Why is Leahy so pessimistic?

Airbus Salesman John Leahy seems not to be too optimistic about selling a lot of aircraft at this year's Paris Air Show. He still expects to sell around 750 aircraft this year. At the end of March there were sold 431 aircraft according to the published Excel Sheet on their website. Additionally, we know that Lufthansa will buy another 100 A320 and 2 A380, Turkish will buy 83 A320 and Mandala 18 A320 through Tiger Airways exercising options (although Mandala will probably then cancel their old order for 25 A320's).
Before cancellations this would be then 633 orders. Knowing that there are a lot of decisions still looming this year and that not only the Paris Air Show but also the Dubai Air Show is coming, I would be surprised if the orderbook for 2013 would only see 750 orders. But maybe Leahy was talking about net orders and he already knows that Kingfisher will cancel all their outstanding orders this year. Also, there are outstanding orders for United and Northwest (now Delta of course) for A320's and I do not expect them to be filled. Mexicana is now defunct and their 4 open orders will sooner or later also disappear.

More narrowbody orders

As forecasted, we have already seen quite impressive narrowbody orders this year, although the Paris Air Show is still ahead of us.

For example, there are already orders for 461 more A320neo family aircraft – remarkably most of the for the A321neo – this year. In 2012 we saw 478 firm orders, some of which had already been announced at the Paris Air Show in 2011.

The B737MAX had it’s big year in 2012, so we cannot expect that we see more than the 949 orders from 2012 in 2013 again. So far the B737MAX got 121 orders this year.

But I expect more big orders for both narrowbodies in 2013. I already wrote about China and the needs of the airlines there, but now it becomes clearer.  According to CAPA (Centre for Aviation) , the China Times writes that chinese airlines will order about 500 narrowbodies from both Airbus and Boeing in 2013. About half of these orders would be for the neo and MAX models. This would not only be a(nother) boost for both reengining programs, it would also fill further the remaining delivery slots for the current models.

Adam Pilarski from AVITAS still thinks that we see a bubble with all these narrowbody orders. He could be right – if we would see an economic crisis hitting South East Asia and China, a lot of these orders would quickly disappear. But as long as these economies are thriving, Airbus and Boeing (and in the long run probably also Bombardier and Embraer) have nothing to fear but not being able to quickly enough deliver the ordered aircraft.

Good days for the A320!

What a week for Airbus! John Leahy predicted at the beginning of last week during his presentation at the ISTAT conference that until the end of March Airbus will have more than 2000 orders for the A320neo. While the number itself is technically just as good as 1900 or 2100, it justifies once more the decision to go ahead with the neo program in December 2010. Boeing, as it seems, was really caught by surprise, despite Airbus was talking about the possible launch for months before deciding to launch the neo program.

Lufthansa

The Lufthansa order was not a big surprise. I wrote about that in an earlier post. Nico Buchholz, VP

ICAO's new noise and CO2 regulations a miss!

The International Civil Aviation Organization’s (ICAO’s) Committee on Aviation Environmental Protection (CAEP) proudly tells us that they achieved agreements  for future CO2  and noise regulations. Nothing particular is said about the CO2 standards, although they were already heavily criticized by Dimitro Simos, author of the Aircraft Performance Software PIANO when a draft of the plan was outlined in mid 2012.

Narrowbody Outlook 2013

After Boeing and Airbus unveiled their final order and delivery numbers for 2012 it is now time to turn to what is ahead. What will 2013 bring us in the narrowbody segment?

Let’s begin with deliveries – this is quite easy:

·         Airbus stabilizes their output rate at 42/month and will deliver 480-485 A320 family aircraft (ca. 11.5*42 as we have to take the summer break into account)

·         Boeing will increase the delivery rate towards  38 B737NG’s per month and therefore deliver between 450-460 narrowbodies.

·         Bombardier will deliver the first CS100 in 2014, so A & B are (probably for the last time) alone.

Narrowbody Review 2012 Part 2

After the Airbus Press Conference is over we now have the long awaited numbers of orders and

Narrowbody Review 2012

Slowly, but inevitably, the year 2012 is coming to an end. Here are some thoughts about the current situation of the narrowbody market:

Orders

 

Boeing now has not yet fulfilled its own prophecy and has “only” 969 firm orders for the B737MAX in its books (with 819 orders in 2012), shy only 31 from the goal to have 1,000 by the end of 2012 and I guess that there will be another order (or more) in December to fill that gap..

