The news yesterday the Boeing resumed delivery of the 787 is good news, not just for Boeing and the airlines, but for all the stakeholders.
Although Boeing did not stop or slow production of the aircraft during the grounding, had the grounding continued for six months instead of 3 1/2 we saw, Boeing may well have had to slow down the supply chain.
The 50 airplanes in the field are slowly returning to service. The last are to be carrying passengers by next month.
Now it’s back to taking care of business.
The launch of the 787-10 was pushed to the right during the grounding. We fully expect this launch to come soon, perhaps at the Paris Air Show. The 777X received its Authority to Offer last month. We anticipate formal launch by year end, perhaps at the Dubai Air Show with a huge order from Emirates Airlines. We also think there will be some commitments announced at the Paris Air Show, by Qatar Airways, which always likes to make a splash at the European event.
Production for the 787 is ramping up toward the 10 per month goal Boeing set for the end of this year, and despite skeptics (we included), it looks like this will happen. But Boeing needs to go beyond 10/mo to 14 to accommodate the 787-10 and demand for the current offerings. With a planned 2018 EIS for the -10, there’s plenty of time to bring the supply chain into line for this.
Over at Airbus, the A350 MSN001 has been painted and is prepping for handover to flight test.
Conservative tax groups are once again attacking the US Export-Import Bank and its funding of US exports, including Boeing aircraft.
ExIm was created during the Great Depression to support US exports. It get attention because Boeing is the most visible beneficiary. The think tanks believe ExIm financing amounts to corporate welfare–a position that is 180 degrees from their usual approach to corporations.
Delta Air Lines is leading corporate attacks because it contends that foreign airlines get preferential financing and put it at a disadvantage.
Delta says that carriers like Emirate Airlines hardly need ExIm support, and it has a point. But less well-capitalized airlines like LionAir certainly could use it. Some further reform may be needed; international rules to bring ExIm fees and interest rates to market rates were already adopted. Tightening eligibility may be fair.
Delta had this to say in an Op-Ed piece in Forbes. You have to click past the advertising page to read it.
But eliminating ExIm? We disagree, as we have written on several occasions. The think tanks would hand this market support over to Airbus, which benefits from the European Credit Agencies export financing and this wouldn’t go away. This would put Boeing and its supply chain at a disadvantage to Airbus in international sales.
Embraer vs Bombardier: Here’s an interesting article explaining how Embraer sees the market a bit differently than Bombardier.
The E175 Enhanced (a step below the full re-engine) will improve fuel burn by 5%, says Tobias Caldas of Embraer at the Pacific Northwest Aerospace Alliance. This includes a redesign winglet and other fuselage/engine PIPs.
Enhancements include new avionics, interior improvements, maintenance cost reductions and noise reductions. Aerodynamic improvements will be forthcoming on the E-190/195. The E1`70 will have a 5% improvement, the E175 will have 5.5%, the E190 3.5% and the E195 4%.
Republic Airways is the launch customer for E-Jet “E” and will operate the plane for American Airlines’ Eagle unit. The order brings the current backlog for the E-Jet to about 150. (Aerospace analysts have been concerned for some time about the shrinking backlog, with production rates exceeding a 1:1 book-to-bill.)
Embraer continues to promote the E_Jet as a right-sizing mainline aircraft in the 90-125 seat segment, with 3,765 forecast as a requirement in the next 20 years in this segment.
The re-engined E-Jet includes a new wing and the Pratt & Whitney GTF engines. EMB is calling the revised airplane the E-Jet Second Generation (E-Jet SG). EMB to formally launch the program this year, with EIS in 2018. The models and size are being defined (though our market sourcing says there will be an eight passenger stretch). EMB says there will be “double digit” fuel burn improvment.
Update: Even as we posted this, Jon Ostrower Tweeted PW has been selected to re-engine the E-Jet. We’re trying to confirm.
Embraer faces declining deliveries this year and next due to declining orders and a declining backlog, reports JP Morgan in a research note issued January 8.
