Odds and Ends: Bombardier lands Delta’s RJ deal; 787 events in perspective; Airbus/China; Enders victory
Delta Air Lines: Bombardier, in a welcome development, landed a major order with Delta for 40+30 CRJ900s, beating out Embraer’s E-Jet proposal. Delta has a large, installed base of CRJs and EMB wasn’t too optimistic, in management-analysts meetings last week, according to research notes. But BBD liked its odds, considering the CRJ is more fuel efficient than the E-Jet (being a small airplane), even if the E-Jet is far more comfortable.
For BBD, the order is important for two reasons. First, the CRJ backlog is shrinking. Deliveries begin 2H2013, and this illustrates the point. Second, with BBD sucking up cash in advance of CSeries first flight in 1H2013, the deposits, progress payments and delivery payments are welcome, indeed.
The next face-off between the two OEMs is American Airlines, where both have large installed RJ fleets of aging aircraft.
Boeing 787 events: Airworthiness Directive. “Emergency” landing. AirInsight puts things into perspective.
Airbus lands China orders: Hmm. EU suspends plans to impose ETS tax. Airbus lands orders for 60 A320s and 10 A330s. What do you make of that…
Enders now 1-1, sort of: Tom Enders, CEO of EADS, lost his bid to acquire BAE Systems due to German government interference. The merger would have reduced government meddling, balanced EADS commercial and military business, put EADS on a more equal footing with Boeing and positioned EADS better for US DOD contract bids. But Enders has now won a corporate governance restructuring that ends government meddling in daily operations. He still hasn’t achieved his other goals, but this one is so huge that we rate Enders’ won-lost record 1-1.
Odds and Ends: Cargolux, Qatar to split; P-8A and MAX; More on Sequestration; Dodging that depth charge
Cargolux, Qatar Airways to split: Several news stories report that Qatar Airways is going to dump its 35% stake in Cargolux. The stories indicate a disagreement in the direction of Cargolux. This story is the most detailed, although it’s now a month old and out-of-date.
The day before the news broke last week, we were told that Qatar wanted to set up a Cargolux hub in Doha and decline more deliveries of Boeing 747-8Fs to Cargolux in favor of using Qatar Airways’ Boeing 777Fs. This tracks similarly with the month-old story linked above. Cargolux has eight 748Fs on order.
There is a general softness in global air cargo traffic that is causing some cargo airlines to consider deferring 748Fs as well, complicating Cargolux’s viability.
We were also told there are sharp personality differences between the Qatar and Cargolux board members that aggravated relations between the two companies.
P-8A and MAX: Bloomberg has this story that looks at an angle about the Boeing 737 MAX that hasn’t been discussed before: Boeing will stick with the NG-based P-8A Poseidon and not shift to the MAX.
Sequestration: We had a recent think piece on how sequestration might not be a bad thing in the long run because it would force the Pentagon to truly re-think its global defense strategy. This piece in Defense News, an authoritative trade publication, picks up a similar theme.
Dodging that depth charge: EADS wanted to merge with BAE Systems. BAE is the prime contractor of the UK’s nuclear submarine fleet. Read this story about the HMS Astute. EADS may well have dodged that bullet–er, depth charge.
We favored the merger as a way to get the French and Germans out of EADS’ knickers. The British government also meddled in the affair, for its concern about the diminished role of BAE post-merger. BAE is a top UK employer and defense contractor.
Flight Global published a list of the Top 100 aerospace companies in the world. Boeing is #1, EADS #2 and BAE #15. A PDF is here Top 100 Aerospace Companies, avoiding Flight’s annoying new Flight Global Club nonsense.
