While competition between Airbus and Boeing snares nearly all the headlines and all the “sex,” competition for engine orders is less sexy and receives less attention.
Part of this is because of the increasing trend toward sole-sourcing. The Boeing 737 has been sole-sourced by CFM International since the creation of what is now called the Classic series: the 737-300/400/500. Pratt & Whitney believed at the time Boeing was upgrading the 737-200 that airplanes were up-gauging and bet its future on the Boeing 757 size. It was one of the classic corporate blunders of all time.
Shut out of the 737, P&W joined with Rolls-Royce and MTU to build the International Aero Engine V2500 for the Airbus A320 family. IAE came to the table late, giving CFM a solid head start on the program with a variant of the CFM 56 that powers the 737 Classic and later the 737 NG.
IAE trails to this day, but has done a remarkable job of coming from behind. CFM tends to be favored on the A319 and A320 while IAE is the preferred engine on the larger A321. IAE offers more thrust and better economics on the A321 while the CFM has better economics for the smaller Airbuses. CFM’s reliability is legendary and tends to be better than the V2500.
The blog PDXlight has done a marvelous job of dissecting the engine market share of the A320 family for the New Engine Option. We asked PDXlight to do the same exclusively for us for the A320ceo family. The results are below the jump.
In the November election, Washington State and Colorado voters approved recreational use of marijuana. As anyone who ever tried MJ knows (except a certain former President, who says he didn’t inhale), MJ has a sweet odor that is very distinctive.
Who has flown an airplane and hasn’t smelled that pungent odor of jet fuel being sucked into the cabin now and then during push-back and start-up (except maybe that former President, if he didn’t inhale then, either)?
Ballard Biofuel in Seattle may have the answer. Let’s all inhale.
Boeing Stock Buyback: Boeing announced a stock buyback of #3.6bn for next year. Wells Fargo has this to say in a research note issued today:
Boeing had more than $11B of cash on the balance sheet at the end of September, and after free cash flow of $5.7B in 2013 and more than $7B in 2014 (i.e., almost $10/share in free cash), we believe Boeing could have over $20B in cash available to return to shareholders over the next few years. This is why we see about a $130MM increase in dividends and a $1.5-2.0B buyback in 2013 as small steps in returning cash to shareholders.
We’re not a fan of buybacks, which serve to prop up stock prices. We believe stock should rise on its own merits, not because of some artificial prop-up. More to the point, however, is that Boeing has a hard time telling SPEEA it needs to cut costs when it is spending billions on buybacks that benefit (among others) Boeing’s largest shareholders–the McDonnell family, Harry Stonecipher and Jim McNerney.
SPEEA is preparing for a strike February 1. Talks resume January 9, but the gulf between the two sides is so great, SPEEA expects them to break down almost immediately.
With Wells Fargo estimating that Boeing might return $20bn to shareholders in the next few years, we somehow think this will be an issue when IAM contract negotiations come up in 2016 and Boeing pleads poverty again (as it inevitably will).
We’d much rather see the money invested in new airplane programs rather than derivatives like the 737 MAX and 777X.
Boeing charges royalties to suppliers: Mary Kirby has this interesting story about Boeing charging suppliers for the price of doing business with the company.
American and US Airways: The Ft. Worth Star-Telegram has this column discussing the case for a merger between American Airlines and US Airways.
Pegasus Buys Airbus: Turkey’s Pegasus Airlines ordered 75 A320neo family and optioned 25 more. The carrier was previously a Boeing 737 operator. Deliveries are from 2015, which means the Pratt & Whitney GTF has to be the engine choice, which is as yet unannounced. CFM’s LEAP-1A won’t be ready until later in 2016.
Before this order, Airbus had a 61% market share of the re-engine order race vs the 737 MAX (firm orders only).
Photo Montage: The Everett Herald has this photo montage of the Flying Heritage Museum’s aircraft. The Museum is owned by Microsoft co-founder Paul Allen.
Freighter Market Softens: Cargo Facts has this analysis of the freighter market.
SPEEA v Boeing: The Seattle Times reported that there is a very high chance of a strike by SPEEA against Boeing come February. This is, of course, bad news for all concerned.
SPEEA is already talking about a 60 day strike and says this would cost Boeing $400m a day. In 2000, when SPEEA struck for 60 days, Boeing deivered 50 fewer aircraft for the year. IAM 751′s 57 day strike in 2009 depressed sales and cost Boeing billions (though nothing like the $400m SPEEA forecasts, which is a puzzle).
Customers, who were ticked off by the IAM strike, will once again be the innocent bystanders in this potential strike. A strike will also redouble Boeing’s drive to diversify to non-union states, though hopefully this time it won’t be so stupid as to connect the dots again as it did with the 751. It’s our belief Boeing can’t fulfill the demand for engineers in Washington State anyway so it has to locate work elsewhere. Although as a Washington State resident we don’t want to see this happen, this is, we believe, reality.
