Leahy skeptical of Boeing plan to add 737 seats, vows to maintain 60% share of neo-MAX sector

 Airbus’ chief operating officer-customers, John Leahy, dismisses the idea that Boeing can add more seats to its 737 family to gain competitiveness over the A320 family.

 In a press briefing in advance of the air show discussing the 737 MAX (not subject to embargo), a Boeing official revealed that the company is considering changes to the galley/aft lavatory design and the use of slim line seats to add 6-9 seats to the entire 737 NG family. These changes would migrate to the 737 MAX. Airbus previously announced similar changes to the A320, gaining three seats, and more recently to the A321—which also required the addition of exit doors—to boost capacity to 236 passengers in shoe-horn configuration.

But in an interview with Leahy, was skeptical about Boeing’s possibilities.

“That’s more problematic, we’ll see,” he said. “Is this the O’Leary option where they stand at the back of the airplane?” he quipped, referring to Ryanair CEO Michael O’Leary, who has proposed a standing seat configuration.

“I’d be very surprised if they did that,” Leahy said, getting back on point. “I don’t know if they could do that (6-9 seats) but remember, we have 236 seats in the A321, so why should I be concerned if they squeeze a few extra seats in? I’d be surprised if they can. I think [the 737-900ER] is at its exit limits right now. It’s also at its performance limits.

Leahy believes that the A320neo will maintain a 60% market share vs the 737 MAX.

“We’re outselling the MAX 2-1 with a 65% market share. We’re not talking about the first couple of hundred airplanes, we’re talking about the first couple of thousand that the neo will have 60% of the market and they’ll have 40%. We’ll give them 40% of the market. It looks right now that the [neo] market will go higher than that but we’ll stay there.”

Wide-body airplanes get plenty of attention at IATA; Leahy comments on 777X, A350 and A380

The 69th AGM of IATA just concluded at Cape Town, South Africa, and wide-body aircraft drew a lot of focus in these articles from Bloomberg News and Reuters.

We spoke with John Leahy at the end of the AGM, and though tired and off to sell more airplanes before the Paris Air Show begins June 17, he had some pithy comments about Boeing’s 777X and a strong defense of the A380 sales.

Boeing will have a public briefing of the 777X at the air show, but there have been plenty of leaks before now in which the 777-9X is said to be 20% more fuel efficient than the 777-300ER it’s conceived to replace.

“Be careful with the numbers there,” Leahy said, referring to the 20% figure. “We’re not at all worried about the 777X. They are known for their paper airplanes. No one seems to remember that they already not just marketed but sold 777-200s with folding wings, and of course none was produced. No one seems to remember the ‘game-changing’ Sonic Cruiser, which of course was a joke. No one seems to remember the 747-500, the 747-600 or the 787-3. The Japanese remember the 787-3, which [Boeing] sold with legally binding contracts and just never delivered.

“Yeah, they’re worried about the A350-1000, and they’ve come out with one paper airplane after another and declaring victory, declaring that the world is beating a path to their door. Naw. It’s BS. It’s typical Boeing marketing hype.”

As we remarked to Leahy, “tell us what you really think.”

Leahy repeated previous statements that he could sell a lot more A350-1000s if he had the production slots.

“We could substantially increase sales for the A350-1000 if we could substantially increase production. I need a second line, a dedicated line and we’re debating that internally. We’re doing the business case. I’m confident we can make that decision before the end of the year.”

We asked a leading question about the rate he’d like to see, but Leahy didn’t bite.

“I don’t want to tell Boeing exactly what we are up to.”

We also asked where the additional line would be, if approval is granted: France, Germany or Mobile (AL). “It’s not going to be Mobile,” he said. “Let’s start building CEOs and NEOs there first before we start getting into wide bodies.”

Although there have been a number of stories reporting that Japan Air Lines and All Nippon Airways may buy the A350-1000, breaking Boeing’s decades-long monopoly. It won’t be by Paris, apparently.

“I’d be very surprised, but I can say I’m looking for an improvement in our market share in Japan. We have nowhere to go but up. I would be hopeful we will get a breakthrough in Japan, but I don’t want to predict a timeline,” Leahy said.

A380 sales have been poor, but Leahy is sticking to his prediction of 25 sales this year.

Question: The A380 isn’t selling very well.

Leahy: Excuse me, I haven’t modified my forecast. I said I’ll sell 25 this year, and I’ll sell 25 this year. If this were December, maybe we’d have a discussion. I’ll sell 25 this year.

Q. You fell short last year.

Leahy: “Bad things happen to good people.”

Q. The VLA forecast 1200-1300 since 2000. Sales and delivery rates fell short every year to maintain that pace.

Leahy: “The one thing that doesn’t change is that [everybody] all agree[s] that RPKs double every 15 years. We have to have larger aircraft. Larger aircraft are the only solution [for key airports].”

The Airbus forecasts assumed Boeing would capture a 50% share of the VLA passenger market. In fact, Boeing only has a 10% share. Leahy predicts this split will be maintained.

