Farnborough Preview

There are already some previews out there, for example from Leeham and airchive, so I won’t repeat all that is said there…but:

Of course the BIG question is if Airbus will launch the A330neo at the show – and not, if they will launch it or not. Even if Airbus officials always state that  a final decision has not been made – that may be true from a formal perspective, but the decision has already been made by the potential customers who would otherwise turn to Boeing, at least some of them. This would not be an option for Airbus, of course.

My guess is that Airbus will at least make an “ATO launch”, but recent stories from reuters and Bloomberg suggest that Airbus is looking for last-minute commitments from the likes of AirAsia and ALC to make a launch like we have seen it from Boeing for the B777X at the Dubai Air Show last year.

Indigo will likely go ahead with an order for another 200 A320neo’s, Bloomberg reports today. This has to be seen in the context of the forthcoming IPO and a possible future shareholder stake from Qatar Airways. Indigo would then not only grow further in the indian domestic market, but also become the feeder from the whole indian subcontinent for the Qatar Airways longhaul fleet out of Doha.
Monarch reportedly switches to Boeing – a blow to Airbus of course, but this deal is probably driven by commercial terms which do not leave a big margin for both aircraft and engine manufacturers.
There could be a number of additional orders in the narrowbody market as usual, especially on the Airbus side. Boeing could announce a number of undisclosed customers for the B737MAX.
Not sure if Bombardier can announce something. Monarch adding the CSeries to the larger B737MAX (I expect only the -8 and -9 here) would make sense, but Scott Hamilton is not very optimistic on that one.

I refer to Leeham and airchive here…

I expect Embraer to announce one or more orders for the E2 family, maybe a second lessor. Maybe also some E1 sales…
ATR will for sure have some sales for the ATR72-600. Bombardier always finds it hard to be able to announce during a show due to strict disclosure rules in Canada.
I do not expect anything from Mitsubishi for the MRJ…

Narrowbody engines
This is where we can expect large deals to be announced. American Airlines choosing the LEAP-1A already leaked. A logical choice as GE, CFM and GECAS have great leverage to sweeten the deal with non-neo issues.

Also we can expect that easyjet announced their choice of engines for the A320neo fleet. Any other choice than CFM would be a surprise, for the same reasons as for the AA decision. The same could be said for Lion Air, although there were rumours earlier they would opt for the PW1100G-JM. There are a number of other open A320neo decisions where the direction is not so clear (VivaAerobus, Philippine Airlines, Interjet, Transaero, China Eastern, China Southern, …)

Widebody Engines
The RR Trent1000 to be the choice for the A330neo  now seems to be a given. GE could make some deals with the GE9X of course, RR with the A350 if orders materialize for the respective aircraft. Other than that nothing to exciting here.
The devil is in the detail - it does not look too boring neither too exciting as yet. But there could be "unknown unknowns"...


B757 successor discussion - again!

Again, there is an interesting story about the much-talked-about B757 successor in the press. Now, as I wrote earlier I do not see a business case for that aircraft. As Addison Schonland from airinsight pointed out here, just about 50 B757 are currently flying routes the A321neo and B737MAX-9 will not be able to serve.

So what could be behind the story? I see two possible scenarios:

1.    Absolutely nothing! Maybe Mr. Foster, President of Air Astana, just wants to test the waters and hopes that other airline CEO’s and influential people join the discussion, raising the pressure for Boeing – and for Airbus, which would have to react once Boeing would announce to do something.

2.    Boeing sees that the B737MAX-9 is inferior to the A321neo and uses Mr. Foster to tell airlines around the world not to buy anymore A321neo as a better aircraft could be “just around the corner”.

I think it is more likely that it it something like scenario 1. Investing billions of dollars in such a small niche and, as Air Astana’s CEO suggested, to announce the development now with an EIS that could not be before the middle of the next decade (see Scott Hamiltons comments here) just would not make sense. Sales for the B737MAX-9 would probably suffer more than for the A321neo, as Boeing’s customer base will be more willing to wait as the customer base of Airbus, which is easier for Airbus to keep in their camp.

Also, as Scott pointed out, it would be a family of aircraft, replacing the B737MAX-8, -9 and the B757-200 (for sure not the B737MAX-7). With the 2000+ sales of the B737MAX one can calculate that the production horizon reaches until almost 2023 now. So why prevent further sales of the B737MAX now by announcing a successor too soon? It just won’t happen! Not now!


Transition times...

