Odds and Ends: Taking airplanes in on trade; Q400 scores

Taking airplanes in on trade: Much is being made of Boeing taking five Airbus A340-600s in on trade to secure an order for 20 777-300ERs from China Eastern. While trade-ins are not common, neither are they unknown. Boeing has done this before, including what was then a particularly controversial deal: taking brand-new A340s off the hands of Singapore Airlines even before they had been delivered as part of a 777 deal. Those A340-300s went straight to Boeing from Airbus, much to the consternation of John Leahy at the time.

The OEMs don’t like to take airplanes in on trade; after all, they are in the business of selling new airplanes, not used ones, but Airbus, Boeing and Bombardier all have active used airplane units to remarket aircraft they have in their own portfolios–usually originating from their customer financing.

Bombardier wins Q400 deal: WestJet of Canada will order 20 Q400s and option 25 more in what was a hotly contested deal between ATR and Bombardier. Although many believe this was a slam-dunk for Bombardier, the competition was intense; WestJet sent the parties back to re-price the deal late in the game.

This order gives BBD 28 firm and 45 options for the Q400 so far this year, compared with a mere seven in 2011.

The Russians Are Coming, the Russians Are Coming! Boeing imports Russian engineers to work in the Seattle area, much to the consternation of SPEAA, Boeing’s engineer’s union. Now the practice has caught the attention of a US Senator.

Outsourcing is a sore point for Boeing’s unions. While Boeing says it does so to reduce costs and to offset work in exchange for sales, there is a larger issue: the US simply doesn’t produce enough engineers to meet demand, and 50% of Boeing’s engineers reach retirement age in the next five years or so. We don’t like Boeing using Russian or Chinese help to produce airplanes–after all, these two countries are developing competitors to Boeing aircraft and it strikes us as pretty silly to help your competitor (why not hire French or German engineers, for Pete’s sake?). But the USA’s failure to place a high priority on developing engineers is a national disgrace and Boeing has to find the help where it can get it.

The Coming Aerospace Squeeze: Emerging Competitors

AirInsight has released a report entitled “The Coming Aerospace Squeeze – a review of commercial aircraft programs in Brazil, Canada, China, Japan and Russia.”  This report summarizes current and planned aircraft programs in each of these countries and the potential impact of those programs on the commercial aerospace market.

Boeing OK about new aircraft entrants

Boeing doesn’t appear too worried so far about the possibility of the established and emerging regional jet manufacturers encroaching on the low-end 737 market.

Randy Tinseth, vice president of marketing for the Seattle-based manufacturer, made the remarks today at the 25^th Annual Meeting of ISTAT, the International Society of Transport Aircraft Traders.

In a follow-up interview with us, Tinseth said that Bombardier’s proposed CSeries airplane, the largest of which is designed to carry about 139 passengers, is so far a “paper” airliner that he thinks doesn’t quite make the quantum leap airlines are looking for in fuel and maintenance efficiencies. Despite choosing the Pratt & Whitney Geared Turbo Fan and increasing the use of composites, the CSeries remains below the 15% to 20% improvements requested by airlines, Tinseth says.

China has rolled out its 70-seat ARJ-21 and announced plans to develop a 150-seat airliner. This hits right at the core of the Boeing and Airbus single-aisle airplanes, and China historically has been one of the most reliable customers for both manufacturers, through good times and bad. Tinseth told ISTAT that China’s market in 20 years will equal that of the USA today, and he tells us that Boeing must remain responsive to customer needs and relationships if it is to compete with the government’s propensity to favor indigenous products.

With Japan, China and Russia each developing regional jets—and each in industrial or engineering relationships with Boeing (and Airbus), Boeing’s unions expressed concerns about technology transfers creating new competitors. Tinseth, an engineer by training, said Boeing strives to protect its intellectual properties. “As part of what we do, we hold that close,” he says.

Tinseth acknowledged to ISTAT the program challenges of the 787. While Goldman Sachs last Friday issued a report suggesting a new, six month additional delay in the program is likely—Boeing said it will have an update at the end of this month—Tinseth stuck to the current company position that power-on is targeted for the first airplane soon. Originally this was scheduled for the end of March; Tinseth told ISTAT that it is targeted for early April (Goldman predicts June), and first flight is still scheduled for June. However, Tinseth told ISTAT that the program schedule is being assessed, which seemed to us sitting in the audience to be a little bit of wiggle room.

We asked Tinseth about this in our follow-up interview, and he demurred on the “wiggle room” but reiterated that the schedule remains under review for update by the end of the month.

Tinseth also clarified for us an element discussed during his presentation in which he said the Very Large Aircraft segment is a “100% replacement” market. Boeing predicts 560 passenger VLAs to the Airbus forecast of some 1,280. Airbus validates its forecast with the thesis that air traffic doubles every 15 years (Tinseth agrees) and that congestion at hub airports requires larger airplanes. Tinseth says 80%-90% of the congestion is from single-aisle airplanes and these are up-gauging to accommodate more passengers: for example, from 737-700s to 737-800s and 50-seat RJs to 70-90 seat RJs.