Update, January 1:
We always get a sense of satisfaction when Boeing confirms our news. Here’s an excerpt of a Bloomberg story picking up on the 737 “re-generation” piece we did for Aviation and the Environment magazine (see below).
Boeing considers 737 enhancements
January 1, 2009
Boeing Co., whose 737 is the world’s most widely flown plane, said it’s studying new “product enhancements” as replacement plans for the aircraft have been delayed toward the end of the next decade.
The Chicago-based company is considering rolling out more changes to the current version of the jet as it has done since 2000, with improvements to performance, comfort and navigation, Russell Young, a spokesman in Seattle, said Wednesday.
“We will share the details of future enhancements when we have decided to implement them,” Young said.
With environmentalists and the slumping economy putting pressure on the industry, Boeing is considering a bridge model that would provide a 10 percent improvement until a replacement is ready, according to the current edition of Aviation and the Environment magazine.
The full story may be found here.
Original Post, December 22:
Here’s a teaser for a story we’ve written for the next issue of Aviation and the Environment magazine; the full magazine may be found here; the article referenced below begins on Page 18:
Is Boeing planning a major 737 improvement programme?
The current stated position of Boeing and Airbus is that the next-generation of single aisle aircraft will be available around the 2020 mark. Would it make sense to delay this date if significant performance and environmental improvements could be made to the current generation relatively quickly?
Boeing is quietly studying how to improve the 737 Next Generation, according to sources quizzed for a report in the December/ January issue of Aviation and the Environment, who all have knowledge on some level of the Boeing studies.
Among the possibilities being explored is the placement of a scaled-up version of a Pratt & Whitney geared turbofan engine on the aircraft. This would necessitate a massive structural change of the 737, with the introduction of a new wing, taller landing gear and a redesigned wingbox. Boeing is also looking at CFM’s LEAP-X engine, although the engine maker says it is developing the engine for an entirely new platform. In addition, the 2016 certification date would push the arrival of an entirely new aircraft out much further than 2020.
Additionally, a new avionics system seems likely, in which RNP would come as standard. A range of internal systems improvements are being considered, which would make building and maintaining the aircraft easier.
The combined fuel burn improvement of these measures could be as much as ten per cent – potentially making it very attractive to airlines as a “bridge” aircraft…
Please see the upcoming issue of the magazine for the full report.
As the year trickles down to a close, we’re going to post some news items in one post with any commentary we see fit to add. We don’t expect to be posting at all (unless some huge happens) between Christmas and New Year’s.
Air Transport World reports that Boeing has set the end of April for the first flight of the 787. We hope that works, but there is still risk of unknown-unknowns that could delay this until the third quarter. Boeing has previously announced first flight will be in the second quarter, which could be any time from April 1 to June 30.
The Seattle Times has this year-end story, looking at Airbus and Boeing.
The tanker competition is back in the news, with this editorial and this news story, both from The Mobile Press-Register, and these items quoting Boeing IDS president James Albaugh and Northrop Grumman president Ron Sugar that kick off the latest controversy.
From: Schaeffers Research comes this item:
The Boeing Company
Dow component The Boeing Company (BA: sentiment, chart, options) was slapped with a “sell” rating today by Societe Generale, as the French firm made its way through the aerospace-and-defense sector. Also in today’s note, B/E Aerospace (BEAV) was initiated at “hold,” General Dynamics (GD) was started with a “hold” rating, and Lockheed Martin (LMT) was started at “buy.”
The downbeat initiation today comes on the heels of Boeing’s warning last week that the launch of its 787 Dreamliner would be delayed by yet another 6 months, due to issues caused by a machinists’ strike and improperly installed fasteners.
As its Dreamliner drama drags on, analysts have grown increasingly skeptical of BA. Zacks reports 9 “holds” and 1 “strong sell,” compared to 8 “buy” or better ratings. As today’s note from Societe Generale reveals, there’s still plenty of room for more negative brokerage notes to hit the shares. Any additional skeptical notes could extend the stock’s year-to-date drop of 55%.
Schaffers also has this related item:
The Boeing Company (BA: sentiment, chart, options) was broadsided with another bearish brokerage note this morning, marking the second straight session of negative news from the analyst community. Yesterday, Societe Generale initiated coverage on BA with a “sell” rating following yet another delay in the company’s much anticipated 787 Dreamliner. This morning, Deutsche Bank cut its price target on the shares to $39 from $48. The brokerage firm also reiterated a “hold” rating on the equity.
There is room for the situation to deteriorate further on Wall Street, as 8 of the 17 analysts following BA rate the shares a “buy” or better, according to Zacks.com. Meanwhile, Thomson Financial reports that the stock’s average 12-month price target rests at $57.11 per share – a 47% premium to the stock’s Monday close at $38.74.
Our comment: Societe Generale, or SocGen to those of us in the business, is awfully late to the party. We agree (unfortunately, since we have a long position in Boeing stock) that there is more downside left in the price. Until Boeing clearly is positioned to achieve first flight with the 787, doubts remain and the company’s credibility is shot. “Performance” is now the only thing that will count–not predictions and projections by Boeing.
Many brokerage firms consider a “Hold” rating a negative recommendation.
Back to the Tanker
Reuters has this story about the debate between Northrop Grumman supporting a “best value” approach to the re-compete for the KC-X contract and Boeing supporting a “low price” selection.
