And who cares?

China is and its very own aircraft manufacturer, COMAC, says it is about to deliver the first ARJ-21 aircraft to customers.

I suspect the customers cringed at the idea of having to take delivery.

The ARJ-21, for those of you who don’t know, is China’s attempt at a regional jet.  To be fair, the aircraft has a lot of US content in it in the form of avionics from Honeywell and Rockwell Collins as well as a GE engine (the CF34 used by many regional jets and which is being replaced with Pratt & Whitney GTF engines by other regional jet manufacturers.)

Nominally, the aircraft is designed to compete in the 70 to 100 seat class also known as Embraer and Bombardier country.  It won’t.

The airliner, despite China’s protestations to the contrary, is a copy of the McDonnell Douglas MD-80 series aircraft that was assembled in China as the MD-90 for a brief while.  Admittedly, Chinese MD-90s are reportedly just as good as any other but they were also made from kits.  It even will share the 5-abreast seating the DC-9/MD-80 series had.

It does have some new bits:  the airliner got a new wing courtesy of Antonov and “fly by wire” courtesy of Honeywell.  But if you think the latest generation of intellectual property was given to China for this airliner, you would be wrong.

The only companies who have ordered this airliner are Chinese airlines, Chinese lessors, an Indonesian airline, a Myanmar airline and GECAS.  I’m betting GECAS ordered its token 5 to keep doing business in China.

I’m somewhat surprised that North Korea or Cuba or Iran hasn’t ordered one.

I’m pretty sure the Myanmar order is political as this airline (Myanma Airways) also recently made a much more real order with GECAS for 6 Boeing 737-800 and 4 Boeing 737-MAX8 aircraft.  It already is leasing the Embraer 190AR.  One suspects that China felt it needed some “international” orders and went out and strongarmed a couple.

The Indonesian airline, Merpati Nusantara Airlines, does operate a Chinese airliner.  It operates the AVIC MA-60 which is a kind of revised Antonov which kind of looks like an ATR-42 turbo-prop.  This airline also has some old 737 aircraft.  Given what we know about the state of airlines in Indonesia, I think we can assume that this airline has ordered what it did simply because it couldn’t get airliners from anyone else.

Still, the ARJ-21 is important if for only one reason:  It’s a very educational exercise for China who will use it to build the also inferior COMAC C919.  The so called Boeing/Airbus competitor that China is already late on as well.

China won’t build a competitive airliner in this decade.  It probably won’t build one in the next decade either.  You can bet that if they stick with it, they will be building a competitive airliner in the decade after that.  The one thing that the ARJ-21 does signal is that China is serious about figuring out how to capture that aviation market which is theirs and a piece of the global market as well.

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Both Airbus and Boeing have next generation updates to their single aisle products on track for delivery in the next few years.  The Airbus A320NEO is arguably the better seller over the 737MAX but both are succeeding well enough to continue sales for quite some time.

But who will blink first?

That is, who will build the next completely re-designed single aisle aircraft that will replace the Airbus A320NEO and Boeing 737MAX aircraft in the market?

In the greater scheme of things, I continue to believe that if Boeing had built a new 737 replacement, it would have ultimately won The Single Aisle Wars for a decade or more.  They would have sacrificed some sales today but . . . I think they would have cemented dominance in that market for years to come.

Sadly, that didn’t happen.

Airbus has been making the right calls lately and I think they’ve done a great job in estimating what the market wants as well as being willing to step forward and build what the market wants.  Boeing hasn’t shown much courage.

Yet, I think it will be Boeing who builds that next aircraft.  I think Airbus will focus on its A320NEO and I think their next project will be an A330NEO and they still have considerable work to finish on the A350 series aircraft.

Boeing has the 787-10 to complete which will be an unsatisfying derivative instead of a hit (it won’t have enough range/payload to really attract customers to it, in my opinion).  Nonetheless, the 787-10 will be pretty easy to bring to market.  They have the 737MAX to get done and that will be a low risk effort as well.  The 777-8/9 will also be a fairly low risk aircraft, too.

Boeing has all low risk programs with everything getting to market by 2020.   By 2020, Boeing will have realized that the 737MAX isn’t quite making it for the single aisle airlines.  To remain in business and truly engage with the airlines of the world, Boeing will have to commit to a new 737 replacement and it will have to push the envelope pretty far.

I believe that 737 replacement will start at about the 160 seat capacity (standard 2 class) and run up to 210 to 220 seat capacity.  I think all variants will have trans-continental range and I believe that at least the top two variants will have intercontinental range with ETOPS at introduction.

I do think there will be 3 variants but I also suspect many will speculate that there will be 4 variants.  My expectation will be:

Variant 1:  150 – 160 seats, 3600nm range

Variant 2:  180 – 190 seats, 4200nm range

Variant 3:  210-220 seats, 4200nm range

I think we’ll see a geared turbo fan a la Rolls Royce on the aircraft or a Pratt & Whitney engine.  What I don’t think we’ll see is a CFM engine.  The CFM design isn’t going to make the leap into the next generation.  It held up for the NEO and MAX but only barely.  The Pratt & Whitney is more likely the future.

What else will be different?  The fuselage will not be metal although it likely won’t be like the 787 either.  The wing will be much more efficient and the cockpit will be harmonious with the 787 and the 777-8/9.