The next years it is all about transitioning! Well, I could divagate into what "transitioning" means for every one of us and if the whole world and the whole universe is transitioning from one state into the next every second...
No, it's only about aircraft programs this time. But there will be so much transitioning that one has to keep the real overview about what is happening.
First, there is the transition from the A320ceo to the A320neo. Aside from a recent hiccup in engine testing with an engine (PW1500G) very similar to the launch engine (PW1100G) for the A320neo there is no real threat for a smooth transition in production. The A320ceo is effectively sold out. At the end of April there were 1555 A320ceo family aircraft in the backlog. That should be enough to cover the outgoing production until 2018.
It is a little bit different for the B737NG and the transition to the B737MAX. Although officials from Boeing keep saying that the B737NG is sold out as well. But at the end of April there were 1791 copies in the books and Boeing's B737MAX comes almost two years later than the A320neo. But the difference of 240 aircraft in the backlog does not provide almost two additional years of production. So Boeing must have sold an additional 650 or so B737NG to cover production until full transition to the B737MAX.
Next is the B777: there were 286 open orders in the books at the end of April, covering 35 months of production at the current rate of 8.3 aircraft/month. This gets Being into 2017, but the B777X has an EIS of late 2019. A two year gap, so a rate cut is very likely, as Scott Hamilton reported.
Then there is the widely expected launch of the A330neo. There were 260 A330 series aircraft in the backlog at the end of April, lasting 26 months at the current rate of 10/month until mid 2016. The A330neo is expected to enter airline service in late 2017 or early 2018, so a rate cut is also almost a given here.
To be clear: both the B777 and the A330 will have a few further sales, but it won't be enough to bridge production with the current output rates.
Did I forget something? Yes - Embraer!
At the end of Q1 2014 there were 264 EJets in the backlog. Subtract 24 from Jetblue which will not be taken (at least not in the E1 version) and 7 for Nasair (they recently got rid of all their EJets and "transition" to an all Airbus fleet), so that is 233. Production is about 90 aircraft per year - that gets Embraer into the last quarter of 2016. I expect some options drawn for additional E175's for the three big american airlines (AA, DL and UA). But will these get them to a smooth transition to the E2 series jets, which should have an EIS in 2018 (E190E2), 2019 (E195) and 2020 (E175). I doubt that - Embraer should hurry up...


No clean sheet B757 / B767 succussor!

I refer to the story in herald.net reporting from the Boeing Investor Day on May, 21st 2014. Reading the article we must come to the conclusion that a clean sheet design B757/767 successor will not happen for some time.

After the financial B787 debacle, which is now between $23 and $25 billion in the reds and with a costly B777X program ahead nobody in the Boeing upper management will have the will to try to sell another technical and financial adventure to the shareholders.

One could say that Boeing now has all the learning about how to develop and produce a fiber carbon aircraft and the development of the B777X wing would give further experience and would lower the risk. But this aircraft – a B757/767 successor – would have different competitors, coming partly from Boeing itself. The B737MAX-9 and the A321neo from the lower side, the B787-8 and a A330neo from the upper side. Of course, the B737MAX-9 and the A321neo would not be able to do the critical B757 missions and the A330neo and the B787-8 are optimized for longer ranges and thus would not offer optimized costs for, say, a 4000nm mission. But this market segment alone, which can not be served by the B737MAX-9 and the A321neo, would be too small  to present a business case with another $10-$15 billion investment upfront.

Sales prices would also be a problem with a A330neo, which, with a 2018 EIS by 2025 could have written down development costs and could be given to customers for prices we see today for the baseline A330 (escalated by inflation, of course).

Boeing yesterday made clear (as Airbus did before) that future aircraft will (for the foreseeable future) only see incremental developments rather than revolutionary designs. The plans from Airbus for an electric regional aircraft might be the only exception, but we have to wait another few years to see if this concept will really become reality.

Is there a demand for a B757/B767 successor? Yes, of course! Will Boeing sell one aircraft less if they (and Airbus) don’t do it? No! And this is what counts for the shareholder. Period!


Another hint for the A330neo launch

I just found the Earnings Call Transcript from ALC for the first quarter, There is an interesting part there (fair quote from Seeking Alpha):

John D. Godyn - Morgan Stanley, Research Division
That's very helpful. And Steve, you mentioned the A330 NEO. I was wondering if you had any sort of initial thoughts that you'd care to share?
Steven F. Udvar-Hazy - Founder, Chairman and Chief Executive Officer
Yes, we've had a lot of going back and forth with Airbus, with the engine manufacturers, with a number of airlines that have sort of raised their hand as potential launch or co-launch customers for the airplane. Basically, I think what Airbus is evaluating is a new generation of A330-200s and 300s with engines that are of more current technology and are being currently devised or in operation, derivatives of engines already in operation that would offer a double-digit increase in efficiency and fuel savings. And I think Airbus is looking at that very carefully as a possible alternative to the A350-800.

What do we learn from that:
  1. The A330neo will be launched at the Farnborough Airshow!
  2. ALC will be one of the launch customers.
  3. There will (probably) be a A330-200neo, not just a A330-300neo.
What do we not know (yet)? Who will be the engine provider?

Anybody wants to bet against that?`

Not that I think that everything that SUH says and wants is becoming reality: SUH was one of the vocal opponents of the A320neo before it was getting launched. I remember him argueing against the A320neo at the european ISTAT meeting in October 2010, telling the audience that the benefits in fuelburn and noise were not much more than a PR gag. Reality told us otherwise meanwhile and ALC is a large customer for the A320neo as well as the Boeing counterpart, the B737MAX.

Now, in the case of the A330neo, he does not see the fuelburn (and noise as well) benefit as a PR benefit only. Life is everlasting learning...