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...

Doubts about MAX

Last month I wrote a short entry about Ryanair's Michael O'Leary and what his thoughts are about the B737MAX. Well,  when he talks about aircraft, it barely has to do with physics and what the aircraft can or can not do - it always has more to do with the price for his next deal...
But when the "Godfather of Aircraft Leasing", Steven Udvar-Hazy

Boeing 737 successor Part III

We still have to wait about 3 months until we probably hear from Boeing what their plan is regarding the future of the B737. But if you read what the Boeing CFO this week said at the JP Morgan Aviation, Transportation and Defense Conference in New York, one has to question why Boeing should develop a new airplane at all.
If Boeing believes what their CFO James Bell told the audience, Airbus just closes today's gap between the A320 and the B737-800 with the introduction of the NEO. So why then doing something at all? If both big players are on-par, they could go on and share 50% of the market each - at least above the 150 seat level, where Bombardier reportedly will not offer a CS500 (and the announcement of collaboration with COMAC sheds some light on this) and Irkut and COMAC will have a long way to be a player in the the market.
So where is the incentive for Boeing to spend some $10 billion on a new aircraft with all the technical risk involved, but still staying with a conventional tube-and-wing design and the risk that Airbus will follow a few years later leapfrogging the 797 with an unconventional, radical new design.
The low-risk and low-cost solution would be what Airbus says Boeing will do: follow with a re-engined B737 and let the engine maker(s) pay for most of the cost, as now does Airbus (Udvar-Hazy made some comments about this at the ISTAT).
There are just two things that could lead Boeing to design a new aircraft:

1. Their statement that the re-engining only closes the gap is not true and in reality the NEO's are far better in costs then the NG's. The steadily rising oil price is in favor of the NEO cash operating costs right now and there is probably nobody out there who will predict oil at below $80/barrel in the future. But a re-engining could close that gap - maybe not entirely, but close enough, so that by "adjusting" the purchase price (see A340-600) for the aircraft should be good enough to sell the aircraft.
2. The basic design of the 737, namely the narrow cabin is too old to be attractive for airlines in the future. This is somehow contrasted by the good response to the Sky interior just introduced for the B737NG.

Bottom line: I am not convinced that Boeing will show the world a B797 in Paris - at least not this year...

There is more about that here:
Part I
Part II
Part IV

Lufthansa next in line for A320/A321NEO

Lufthansa yesterday revealed that their supervisory board approved the purchase of 25 A320NEO and 5 A321NEO (along with 5 B777F, which is also significant, but another topic).
Why is Lufthansa significant? Firstly, because they have one of the best technical departments of all airlines. If they order an aircraft, often this is a sign for other airlines with less capable aircraft evaluation departments. Secondly, Lufthansa is the first european full service carrier (or "legacy airline" or "flag carrier", what ever one might call it) to commit to the NEO. Before we had two low cost airlines (Indigo, Virgin America), a south american airline (TAM) and ILFC as the first lessor. So the customer base not only gets larger, it gets more diversed, showing the attractiveness of the NEO for different kinds of business models. Well, not really surprisingly, as money savings (through fuel savings) works in every business model. But Nico Buchholz, fleet manager of the Lufthansa Group was to be convinced that the fuel savings are not eaten up by higher maintenance costs for the engines. The engine manufacturers always claimed lower (PW) or same (CFM)maintenance costs for their new engines when compared to their current offerings. But as the engines are running considerably hotter, I can understand why many are a little bit skeptical. We don't know yet which engine LH will have on their NEO's - but at least one of the two engine makers must have convinced them - or both: remember that LH is currently using CFM56 on their A319/A320 fleet and the V2500 on their A321's.
A few weeks ago Buchholz gave a interview to AirInsight where he talked about the CSeries, the NEO, the GTF and LEAP-X. He sounded very optimistic about the GTF and saw no risk in the gear anymore. Well, he (LH) is already a customer for the GTF via the CSeries...
The NEO order does not include any A319NEO. This might be a sign of more orders for the CSeries from Lufthansa, especially for the CS300, in the future - they still have 30 options along the 30 firm ordered aircraft.
This morning I read an article about the ISTAT meeting early this week which was very interesting: apparently the lessors reversed their opinion about the NEO from what they thought prior to the launch last October. They now think that residual values for the "Classic A320" would not immediately fall. I argued in October 2010 after the ISTAT meeting why I think that would not happen.
Even Steve Udvar-Hazy, who had no good word for the NEO last year, said that it was the "most sensible thing" for Airbus to do.

ISTAT takeaways

The NEO question

The 17th european ISTAT conference is over – more than 550 people joined the event. For me it was my first ISTAT conference and a very special experience, as I am en engineer and at this conference I learned to see the aviation industry from a bankers, lessors and an appraisers perspective. And this perspective is very different – money (sometimes sadly) rules the world, as we all know.

And when I as an engineer and environmentally conscious guy of course would like to see a new engine on the current narrowbody families, the folks who live from buying, selling and financing aircraft are not really enthusiastic about it.

They fear that their current assets loose their value once the –NEO versions (or how ever they would be called) come to market.

But is that really the case, I wonder? There are 4,349 A320 family aircraft in operation as of September 30, according to the Airbus O&D spreadsheet, 3,411 B737NG were delivered by September 2010 (and just a few of them are out of service). There will be approximately 4,000 more A320/B737’s delivered by late 2015, when a reengined model could enter service.

These reengined aircraft will not hit the second-hand market for, say, another 10 years, at least not in greater numbers. So why on earth should there be a big hit on residual values for the not-NEO narrowbody aircraft? I don’t get it – but a I am just an engineer…;-)

One of the biggest opponent at the conference was the self-described “godfather of aircraft leasing” S. Udvar-Hazy, who described his role in the aviation industry as to ensure that the aircraft manufacturers don’t become like car manufacturers and bring a new model to market every four years or so. He also played down the benefits of the reengining: 15% fuel burn improvement would relate to 5% DOC improvements, given that fuel costs relate to about one third of direct operating costs. In my mind fuel costs will account for more than one third in the foreseeable future with oil prices just again climbing north of $80/barrel and the IEA raising the oil demand forecast.

But SUH further downplays the benefits when referring to John Leahy, who would like to raise list prices for the NEO’s by $7-8m, what it half of the benefit over 20 years operating a NEO aircraft. So, SUH says, the benefit is just 2-3%, which could be further eroded by higher costs for training maintenance personnel and lost commonality.

The environmental benefit he calls as PR benefit for the outside world. Tell that your neighbors living next to an airport: I am sure that an aircraft that is roughly 5dB (per measuring point) less noisy is more than just PR for them – it would be a benefit in quality of life! And as I explained earlier it can also be worth a few percentage points in COC, at least in Europe.

But then I find another inconsistency in SUH’s argumentation: if the new engine would be worth only 2% in DOC, why should the older aircraft loose their value. I can understand that they would loose value, if the newer aircraft is way better, but not when the difference is so small.

Lufthansa’s fleet chief Nico Buchholz on Monday called the improvements for the –NEO sufficient. On Tuesday he kind of backed away a little bit, saying that he would like to see a new aircraft, but would consider taking the second best option if the best one is not available.

CSeries

SUH was asked what he thinks about the CSeries, as at the Farnborough Airshow he ordered almost every aircraft but the CSeries. His message was clear (at least to me): the money he got from investors has to work, i.e. to make money. So he cannot place an order for an aircraft he gets four or five years later and only then can earn money through leasing rates. So we can expect an order for the CSeries once the aircraft is in production and available delivery slots are not too far away.