SPEEA has the power to truly disrupt things at Boeing, not only for deliveries but also for future engineering projects, but nobody will win and everybody will lose if Boeing and SPEEA don’t reach an agreement.
CFM LEAP Update: The Seattle Times also has this update on the CFM LEAP-1B, the version for the Boeing 737 MAX.
Noteworthy in the article is the revelation of the contractual commitment for CFM to reduce fuel burn for the LEAP-1B by 15% compared with today’s 737 CFM engine. This is a key piece of information and well beyond the Airbus assumption in the continuing war of words between the two companies.
It also is key to Boeing’s previously advertised target of the 737 MAX being 13% better than today’s 737NG. What strikes us, however, is whether 13% is still an operative figure.
All other things being equal, installation typically costs 1%-2%, which means the MAX on engine installation alone should be 13%-14% better than the NG. We know that Boeing is working hard on airframe improvements. Shouldn’t the 13% actually be better? We know the advanced winglets are supposed to add 1.5% to fuel reduction, for example. Boeing has also cleaned up the tailcone and undertaken other aerodynamic improvements.
We’ve asked Boeing and will post its response when received.
Update, 2pm PST: We have an answer of sorts from Boeing, though we’ve asked for further clarification.
“CFM’s number is in SFC or specific fuel consumption for a given thrust which when you apply it to a specific mission gives you the fuel-burn reduction for that trip. The attached shows a 500-nmi trip comparison which gives the MAX engine 14% fuel-burn reduction compared to the NG engine, next we factor in engine integration and aero improvements ending up with a total 13% reduction for a 500-nmi trip compared to the NG).
“You will see in the chart that we credit the AT winglet with approximately 1 percent improvement (again this is at a 500-nmi trip). However, at longer ranges customers will experience even more improvement from the AT winglets, up to 1.5%.”
This chart (click to enlarge) is extracted from Boeing’s Farnborough presentation. It starts with a 14% improvement for the engine, while the news article says 15% is required in the CFM contract. The Boeing spokesperson said this is for a 500nm mission at a “specific thrust” level. We’re trying to clarify the difference between the 15% contract number and the 14% above. If we get this clarity, we’ll update again.
Update, 545pm PST: Here’s the final answer from Boeing:
“CFM’s number is in pure SFC and our numbers are in fuel-burn per trip so they are not equivalent. It’s like comparing apples to oranges. In our case – we are using a 500-nmi trip which is our standard comparison. This includes then in our calculations the fuel-burn cost of lifting the airplane empty weight off the ground since takeoff is part of the trip. CFM’s number is an engine in a test stand compared to another engine in a test stand so the two comparisons are not equivalent.”
Not revealed in the article but we learned that there will be a thrust bump for the LEAP engine. Right now CFM lists on its website the LEAP-1B thrust at a maximum of 28,000 lbs, the same as the current engine. Because of the higher weights for the MAX, runway performance has been assessed as poorer than the NG by customers we’ve talked with. A thrust bump, and airframe improvements, are aimed at fixing this issue, we’re told.
We’ve been traveling on business all week and naturally the conversation was all aviation. We spoke with lessors, aerospace analysts, hedge funds and private equity. In what amounts to a data dump, here is what is being discussed “out there.” This is in no particular order.
- The new outbreak of ad wars between Airbus and Boeing is viewed largely with eye-rolling and disdain that two world-class companies are behaving like two year olds.
- Nobody, but nobody we talked with believes the public numbers advanced by either Airbus or Boeing.
- Boeing will have virtually a new airplane with the 737 MAX by the time it’s done, similar to the design creep of the 747-8 and the magnitude of change between the 737NG and the 737 Classic.
- Airbus pulled a coup with the NEO, forcing Boeing to do the MAX….
- But there is some sentiment that Airbus and Boeing should have resisted doing a re-engine and stuck with the the current airplanes. Airbus should have let Bombardier proceed with the CSeries for the niche 100-149 seat market unchallenged, having bigger fish to fry.
- Bombardier doesn’t know how to effectively sell the CSeries and it is unwilling to cut deals that would sell the airplane.
- Operating leasing is a ticking time-bomb, largely (but not entirely) due to book values of the aircraft on the balance sheet far exceeding current market values.
- Boeing claims the 787-10 will “kill” the A330-300. The market agrees–but only by the middle of the 2020 decade. Boeing can’t deliver enough 787-10s to make a dent in the global fleet before then. By then, the A330 will be about 30 years old and broadly at the end of its natural life cycle anyway. So what’s the big deal?
- Airbus is doing a good job enhancing the A330 to keep it competitive with the 787.
- There remains skepticism that the LEAP engine development is proceeding well. The buzz on the street is CFM still has a lot of challenges with the development.
- There is some feeling the MAX will be late–not because of any concrete knowledge, but because of Boeing’s performance on the 787 and 747-8 programs.
Unrelated to Airbus and Boeing, our colleague Addison Schonland has this first-hand account of Isreal’s Iron Dome.