Heading for the ISTAT conference

I am heading for the 17th European ISTAT conference in Munich, Germany, on Monday and Tuesday (11-12 October). This event will be very interesting I guess, as the main topic will be the potential impact of potential -NEO variants of the A320 and the B737 of residual values for today's not-NEO aircraft and engines. Steve Udvar-Hazy will hold the opening adress, all aircraft OEM's, engine OEM's, lessors, appraisers and many more  will be there to discuss the state of the industry.
Look back at the end of the week for my take on the event...

CSeries expansion

AirInsight today has this piece about the possibility that Bombardier may expand the CSeries family beyond the CS100 and CS300 with CS500 and CS900 called 150- and 190-seaters. While at least the 150 seater would look like a good top end of the product line, the question is how to position it in the marketplace. If the 150 seater should have the same range as the CS100/300 (close to 3000nm), the aircraft would need a larger engine with higher thrust. Therefore Bombardier would have to raise the landing gear - the problem with that is...well, ask Boeing!
But there is another possibility: keep the MTOW at the CS300ER level - how many airlines are out there flying more than 2000nm with today's narrowbody. According to RR just about 3%.
So the CS500 might be a possibility. But I doubt there will be a 5 abreast 190 seater. This would be a too tube - just my two cents.
A driver for the 150 seater could be that Embraer thinks about a new aircraft. If they choose to place their aircraft sizewise above the CS100/300, Bombardier might be forced to react.
Interesting times ahead - Embraer should be ready to announce their plans in the next six months.
But how could Embraer pay for all this? To come up with a good CSeries competitor, they would have to be able to produce a carbon wing, for example. - Maybe they let Brasil, Argentina, Chile, South Africa and some other countries pay for it - via the KC-390 tanker development.

UPDATE: There was a suspension letter filed on October 4th, 2010 for the CS900. A 5 abreast 190-seater would have been a little bit of a too-far stretch, anyway. Or was is meant to be the name for a CRJ900 replacement? Very speculative of course...

Southwest, airtran and the 737-800

Addison Schonland from airinsight has this interesting piece about Southwest and airtran and what an order for the 737-800 could mean. He is absolutely right I think: to understand the rationality behind it you have to take a deeper look into the economics of the 737-800 and it’s competitor, the A320.

Say (just for simpliciy), the operating costs of the 737-800 and the A320 are equal (inreality it depends from airline to airline, route to route etc., see also Fuel burn and operating costs) . Then, because the 737-800 is a little bit larger than the A320 (a fair comparison has 162 seats for the 737 and 150 for the A320), the operating costs per seat are lower for the 737-800 by 8%.

The reengining of the A320 will drive costs down by roughly 15% (per the better SFC, the skarklets, the lower maintenance costs of the engine and whatever Airbus might do besides that).

Now the A320 has an advantage: 15% per flight, but considerably less on a per seat basis. This kind of explains why Boeing (at least officially) thinks they can forego the reengining and work with incremental improvements instead to match the A320 costs on a per seat basis.

But as fuel costs will rise in the future (who is so optimistic to think they will stay where they are or even go down?), the advantage of the A320NEO will be harder to match. And as I explained in  A320NEO vs. B737NG+, lower noise fees in Europe and elsewhere will add to the –NEO’s advantage. So it is not yet clear, that Boeing will not do a reengining of the. Lately, Boeing hinted that a decision will only be taken in 2011, so they might wait for the acceptance of the NEO and what Airbus will build into that upgrade besides the new engines.

Ad the Economist wrote last week, the decision at Airbus to go-ahead with the reengining is due tomorrow – then the last call is with the EADS as the owner of Airbus. They have to give the green light. If it is given, we can expect Airbus to market the NEO in the middle of October. Expect orders – or conversions from existing orders – to roll in soon!