"Mystery" A320 customer

Airbus revealed the November O&D spreadsheet today and there is an undisclosed customer for 100 A320 family aircraft in it.
Now there are - competing - two airlines which talked about a 100 aircraft strong A320 order or were rumoured to place an order soon: Airasia and Lionair.
So who is the "mystery" customer?
Airasia needs more aircraft soon - their growth strategy especially in Indonesia, where they want to give Lionair a hard fight, took a setback with the failed takeover of Batavia. So to keep or become competitive in Indonesia, they need more aircraft soon. Not just neo's but also ceo's.
Lionair on the other hand has an orderbook large enough to wait for the neo...
Let's take a look at the neo orders at the end of October: they stood at 1469.
We know that Transasia ordered another 6 and Interjet 40 neo's. This is 1515.
In a presentation at the EADS investors day last week John Leahy mentioned to have 1579 orders for the neo - a difference of 64 aircraft that can only be a part of the 100 aircraft strong order from the undisclosed customer.
So I have a very strong feeling that Airasia ordered another 64 A320neo and 36 A320ceo.
And now I wait eagerly for a reaction (read: counterorder) from Lionair...;-)

The Airbus vs. Boeing Ad-War

An „ad-war“ broke out, media says, when Airbus published an ad in several aerospace publications, accusing Boeing to lie when they compare performance of the B737MAX with the A320neo and the B747-8I with the A380.

A good summary can be found here. What I found amusing is that obviously the Pinocchio theme is a tit-for-tat response to spat over market share back in 1994...

One could see it a little bit differently: maybe the war was “broken” by Boeing when they began to publish their ads about B737MAX vs. A320neo and B747-8I vs. A380 performance?

But lets look at the facts:

Boeing always claimed that the B737-800NG has an 8% cost advantage versus the A320 an a per-seat basis and as the B737-800NG has a typical seating of 162 seats versus 150 seats in the A320 this means that the cost per flight are more or less equal, as the seat difference is exactly 8%.

Now Airbus claims that the A320neo needs 15% less fuel than the A320ceo. Boeing claims that the B737MAX needs 13% less fuel than the NG.

Let’s say fuel costs are 50% of overall (cash operating) costs.

Then the A320neo cost per flight is 92.5% of the A320ceo cost per flight (0.85*50% fuel costs + 50% other costs).

The B737MAX-8 cost per flight is 93.5% of the B737-800NG cost (0.87*50% fuel cost + 50% other costs).

So after reengining there is a slight advantage for the A320neo in terms of cost per flight.

On a per seat basis there is an advantage for the B737MAX-8 of 6.85%.

Of course, this is a very simplified view at the costs. Any change in maintenance costs of the airframe and the engines also play a role. But if you compare the LEAP-1A powered A320neo with the LEAP-1B powered B737MAX-8, the changes in engine maintenance costs should be comparable to the CFM56 powered A320ceo and B737-800NG.

The question is why Airbus and Boeing are “communicating” via ads? Airbus says that the Boeing ads might let “less sophisticated airlines” keep from talking to Airbus directly.

“Less sophisticated airlines”?

Of course, there are airlines which have a better aircraft performance analysis than other ones – the larger the airline, the better the capabilities, I guess. I know Lufthansa always does a very thorough analysis before buying any aircraft. Singapore Airlines also does very good work here as many others also. Air France probably as well does a good job here, although on the engine side thy seem to be always preferring a GE/CFM engine choice (if available), as the national player Snecma (Safran) is involved there.

But look at the recent comments from Estonian’s CEO about the CRJ900, calling the aircraft not competitive for markets with less than 80 seats (the CRJ900 has 88 seats at Estonian). So why, one could ask, did they choose an aircraft with more than 80 seats when they know they want to use it in markets with less than 80 seats?

Clearly, the department for aircraft performance analysis at Estonian – if there is one – lacks some competency, as well as all of the upper management, as they finally gave approval to buy the aircraft.

