737 orders, it is not at the same level as neo orders. As of tonight we have 49 737s compared with 210 A320neo’s sold at the show.   The market is speaking (shouting?).

The aviation world, especially airplane buyers, are growing frustrated waiting for Boeing to share a definitive vision on the future of its single aisle program. The 737 as we know it cannot go on forever.