Northrop’s “best value” combines the most-capable concept that won it the contract last year. Boeing’s “low price” relies on the total life cycle analysis that favors its airplane. Northrop says the lowest price might not be the best product. (An interesting position to take since its price was $3bn less than Boeing, but Northrop fears that Boeing–knowing Northrop’s price–can now low-ball the next round of bidding.)
We’re reminded of the story when former astronaut Frank Borman became CEO of Eastern Airlines. Borman, commander of the first Apollo mission around the moon, was facing the notoriously militant IAM during one of his early meetings at the new chief of Eastern. A grizzled machinist finally asked Borman, “Why should we follow the advice of someone dumb enough to sit on top of a rocket built by the lowest bidder?”
Borman found the humor in the question as the entire crowd cracked up.
As the world economy and the airline industry seemingly implodes, there is an increasing amount of concern emerging among some aerospace analysts and Internet bloggers over what this means for Airbus and Boeing.
The consensus is that Airbus and Boeing will begin seeing serious declines in aircraft deliveries as early as next year.
These concerns have been exacerbated by the announcement from China’s central government that it wants the airlines to defer deliveries next year. As we pointed out some weeks ago, this is highly unusual: China historically has been a stalwart through bad times for Airbus and Boeing, growing and ordering airplanes when other regions in the world were going through major downturns.
This has led some to particularly point to the new Airbus assembly facility in China as a risk factor for Airbus.
There certainly is sound reason for concern, but so far this is overwrought.
We participated in a conference last week that included Airbus and Boeing officials. During our private conversations with them, we came away more comfortable that for 2009 at least, the two companies are not going to see major declines in deliveries, based on current market conditions.
This is a different distinction than deferrals, and a this is an important distinction.
If anyone had any doubts about Boeing paying penalities for delays as a result of the 58-day IAM strike, in which the conventional wisdom was that Boeing did not, doubt is removed with this contract language we found (while looking for something else) between Southwest Airlines and Boeing.
“The Customer acknowledges that (i) the obligations of Boeing…are premised upon Boeing’s manufacturing capability prior to the IAM Action; and (ii) delay in the performance in any obligation of Boeing under this Purchase Agreement resulting from the IAM Action is an Excusable Delay….”
As expected, Boeing revised its 787 schedule, now listing the first flight in the second quarter next year and first delivery into the first quarter of 2010. These represent slips of about six months.
The Boeing press release may be found here.
The timetable infers a nine month flight test program. Most observers believe this is aggressive. Aerospace analysts are nearly unanimous that a full year is more likely.
Boeing’s statement is vague about when in the second quarter it now expects first flight. Based on information we have, we think the end of the second quarter is the most likely scenario, but the first flight could also slip to the third quarter. This is also based on information we have.
Boeing wants to get the program moving, but insiders tell us that there remain risks and uncertainties that continue to cast doubts on any schedule announced.
Update, 10:15 AM PDT: Addison Schonland, Jon Ostrower and Scott Hamilton have a 20 minute podcast discussing the 787 delay and new management changes announced by Boeing shortly after the 787 delay was announced.
Update, December 12:
Reaction is mixed about the delay and the management changes.
First, on the delays: These had been widely expected, both as a result of the strike by the IAM, the discovery of fasteners incorrectly installed and of reports (including our own) that software integration continues to be an issue.
Aerospace analyst Howard Rubel of Jefferies Co. calls the newly announced schedule “realistic” and has a buy on the stock. Robert Stallard of Macquarie Capital (with an Outperform) is less kind. He writes in a note issued afterward:
Given its 100% failure rate in forecasting the 787 timetable so far, we expect airlines, suppliers and investors to be suitably skeptical on to whether this latest revised schedule will actually be achieved.
Goldman Sachs (Sell) believes Boeing will run over both new time estimates. Goldman projects a 3Q09 first flight instead of Boeing’s projected 2Q09; and a 3Q10 delivery instead of Boeing’s projected 1Q10, the major difference being a one year flight test program instead of a nine-month schedule put forth by Boeing.
The market reacted benignly to the announcements Thursday, with the stock trading down less than 2%. But today is a different story. While the market is off (at 9AM PST) less than 1%, Boeing is off 4.75%.
On the management changes:
Surprisingly, some inside and close to Boeing don’t know whether Pat Shanahan’s appointment to oversee all new airplane programs is a promotion or a kick upstairs because of the continuing problems with the 787 program, which he was brought in from Boeing’s Integrated Defense Systems unit to oversee and fix. Shanahan still oversees the program, as well as the troubled 747-8 development, but a new person, also from IDS, has been appointed to directly manage the 787 program. This person reports to Shanahan.
It’s telling of Boeing’s credibility problems that even some inside Boeing question just what the Shanahan moves means. The efforts to read between the lines is like reading The Kremlin at the height of the Cold War.
Analysts generally applaud the moves as an effort by Boeing to fix problems. One of Boeing’s industrial partners believes Shanahan has done a good job and that he is on track to do greater things at Boeing. The Wall Street Journal reporting suggests Shanahan is now one of two candidates to succeed Boeing Commercial Airplanes president Scott Carson, who is on countdown to mandatory retirement in about four years. The other contender, announced in the management restructuring, according to The Journal, is Ray Conner. Conner comes from a top position in sales but has a solid background in supply management and this is his new position position within BCA–something that has been a key stumbling area for the 787. Conner doesn’t report to Shanahan; he reports directly to Carson.