JP Morgan writes:
We are downgrading Embraer…because we believe the stock does not fully account for a decline in commercial deliveries. We are lowering our 2014 E-Jet delivery estimate to 60 from 80, and we see potential for both upside and downside to this estimate.
- We forecast 85 E-Jet deliveries in 2013 and 60 in 2014, down from 105 in 2012. Our 2013 outlook is based on our view that the company has filled ~75 slots this year, reinforced by indications from management, and the trickle of orders since then. Visibility into 2014 volume is much lower. We estimate that only 21 slots are filled (using data from Ascend), and even if we allow for some reshuffling from other years, Embraer still has a decent number of orders to gather just to reach our estimate. Embraer has taken ~306 E-Jet orders the past five years, or 61/year on average, and our delivery estimates for 2014 and beyond are in line with this.
- E-Jet backlog was likely down to ~162 aircraft at year end. This represents only 1.5x 2012 deliveries vs an average of 3.2x historically. The backlog is only 1.9x our 2013 delivery estimate of 85 E-Jets, indicating that without an order pickup, the lower rates we are assuming will not be sustainable. The estimated E-Jet backlog in units is down ~65% from its 1Q08 peak of 466 and has declined in 15 of the 19 subsequent quarters.
- Opportunities still lie in the US. Embraer does have opportunities to rebuild the backlog, the most prominent of which are in the US. Last year, management indicated it would compete for 300-500 US replacement orders in the coming years. Embraer failed to capture the first of these as Delta ordered from Bombardier, but there are other opportunities, such as a potential order from American for up to 200 76-seaters. This order could take place in the coming months if American exits bankruptcy independently, but a merger with US Airways (as our airline analyst Jamie Baker believes is likely) could push this out to 2014. We expect a resolution on the merger question in the coming weeks. Either way, Bombardier will surely provide stiff competition, and we see it as at least a mild favorite. Embraer has also pegged a ~150 aircraft opportunity from United. Large US orders would clearly benefit Embraer but even with 20-30 deliveries into the US annually, production should remain below last year’s 100+.
We think EMB has seen a drop in orders because, at the end of 2011, officials announced they will re-engine the E-Jet. But throughout 2012, the market has waited for information about what the E-Jet RE will look like. The engine hasn’t been selected yet, as far as we know. A new wing is assumed, as are upgrades to the systems–which we hear will be borrowed from the KC-390 military aircraft.
As a result of the ambiguity, we think customers have been holding off ordering aircraft.
Furthermore, Bombardier has won some key competitions: Garuda and Delta Air Lines, where the CRJ proved to have lower operating costs and pricing considerations also favored BBD. The E-Jet is superior in passenger comfort to the CRJ, but for cost-driven airlines who don’t really care about passenger comfort, the lower operating costs of the CRJ may prove the winning combination with a more aggressive pricing and deal from BBD.
Embraer needs to make its RE decisions soon to regain momentum.
Embraer v Bombardier: While Airbus and Boeing gain the most attention and headlines, there is another hotly competitive sector: Embraer and Bombardier in the 90-125 seats market. Bloomberg has this item examining the competition here.
Boeing Delivers 601 Aircraft: Buoyed by 46 787s, Boeing delivered 601 aircraft last year, which by this metric means Boeing will best Airbus. Airbus won’t announce its 2012 results until January 17, but is expected to finish with around 580 deliveries.
Boeing ended 2012 with 1,203 net orders, including 914 for the 737 MAX and 1,124 for the 737 family. Through November Airbus recorded 585 net orders. Even with the famed “fifth quarter,” when Airbus is known to announce a whole slew of orders that in the past has overcome Boeing’s apparent lead, we don’t see John Leahy pulling this rabbit out of his hat this time.
Just as 2011 saw Airbus record record orders with the A320neo success, Boeing’s total was boosted by converting commitments to orders. The MAX program ended the year with 1,064 orders. The A320neo has more than 1,500 orders through November.