Premium- Air France-KLM fleet refresh

News from Europe this morning describes plans by the airline group to start a fleet refresh of the single-aisle segment in 2019. Of some interest is the language "open some discussion with the two manufacturers. " Are there really only two manufacturers to speak with? Here's what the 2016 fleet looks like, starting with the 101-130 seat segment. Neither Airbus nor Boeing has anything special to offer the airline in 2019 in this segment. But there are two manufacturers that do, Bombardier and Embraer. By 2019 the Airbus A319neo will be operational, but this airline group has shown no interest. In fact, neither airline brand has any order for aircraft in this segment. It is hard to see how Airbus and Boeing make a sale in this segment come 2019. But the two new players will have excellent offerings to consider. The C Series by then will have years of operational history to evaluate. The Embraer E2 program should also be in service by then and also offer a credible solution. We can see the OEM preference by each airline. That is likely to change and move towards one OEM to save costs. Air France is familiar with Bombardier's CRJ and KLM is familiar with Embraer's E-Jets. So the two upcoming OEMs are well known. We assume the Airbus models, being older, are replaced first. The 118-seat A318s can be replaced by far more efficient E195-E2 and CS100s. The A319 at Air France comes in two configurations - a 142-seat all economy and a two class 129-seat version. Potentially the E195-E2 and the CS300 would work - with the CS300 offering a higher seat count option. If the Airbus fleet is replaced first, KLM can bide time to see how the selection works out and then either follow suit or make a different selection. Next, let's look at the 131-165 seat segment. Here we have the quintessential duopoly battle. But by 2019 this will be a three horse race, not two. The CS300 can offer up to 150 seats. By then there is an even chance Bombardier will have launched a CS500. This puts the airline group in a very good position to squeeze out a deal with the negotiation advantage squarely in its hands. Clearly, with its fleet only about halfway through its lifecycle, the group does not have to rush its decision. By 2019 both Airbus and Boeing will have a much more detailed picture of "what comes next" after the neo and MAX. This offering is likely to be of deep interest to this airline group. As the Air France-KLM CFO Frederic Gagey stated: "We have not yet, I think, the clear picture of what will be the short-haul offer by the industry for the year between 2025 and 2030 or 2035. And, clearly, when you look at the fleet plan replacement, it will be something quite long." This means the duopoly gets a preference in our view. Besides this segment, bear in mind that Air France has 20 A321s (averaging 17 years) and KLM has five 737-900s (averaging 14.5 years). To ensure economies of scale and commonality, we can also foresee a common fleet type preference here with the 131-165 seat selection. Of the 2016 combined fleet, 22.6% is in the 101-130 segment and 29.3% is in the 131-180 seat segment. The decision facing the group affects more than half the fleet, with a majority weighted to the higher segment. This might favor the big duopoly because of this weighting. Given the likely aircraft on offer in 2019, we can't see the big duopoly competing below 130 seats.

US Flight Planner - US DoT On-Time Data	Airbus vs Boeing - Official OEM Data
US Airline Schedule Performance - US DoT Data	Daily OEM Production & Deliveries -

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