So Airbus in the end might have a point here in launching the counter-ad…

Lion Air vs. AirAsia

That just caught my eye: after AirAsia announced to buy Batavia Air, merges them with Indonesia AirAsia and thereby becomes a real competitor to Lion Air, now Lion Air (together with NADI) strikes back in AirAsia's home country.
Competition in Southeast Asia will get hard in the next few years. But the region is the one with the highest growth and everyone wants to get piece of the cake.
Will the new airline place a large narrowbody order? Or will they be fed from Lion Air's existing orderbook for B737-900ER/-MAX9? Next Tuesday could be interesting - and AirAsia already announced that they want to place an order for 50-100  more A320 (ceo I guess) at the Berlin Air Show (ILA), also next week.

Surprising engine choice

Last week Aviation Week came out with a story that Philippine Airlines opted for the V2500 and PW1100G for their ordered A321ceo/neo fleet and chose the Trent700 for their new A330-300 fleet.
As of today the whole PAL fleet is powered by either CFM or GE engines this would be a surprise if true - but also shows that PW gained market power through the buy of the RR share in the IAE consortium.
Looking at the A321 in particular though, the choice of the V2500 is not that surprising. From here I pulled all A320 deliveries from this year through August 31: about 84% of all delivered A321 have the V2500. In contrast, about 60% of the A319 and A320 were delivered with the CFM56. As the A320 counts for roughly 76.5% of all A320 family deliveries and the A319 for 7.5%, the CFM56 has the lead with 53.2% market share over the V2500. This is slightly down from 2011, when the CFM56 had a share of 56% for the whole year. In 2009 I found that the market share of the CFM56 was 61%. So with the shift to larger narrowbodies, like I described earlier, the market share in the narrowbody engine segment also changes.

Expected Airbus Order from China

As german chancellor Angela Merkel visits China this week, it is expected that China will order up to 100 Airbus narrowbodies. Looking at the delivery rate to chinese airlines and the backlog that chinese airlines have with Airbus, an order for 100 aircraft is not too much, even if the bulk of these would be for the ceo version. If I counted correctly there were 125 deliveries of A320 family aircraft between January 2011 and July 2012. The current backlog of chinese airlines is 186 aircraft - at the current delivery rate this is good for about 28 months. At the end of 2014 all the backlog would be gone.
There are an additional 42 orders from lessor ICBC and a MoU for 36 aircraft from CALC though, but these aircraft could also be placed outside China.  At best (here: when all aircraft are placed with chinese airlines) the backlog would be Zero at the end of 2015, just when the neo enters service but probably a long time before delivery slots would be available (although some chinese airlines or lessors may have reserved a limited number of slots in advance).
But before the A320neo will be available in larger numbers for chinese airlines (probably then coming from the chinese Airbus factory in Tianjin), Airbus can sell a bunch of ceo aircraft to chinese airlines meanwhile, thereby utilize also the Tianjin factory until the ramp up of the neo provides for a smooth transition there.

What is the situation at Boeing? There were 77 deliveries to chinese airlines from January 2011 until the end of July, a much slower pace than at Airbus. There are 212 open orders from China for the B737NG, good for 53 months of supply at the current delivery rate. This takes us into 2017 but well before the targeted MAX EIS and any open delivery slot for the reengined version of the B737. So another order for the B737NG from China is almost inevitable as well to satisfy the growing chinese aviation market.

A little unknown in the context of narrowbody aircraft supply to chinese airlines is the C919 and when this aircraft will enter into airline service. I do not know anybody who firmly believes that this aircraft will be on time (meaning a 2016 EIS). I would deem a 2018 EIS as a success, an even later date not to be a real surprise. And I would not expect a sudden ramp up to meet a significant part of the demand from chinese airlines.

The other unknown: the chinese economic activity. We are just seeing a considerable slowdown here. Highspeed Rail is another factor which could slow the growth in aviation. Boeing denied that possibility in their Current Market Outlook, but used numbers from 2009 in their presentation. Words from chinese airline managers sound different.

The chinese market is important for both Airbus and Boeing - 20% of all Airbus narrowbodies were delivered to China since January 2011 and 12.5% of all B737NG's went there. So a slowdown of economic activity in China is also of great risk for both manufacturers, in particular for Airbus.

UPDATE: About 30 minutes after I posted this entry, China Southern reported slumping profit due to the economic slowdown.