“We will have 90% market share for VLA. The A380 will do very well and I am confident the book-to-bill will be maintained. No, we’re not going to sell 60-70 aircraft a year. But we will sell 25-35 and we will build 25-35 a year,” he said.  “A380 do get high yield passengers.

Note: Because readers won’t behave, comments are closed.

Odds and Ends: Boeing moves jobs from WA State; CSeries FTV 1; A350 power up; 787-9 assembly; 777

Moving jobs out of Washington: The Seattle Times has a story about last Friday’s announcement that Boeing is moving more engineering jobs out of Washington.

CSeries: Airliners.net had this photo over the weekend. The first flight is expected after the Paris Air Show.

Bombardier CS100 Flight Test Vehicle #1.

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Airbus has powered up the engines on the A350 for the first time. First flight is expected within weeks, likely before the Paris Air Show.

Airbus photo.

Smaller jet demand: The smallest Airbus and Boeing jets have weak demand, reports Aviation Week. And we’re not just talking about the A319 and 737-700/7.

787-9 Assembly begins: It was a busy weekend, with all of the above and capped by the start of 787-9 assembly. The first three 789s will be built on the Surge Line at Everett.

777 Painting: We linked two stories last week, to KING 5 and to The Seattle Times, about the robotic wing painting for the 777 line. Here is a photo:

Boeing photo

Boeing currently is only robotically painting wings going on even-numbered line numbers. Wings going on the odd-numbered lines are still painted by hand for now. Because the program is new, the programmers continue to adjust the software between the even- and odd-numbered line wings, and eventually all the 777 wings will be painted robotically.

The paint shop is big enough to accommodate 777X wings, including the folding wing tips. This, of course, implies the 777X will be assembled in Everett. It’s unclear where the wings will be built.

The robotic painting is part of the 777 Lean manufacturing begun in 2005, which in the entire process has enabled Boeing to boost 777 production to 8.3 a month within the same assembly line space.

While this is the highest twin-aisle rate Boeing has produced to-date, Airbus has been assembling A330s at rate 10/mo for some time and is considering going to rate 11. Boeing, of course, will be at rate 10 for the 787 by year end. Airbus long ago announced plans to go to rate 10 for the A350 four years after EIS, but John Leahy is already pushing for a second assembly line to accommodate A350-1000 demand.

Assessing the A350 program

News from EADS that it is beginning to consider another Airbus A350 assembly line, or ramping up production more quickly than currently planned, to accommodate increasing demand for the -1000 validates a desire expressed months ago by John Leahy, COO of Customers for Airbus, that he could see more -1000s if he had the capacity to build them.

Delivery slots for the A350 are essentially sold out to 2020. Orders for the -1000 stalled in part because of this, in part because Airbus tweaked the design, in part because Boeing engaged in an effective campaign to cast doubt over the model and in part because Tim Clark of Emirates Airlines and Akbar Al-Baker of Qatar Airways can’t resist negotiating in the press to pressure Airbus to do more.

We believe the -1000, at 350 passengers, is a bit small. It compares with the 365 passengers in the Boeing 777-300ER. We felt from the start that Airbus should have had at least 30 more passengers. But the -1000 threatens the -300ER. Airbus claims the -1000 will have 25% lower trip costs; even Boeing’s own presentations grant the -1000 about 20% lower trip costs.

With Boeing planning a 350-passenger 777-8X and a 406 passenger 777-9X, the need for a larger “A350-1100″ becomes acute. Boeing has had the monopoly with the 777-300ER, which will be broken by the -1000. The 9X will retain a monopoly; Airbus, to be fully competitive, needs to match this size.

This will mean a new wing and larger engines, of course, no small investment. There is already a huge gap between the -1000 and the A380. The 777-9X, which will be more efficient than the 747-8 (and which will kill the dying 748), will eat into the A380 demand. So will an A350-1100, but better to do so from within than to see your competitor take the sales.

The A350-900 is moving forward with continued market demand.

This leaves the A350-800.

Boeing engaged in a public campaign to cast doubt on the viability of the -800. Airbus has poorly defended the airplane, and its efforts to switch customers to the -900 further casts doubt. But officials insist the -800 has a future. The question is, when?

The current entry-into-service plan for the family is the -900 in the second half next year (we think it could slip into early 2015); late 2016 for the -800 and 2017 for the -1000. There are only two -800s scheduled for delivery in 2016, with the bulk in 2017, when the -1000 is due for delivery in reasonably sizable numbers.

We’re told from several sources that Airbus is switching customers from the smallest model to larger versions in part to de-risk the program. Schedule on the -900 is already tight and resources are focused on this sub-type. Switching customers relieves pressure on these limited resources.

Another reason, expressed by Leahy: the -900 is more profitable for Airbus (though we are also told reliably Airbus is offering incentives valued at “millions of dollars” to switch).

Leahy also says switching to the -900 gives customers earlier delivery slots. We’re not quite sure how, but this is what he told us.