The Lufthansa Order and what it might tell us

Yesterday, Lufthansa ordered 48 aircraft to be delivered from 2012: 32 A320 family aircraft, eight A330-300 and 8 E195. When I first read the news, I wondered what that order means, when there are more efficient aircraft available in the next years (think of 787 vs. A330, CS100/300 vs. E195 or, further out, A320NEO  vs. A320(current).
To clarify the situation I would like to direct you to Jens Flottau's article in the Aviation Week:
Most of the A320 are for replacement of older A320 or the even older B737 (-300's and -500's). Swiss will get A320's and A321's, but no A319's - that makes sense, as the CS300 would be clearly more efficent. Swiss (via LH) only has ordered 30 CS100 so far, but there are 30 more options which could be converted to CS300 if needed.
So I don't think right now that the A320 order is a vote against the NEO, but it probably all depends on what Boeing does: if they would come up with a 737 replacement by 2020/21, I see LH switching from A. to B. for their (6 abreast) narrowbody fleet in the long run. The CSeries should have it's role also, not only at Swiss, but also as a Avro replacement at Brussels, maybe at Austrian, LH Italia - and who knows what happens to SAS - they would be happy to find a home in the LH Group and expressed interest in the CSeries earlier.
The question why Austrian does not get any new aircraft is sufficiently answered in the article.
Another question that struck me, is: why A330-300's! Why do they not order the B787 or the A350??? Does LH (aka Nico Buchholz) know something about these two natural candidates for A330 replacement we still do not know? Any further (and then probably significant) delay of the B787? Problems in the A350 development program? Fact is that the flight test program of the B787 has slowed down in the last two weeks (as well as the B747-8 flight tests did). Aircraft number 6 is also delayed further.
I guess we will have to wait until the Boeing Q3 earnings call until we hear what is going on there. Until then, have fun with wild guessing...

Aviation and the Environment

Today, at the „Aviation and Environment Summit“, taking place in Geneva, IATA’s Director General  Giovanni Bisignani called on the world’s government to unite in support of aviation’s ambitious targets to combat climate change and to agree on a global approach at the ICAO Assembly in Montreal.

As probably everyone who is interested in aviation (politics) knows, these targets are:

• To achieve carbon neutral growth by 2020
• To improve fuel efficiency by 1.5% on average annually (based on RPM)
• To cut net emissions by 50% in 2050 compared to 2005

Let’s see, if – or which - these targets are ambitious and which are achievable!

Taking the data from RITA BTS (Research and Innovative Technology Administration – Bureau of Transportation Statistics), where one can obtain flown RPM’s and fuel consumption, the US Carriers bettered their efficiency by 3.4% annually on domestic flights (less, but still more than 2% on international traffic).

Looking into the Sustainability Report of german flag carrier Lufthansa reveals that fuel efficiency between 1991 and 2008 also rose by an average of 3.4% annually.

Thus the target of 1.5% does not seem to be too ambitious.

A total different story is the goal to achieve carbon neutral growth by 2020:

Let’s take the Boeing CMO: an annual RPM growth rate of 5.3% minus 1.5% efficiency improvement per year leads to a yearly growth in carbon emissions of 3.8% - take the more ambitious ICAO goal  of 2% annual improvement and the gap is still 3.3%.

Now what makes us believe that – suddenly – from 2020 on we can close that gap to zero?

The answer: Offsets! In other words: Emissions Trading! Nothing else are the “economic measures” or the “fourth pillar” of aviation industry’s strategy, with the other three being investing in new technology, more efficient infrastructure and more effective operations.

So, in reality, we won’t see carbon neutral growth from 2020, as aviation will have to pay for a “letter of indulgence” for their then still-growing emissions – given that we still have that kind of continuous growth in aviation as we had historically until today (over the long run, ignoring short-term lows e.g. after 9/11 and the financial crisis).

In 2009, according to Bisignani, aviation emitted 625 million tones of CO₂.

In 2020, this would grow to 1.081 million tones, assuming the 5.3% growth rate and the 2% efficiency improvement every year.

In 2005, aviation used about 75 billion gallons of fuel worldwide, I found somewhere. This would lead to about 702 million tones of CO₂ – as we can assume that aviation grew enough between 2005 and 2009 to let fuel consumption grow also, this source is a little bit conflicting to Bisignani’s number for 2009. Nevertheless: if we want to achieve the 50% target in 2050 and now even assume no growth between 2020 and 2050 we would have to save about 730 million tones in 2050 compared to 2020.

The biggest part from that would have to come from biofuels.

Now advances in biofuels have been enormous over the past few years and probably will be in the next years. But it remains unclear, when it will be possible to produce 2^nd or 3^rd generation biofuels in such large quantities that it will have an impact on overall CO₂ emissions in  the aviation sector. And we should not forget that there are other transportation modes which want to have their slice of the pie. Even if it looks like automobiles are more likely to use electricity in 2050 than any form of fluid fuels, in the meantime the worldwide fleet of diesel- and gas powered cars will raise.

What’s the point for today?

Well: Please, Airbus, Boeing, Embraer: come forward with your re-engining plans – or decide quickly to come up with all-new designs by 2020. It won’t save the planet, but would make the problem a little bit smaller.

Have a nice weekend!