Narrowbody Market Shift

AirInsight last week published a report about the narrowbody market, especially about the 100-149 seat segment. What they found is that - in their opinion - the failure of aircraft in this segment was due to either weak OEM's (and I guess that this means that the OEM was undercapitalized) or due to the fact that the aircraft were no clean sheet designs optimized for that market segments but rather derivatives of (mostly) larger planes. As such a "shrink", an airplane carries a lot of weight that is not needed for it's role. For example the wings are too large and heavy, as they were designed for the original and larger aircraft.
The only aircraft that is currently in production and is a point design is the EMB190/195 family - where the EMB195 seems to be a bit underpowered in terms of takeoff length at MTOW, but the thrust is OK for typically flown routes below 1000nm.

Boeing wins a MAX customer from Airbus

SilkAir announced they signed a LoI with Boeing for 23 B737-800 and 31 B737MAX-8 with another 14 options. The orders can be converted to other versions.
This is significant as Silkair is the first customer Boeing catched from Airbus. Silkair currently operates a fleet of 21 A320 with 3 more on order.
Until now it was Airbus who draw customers away from Boeing, the first one being American Airlines - prompting Boeing to announce the (then yet unnamed) B737MAX.

COC and DOC Part V

This is the next part in a series of blog posts related to COC and DOC - the last one can be found here. As I referred to Allegiant in that last post I will continue with that particular airline here.
Yesterday Allegiant announced that they will introduce the A319 into their fleet. The company presentation includes an interesting comparison of COC and DOC costs per passenger between the MD80 and the

COC and DOC Part IV

Over at Leeham News where is a heated debate (once more) over if the A320(neo) or the B737(MAX) is the more efficient aircraft. As both aircraft were ordered and are flown in thousands both aircraft obviously cater their respective users - besides there are quite a few airlines operating both aircraft.
I tried to lay out how looking at DOC's or COC's or looking at costs per flight or per seat influences such a comparison in an earlier post.
Let's have another look at it. DOC or Direct Operating Costs are comprised of

A320 and B737 backlog burndown

Scott Hamilton has a few more details from the Airbus Innovation Days.

He cites JP Morgan with an observation that not all of the delivery slots for A320ceo's are filled for 2015 (2014 is full) and therefore it would be a good decision not to boost output further.

Let's have a look at the current number of open orders for the A320ceo as well as those of the B737NG.

Here is how the backlog of A320ceo's develops if there would not be any new sale nor any cancellations. Of course there are some "risk positions" in the backlog: Kingfisher, the remaining Delta (Northwest) and United order and  Mandala come to mind...

As of May 1st, 2012, there were 2084 A320ceo and 1286 A320neo on firm order.

The Superjet Crash

There are a lot of commentaries about the crash of the Superjet in Indonesia, killing all 45 people on board.
Almost all commentaries point out that future Superjet sales will take a hard hit because of the crash - not so fast, I would say: if the reason for the crash was a pilot error, then why should that hurt sales. In the end the Superjet is a modern design with all the latest western systems in it. Fuel burn could of course be better - the design of the SaM146 engine is, like the PW6000, build upon low maintenance costs, not on lowest fuel consumption.
Remember the crash of one of the earliest A320 in 1988 at Muehlhausen-Habsheim: a pilot error also, but many pilots pointed to the fly-by-wire system of the A320 as the root cause. Did it hurt A320 sales in the long run? Definitely not.
Also the crash of one of the A330 prototypes (due to a wrong autopilot input) did not hurt A330 sales.
So I would be careful to predict a slump in sales for the Superjet - it is too early to draw conclusions before we do not know what happened on board, especially in the cockpit.

Delta's 737-900ER order

Yesterday came the news that Delta Air Lines will purchase 100 B737-900ER to begin the replacement cycle of it's narrowbody fleet. Until there is an official press release from the airline, it is rumours, but let us assume that the information is accurate.
Scott Hamilton is certain that Delta will have conversion rights to switch to the reengined version (the B737-9 as it stands now). If true, this little detail could hurt Boeing

A320 vs. B737-800 Fuel Burn

There is the never-ending "war of words" between Airbus and Boeing of which aircraft is the more fuel efficient one, and, since the launch of the A320neo, if the A320neo would be more fuel efficient and if yes, by what margin. Further complicating, Boeing meanwhile claims, that it's yet-to-be-named reengined B737 would have the same advantage in terms of fuel efficiency as the current generations of these two narrowbodies have. And as even Boeing does not seem to know how the exact configuration of the reengined B737 looks like, this claim seems (at least) a little bit premature.
As I tried to lay out in an earlier posting, much depends on what you want to compare:  fuel burn per trip of fuel burn per passenger.
The official documents provided by the manufacturers