Odds and Ends: 737 cost (not price); Bob Crandall

737 Cost, Not Pricing: Wells Fargo has this item about what American Airlines actually paid for the Boeing 737-800, as opposed to the list price: more than a 50% discount from $84.4m. Note that AerCap (AER) appears to have paid $40m per aircraft in a purchase-leaseback. One assumes American didn’t resell the aircraft for the price paid from Boeing but marked them up at least a little bit. We’ve heard AA’s cost was in the range of $35m but this is unconfirmed.

~$40MM Per 737, It Appears. Based on the change in YTD flight equipment additions, AER added $80MM in planes in Q4; since the only Q4 additions were two new 737-800s leased back to American Airlines, the 20-F implies a $40MM unit price. Also, based on changes in purchase commitments from 9/30/11, we believe the average 737-800 purchase price (over the remaining 33 planes as of year end) is ~$41MM. A new 737-800 typically appraises for ~$45MM.

Bob Crandall: The former CEO of American Airlines provides his usual candid views of the airline industry, of today’s American Airlines, and his greatest failure as CEO in this 30 minute video on the Charlie Rose program.

WN vs AA: A personal story

I am going to depart not only from my usual approach to this blog but also shift from the editorial “we” to a personal “I” for this story. The point of the story is not my personal family issue but an illustrative point about Southwest Airlines and American Airlines.

As readers know, I live in Seattle. I have family in the Chicago area. My family had a developing situation that required that I go to Chicago to deal with it. The plan had been to attend the ISTAT meeting and US Airways media day in Phoenix earlier this week, fly back to Seattle for a day and then on to Chicago Friday. I had booked Southwest for the SEA-PHX-SEA trip and American Airlines for the SEA-ORD-SEA trip.

I truly don’t like flying Southwest because of the boarding process and the lack of an assigned seat. I’m a lifetime Gold Advantage member of American, with all the perks that implies.

I chose WN for the PHX trip because my business partner was joining me and she had to check a bag–and bags fly free on WN. I chose AA for Chicago because of the aforementioned Gold status and perks.

On Tuesday evening–the end of the ISTAT meeting but before the US Airways event–I received a call from my brother indicating the family situation had become critical; I need to fly to Chicago directly from PHX on Wednesday. WN changed the ticket (charging for the fare difference). I called AA to cancel my Friday reservation. The ticket was, as I knew, non-refundable but I also knew I could apply it for a future trip. For the fare difference and, as I also knew (regrettably), a $150 change fee. (Besides which AA also charges for the baggage check, which wasn’t applicable in this case but nonetheless contrasts ith WN’s policy.)

The situation in Chicago has now stablized for now but for the near term, I will buy WN to Chicago for family follow-up for the flexibility of being able to change tickets without a change fee. Tom Horton, take note: a lifetime Gold member is on your rival for now. I might be able to claim mileage to exotic places on AA and oneWorld compared with Lubbock and Little Rock on WN, but this doesn’t matter. Gary Kelly, also take note: good policies in place in these circumstance–even if I still despise your damn open seating.

 

ISTAT Part 3: Lessors Panel: GECAS, ILFC, AWAS, Air Lease Corp

The final panel at the ISTAT meeting is the much-anticipated lessors’ panel consisting of:

Jeff Knittle, president of CIT Aerospace, moderator;

Henri Courpron, Chairman of ILFC;

Ray Sisson, CEO of AWAS;

Norman Liu, CEO of GECAS; and

Steve Udvar-Hazy, CEO of Air Lease Corp.

Paraphrasing:

HC: All hell broke loose in Europe and upended aviation. Looking at consolidation in Europe. America now had a lot of stability and discipline, and we’ll see that happen in Europe. More fuel efficient aircraft will be required in Europe. I see a lot of opportunity and challenges to come in Europe.

NL: Asia has been by far our most active market, with 70% of our airplanes going there. You have to look at different parts of Asia–you can’t generalize. LCCs in Japan. Always something going on in China. SE Asia, good organic growth. Philippines and Indonesia very interesting. South Asia has had travails.

SUH: North America is going through an interesting time. Canada is a duopoly situation with new Asian and Middle Eastern carriers entering the market. The US is very mature having gone through a lot of trial and tribulation, more disciplined [than before]. After 9/11 there was a slow-down in US carriers taking new airplanes. We have a bow wave of a requirement for new fleeting.

RS: Latin America is under-appreciated. We see rapid growth there. By 2015 may be 17%, 20% of our fleet. There is a remarkable amount of demand and opportunities for lessors.