A350 Launch Aid: The US Trade Rep says it has the documents outlining $4.5bn in launch aid for the Airbus A350, according to a Reuters story. Predictably, Boeing and the USTR have gone in to overdrive. The A350 was excluded by the WTO from the long-running trade dispute because it wasn’t included in the original complaint filed in 2004–which is kind of obvious since the program didn’t surface until 2006. But Airbus contends that launch aid wasn’t ruled illegal in the WTO findings, just how it was implemented. Airbus contends that any launch aid for the A350 is structured in compliance with the WTO rulings of the 2004 case. The US contends launch aid itself is illegal. Whether it is or it isn’t, we don’t like launch aid or any other form of corporate welfare (see Boeing 787) and we don’t think a solvent company like Airbus (or Boeing) should be getting any.
Bombardier strike at Lear Jet unit: Machinists voted to strike at Bombardier’s Lear Jet unit. BBD hardly needs this. With cash flow demands peaking as the CSeries development enters the final stretch, and with demand for regional airliners off, this is an unneeded headache.
Embraer Demand: Wall Street analysts were pretty unhappy following the Embraer investors day last week. EMB gave no signs of willingness to cut production next year. There are 100 slots and only about 75 orders, with few in sight. Backlog is shrinking. EMB is hoping to land big orders from either Delta Air Lines or American Airlines for the E-Jet, but we’re not aware of any Delta campaign (and in any event, the airline favored the CSeries in the aborted campaign of a year ago). American is in such disarray there is no telling when, or if, it will pursue an order.
EADS-BAE: Bernstein Research doesn’t think this merger should happen. The excerpt from a note issued today:
We believe that it would be best for both companies if this proposed merger does not happen. But, we see the merger as worse for EADS than for BAE. Both companies describe scale as an advantage (e.g. better leverage of R&D), but we have never seen scale in itself as an advantage. Specific issues are:
- Shareholder interests. EADS shareholders typically own the stock as a play on commercial aircraft OE growth through Airbus. Increasing the scale of defense assets, with some in particularly challenging markets, is likely to take some investors out of the stock. We find BAE Systems shareholders as generally focusing on the high dividend. The combination with EADS, which does not pay a high dividend, places the current BAE Systems dividend level at risk in 2014. The disclosure of merger discussions also raises questions about the sustainability of cash flow and the divided, as we have found investors questioning why BAE would accept the EADS offer if its cash outlook were robust. BAE Systems CEO Ian King has countered this by stating (with EADS CEO Tom Enders) that this deal is “borne out of opportunity, not necessity”.
- Synergy potential. We view the potential synergies between EADS and BAE Systems as low given very little overlap between their businesses and restrictions in technology transfer from US programs. From an EADS standpoint, we expect that this combination would result in a stronger international marketing organization, provide some limited cost savings in indirect personnel and sourcing, and provide some improvement for the defense electronics portion of EADS’ Cassidian business (only about 2 billion euros in revenue). But, given the limitations in capturing these synergies and their relatively small size, we do not see them as justifying a merger of this scale. For EADS, this is particularly true, since it would pay a premium for BAE shares and be buying into some particularly difficult market exposure (e.g. US Army equipment, defense IT/services). In addition, we see disruption as inevitable in a deal of this size, as it could lead to a loss of some key personnel, changes in government relationships, and problematic integration steps (e.g. IT Systems), even though the overlap is relatively small.
Boeing 787-9 progress: Aviation Week has this article detailing progress in the 787-9 program.
Qatar blasts Boeing: In what should come as absolutely no surprise, Qatar’s vocal CEO took his displeasure with Boeing public, blasting the company for late deliveries of the 787-8. Qatar’s first 787 was supposed to be handed over in August but has not for undisclosed reasons. Flight Global has this interview with Al-Baker, which dates from about a year ago.
Boosting the take-off: Airbus is looking at assist for take-offs to allow for shorter runways. This is not a new concept. This Google images page show lots of variations in Jet Assisted Take Off, many dating to piston days. We remember seeing a photo elsewhere of a Braniff Airways DC-4 or DC-6 using JATO for La Paz, Bolivia’s, high altitude airport but couldn’t fine one on Google.
EADS-BAE merger trouble: Government interference could tank the merger, Reuters reports.