We believe the increasing demand for the -1000 will prompt Airbus to resequence the EIS, moving the -800 from 2016/2017 to 2018. This will open slots in 2017 for the -1000 and ease integration pressure for Airbus.

But will Airbus keep the -800? Our checks in the market with customers so far suggest the answer is yes. Abandoning the -800 will totally cede the middle-twin-aisle sector to the 787 and we doubt Airbus wants to do this. The A330 will be approaching its 30th year from EIS in 2024, and by then will reach the end of its natural life cycle, if not somewhat before. Airbus needs to come up with a solution to replace the A330 (perhaps that ever-talked about NEO?).

Airbus needs to address (1) the absence of a competitor to the 777-9X, (2) the future of the A350-800, (3) the absence of a new technology competitor to the 787-8 and (4) the successor to the A330.

Reflections of a whirl-wind week in the news cycle

This is one of those moments where jet-lag induced sleep patterns give us a moment to catch our breath.

What a week it’s been in the news cycle. We came to Europe on routine business and from the moment we stepped off the plane in Amsterdam for a connecting flight, our Blackberry was filled with emails about the ANA 787 incident. Less than 24 hours later, the 787s were grounded, the SPEEA contract negotiations were reaching a climax and Airbus was holding its annual review press conference.

And our trip is only half over.

787 Updates

The Wall Street Journal has an excellent article focusing on the battery approval by the FAA and its reliance on Boeing in granting approval. Subscription is required. The article speaks to the very point we made in our previous post about the FAA’s reliance on OEMs and suppliers generally and for the 787 specifically. Unaddressed in The Journal article is our point about the FAA review of the entire 787 program and the continued reliance on Boeing and suppliers for research. This remains an unanswered question.

The Seattle Times has this article that reports some of the same ground as The Journal, outlining Boeing’s fevered effort to get the airplanes in the air soon.  The Times reports the grounding extends even to the 787s awaiting test flights in advance of deliveries.

The International Herald Tribune has this story about the lithium battery and this detailed story about the grounding, including discussion of the fire control of the 787 electronics bay. Finally, IHT has this technical discussion of lithium ion batteries.

Our own inquiry suggests Boeing hopes to have the airplanes airborne within days.There is a definitive proposal before the FAA.

Boeing designed triple and quadruple redundancy to prevent conditions that would cause a fire or leakage, we are told. The systems themselves are believed to have not failed, but the investigation is incomplete. This suggests that the fault may well be with the batteries themselves, as The Seattle Times and Bloomberg News have now reported. It remains unclear if there are simply defective battery issues or if there is a systemic battery production issue or there are other issues.

Reuters has this story with quotes from the battery maker. Noteworthy is the company response that the battery is but part of a system. The person says the probe involves the entire system, not just the battery. The article also has the cost per day to ANA for the grounding.

At Airbus, the mood was stoic. Sensitive to perceptions over the intense, often bitter rivalry with Boeing and the knowledge that what happens to Boeing could in similar form happen to Airbus (see A380 problems), nobody at Airbus was anything but empathetic. CEO Fabrice Breigier expressed sincere hope for Boeing’s plight and efforts to return the 787 to service, and this reflected universal sentiment.

Reporters naturally asked about the use of lithium batteries on the A350 and reaction to their use on the 787.

Airbus officials, without any hint of criticism over Boeing’s choice of an all-electric airplane, simply explained the differing philosophies that led to Airbus’ conclusion to retain more tradition methods of powering the A350: hydraulics and pneumatics. The benefits of all-electric didn’t offset the risks and costs enough to go this route, officials said. The result is that the A350 actually draws less power from batteries than the A330 because of design efficiencies, they said. Further, the Auxiliary Power Unit on the A350 is started by two batteries splitting the load versus one battery on the 787 carrying all the load.

SPEEA-Boeing

See our post on this topic. Not a lot more to add.

The Everett Herald has this story.

Airbus annual press conference

Setting aside the drama of the 787, this was pretty routine stuff. Airbus trailed Boeing last year in deliveries and orders, as expected, but it still bested its own forecast for orders by 50%. Had 2011 not been boosted by the plethora of A320neo orders, booking 900 gross orders last year would have been viewed favorably by anyone. But the year-over-year comparison showed a 43% decline and the ever-eubillent John Leahy was driven crazy by media headlines pointing out this YOY decline. In an after-conference press gaggle, he ribbed Reuters’ Tim Hepher in a good natured manner over the Reuters focus on YOY stats, but his frustration was evident for all to see.

Boeing’s 2012 orders were boosted by its comeback with the 737 MAX. Now that the surge of orders for both companies is over, it will be interesting to see how a normalized year shapes up. Airbus has a sales goal of 700. Boeing will likely be asked about its sales goal during the year-end earnings call at the end of this month.

Totally off topic

The new American Airlines logo is creative. The tail treatment sucks. Maybe US Airway will fix that. Leave it to AA management to screw up the rebrand.

In the What-is-he-thinking category, Lance Armstrong shudda kept his mouth shut.