 

ISTAT Part 2: BBD, EMB, Sukhoi, ATR

Chet Fuller, SVP Commercial, Bombardier

Luiz Chiessi, Director of Marketing Strategy of Embraer

Mark Neeley, VP-Marketing, ATR

John Buckley, VP Business Development, Sukhoi Superjet International

Fuller

• CSeries weight validated and will be on spec at EIS.
• Aluminum Lithium is better on fatigue than normal aluminum, much better on corrosion. Combine with composites, D check goes to 15 years. C check improved by 15%.
• 787 first airplane with All-digital architecture, CSeries is second.
• Last all-new narrowbody was A320 family.
• Only aircraft with a 12:1 by-pass ratio; A320neo is 10:1, not sure what ratio Boeing will wind up with on MAX.
• CSeries has better trip costs than E190, with seat costs of A3320neo. There is no magic here, there is just physics.
• BBD has on order: 66 CS100, 72 CS300; 124 options, 10 purchase rights, 45 LOIs.

Chiessi

• Mid-long-haul flights for 70-90 seats increasing in US and elsewhere.
• 48% of EJet deployment is right-sizing by airlines. 26% for new market development.
• Will maintain leadership in 70-120 seat segment, not enter into arena of Airbus and Boeing.

Buckley

• SuperJet International responsible for world product support of Sukhoi for SSJ100.
• Delivered seven aircraft, another in two weeks.
• Expect to deliver 23 this year, 42 next year, 60 in 2014, 75-80 total current capacity but can be increased.
• SSJ100 is only regional aircraft with 2×3, 5 in wider than MD80.
• 10% less fuel consumption than direct competitor.

Neeley

• ATR top turbo prop pick in Airfinance Journal investors poll.
• We’re still making a 50-seat product. We have a family of airplanes.
• Says ATR 72 has same fuel burn per passengers as A320.
• One third of all passengers fly under 300 miles.

Odds and Ends: 787 ramp up, ISTAT, Airbus, the price of oil in 1968

787 Ramp-Up: UBS Securities issued a research note Monday in which it reports that the 787 rate ramp-up to 10 per month–a goal Boeing’s to be by the end of 2013–has slipped to the first quarter of 2014.

• More from UBS: Supply chain ahead of Boeing: We believe the supply chain is still ahead of Boeing given significant rework and a high level of component deliveries in 2009-10, although a pick up is expected soon. We understand Boeing now plans to ramp from current 3.5/mo to 5/mo in Q4 (had been Q1), 7/mo in Q2 2013 (had been Q4 2012) and 10/mo in Q1 2014 (had been Q2 2013).

ISTAT: We’re at the annual ISTAT AGM in Phoenix and we’ll be reporting throughout the event odds and ends (adding to this post initially, separate posts later on). So come back often.

From ISTAT:

• 40% of Airbus 2011 deliveries were via lessors: 115 through direct sale to lessors, 95 via lessor purchase-leaseback
• Lessor sees overlapping production of 737 NG with MAX, A320neo with CEO due to limited availability of production slots because of massive early neo/MAX commitments.
• Congressional targeting Ex-Im Bank financing is short-sighted; cutting funding will harm Boeing, GE, Pratt & Whitney.
• Airbus has delivered 10 A330-200Fs, four operators now.
• Undercurrent buzz about 737MAX. Watch for developments in the next weeks and months.
• Airbus about to start final assembly line for A350.
• Flight tests of Trent XWB going well.
• Airbus now advertising A350-1000 at 369 passengers, up from 350.

From Twitter, via Phil LeBeau of CNBC: @Boeing says it has NOT changed its goal of building 10 Dreamliners per month by end of 2013.

Back to ISTAT:

• A321neo gains 600nm, A320neo gains 500nm.
• Average oil price 1968 non-inflation adjusted was $3.18bbl (that’s per barrel, not per gallon!).
• Airbus sold 448 A320ceo since launch of neo.
• Airbus competes 99% of the time against Boeing, not new entrants, for sales. Barriers to entry for a new aircraft type very high rather than changing fleet type.

Side trip to Ex-Im:

Take a read of this column on the Ex-Im Bank financing controversy.

Back to ISTAT:

Boeing….

• Mike Bair: We are in a march to put Airbus out of business in the twin-aisle space: 777 vs A340, 787 vs A330, 747-8 vs A380.
• 787-10 will have  50% lower operating costs than A340-600, Boeing’s Bair claims.
• 747-8I has turned out to be the darling of billionaires who have too much money–Bair.
• New revenue opportunities for long, thin routes validate the 787 like San Diego to Japan. Opening new markets and opportunities for customers.
• Boeing uses 162 seats in 737-800/8 vs A320ceo/neo 150 seat comparisons; Airbus uses 157 seats for the Boeing.
• Every engine/airframe combination has a sweet spot, a bucket’s flat area with 3-4 inches of fan diameter. In MAX’s case, this means the 68.4  inch fan is the sweet spot.
• Our intent is to build the MAX until the market decides it doesn’t want it any more.