What it won’t be is a 757.  As much as everyone hopes for another overpowered 757 to show up, it won’t be that.  Instead, it will be an aicraft uniquely designed to answer a question for 20 or more years.  It might look like a 757 but its design and requirements will make it entirely different.

But first someone has to blink.

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The airliner being developed in Russia and branded as the Irkut MS-21 is a Boeing 737 and Airbus A320 competitor.  Well, in theory anyway.  The airliner is being developed to fit into the same capacity / range of those two product lines but it is a long haul and who knows if the airliner will ever be truly launched into production.

The Yak-42 was a three engine rough runway, t-tail design built in the hundreds by Russia during the Soviet Era.  For a Soviet aircraft, it was a pretty good airplane.  It resembled a 727 and had roughly the same capacity of a 717-200.

The actual progression was Yak-40 (a regional 3 engine airliner capable of rough fields and carrying about 40 people), then the Yak-42 and a Yak-46 and Yak-242 were conceived and even went through design exercises before being cancelled.

Now they want to change the name to the defunct Yak-242 and allege that the MS-21 is derived from that study.  It’s a branding thing.

The problem is that the Yak has no positive brand image anywhere but in Russia.  No one thinks of the Yak-42 and says “Yeah, they should built something like that again.”  Calling the airliner Irkut MS-21 put distance between it and every other bad experience made in Russia.

But Russia clings to things and in this case it’s going to cling to the name Yak and believe that that name is going to win.

It won’t but that may be moot anyway as it remains to be seen whether or not Russia can build an airliner that interests the world.  So far, the Sukhoi Superjet ain’t.

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It often bothers me that Boeing never seems willing to buy into a start up airline.  Airbus has had to make it its business to go to these startups in hopes that they’ll gain market share incrementally.

But Boeing always seems to want to see a strong balance sheet and a track record before truly making a good deal to an airline.  On the surface, this seems smart but in reality, I think Boeing is slowly ceding sales to more and more airlines as a result.

A leveraged business, particularly in the airline industry, is a very common thing these days.

Most recently, VivaAerobus has been operating a fleet of 737-300 aircraft (20) and it just inked a deal with Airbus to buy A320 aircraft to replace those 737s and to expand with.

How do you let an airline operating your airliner successfully get away like that?

You treat them the way Boeing does.  They’re not big, they’re not the best financed and they’re the upstart in a highly regulated country.  But Airbus has the sale and Boeing doesn’t despite the fact that Boeing should have actually had the performance advantage on this sale.

It’s my belief that Boeing has trended towards being discriminating with its sales to only larger companies in general.  And I believe this will hurt Boeing more and more in the commercial landscape in the years to come.

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Southwest Airlines has terminated the captain who flew the 737 that was crashed at La Guardia airport some months ago.  This was done, according to SWA, after an intensive internal review of what happened.  The First Officer flying that day is being re-trained.

The Southwest pilots union has expressed their disappointment at the termination in such a way as to make me believe they barely found enough energy to do their unionly duties and object to a pilot’s termination.  In other words, I think the union really didn’t mind this one.

Southwest and Southwest’s pilots have exceptionally high standards and these guys work very hard to be the best of the best in their business.  By all accounts, they don’t tolerate fools.  It sounds like they don’t want to tolerate this one and that’s OK.

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I received a back channel question asking why all airliners are looking so alike now.

What the person was referring to was the fact that an A320 and B737 look, to the layman, almost exactly alike as do the medium and large widebody aircraft.  It’s true, the Airbus A330 is hard to distinguish from the Boeing 777/767 series aircraft too.

The only semi-distinguishable aircraft out there are the Airbus A340 (production has stopped), the Boeing 747 and the Airbus A380.

But the question is why.

The answer is aerodynamics.  As manufacturers strive to gain more and more efficiency out of their aircraft, their aircraft start to look more and more alike.

Simply put, it’s about function over form.  When you design one of these aircraft, you don’t “style” it with something that goes against the aerodynamics of the airframe because such a thing could literally cost the user millions in fuel costs over the life of the airplane.

So, today, we have the Embraer E170/190 which looks a lot like how the Bombardier CS100/CS300 will look  which looks a lot like the Airbus A320 series which in turn looks a lot like the Boeing 737 series.  Because that shape works, we have the Airbus A300 which looks a lot like the Boeing 757/767 which looks a lot like the Airbus A330/A340 which looks a lot like the Boeing 777 which looks a lot like the upcoming A350 which also looks like the Boeing 787.

They all basically look alike with some slight differences and that is completely driven by aerodynamic efficiency.

It’s notable that the “odd ball” aircraft do not really survive past a single generation and don’t show up anymore.  The 727 was out of the ordinary with Boeing and its T-tail configuration was only ever used once by them.  The DC-10/MD-11 3-engine weirdness didn’t really last that long either.  The DC-10 did but the MD-11 died a quick death.  In fact, it’s notable that the MD-11 mostly died in popularity because it didn’t meet efficiency promises.

Oddballs don’t survive very long and those that do survive are driven in their function by physics.

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Around the world, airlines are making record setting orders for new narrowbody aircraft.  We airlines in Southeast Asia and Europe being particularly aggressive while here in the United States airlines are far less so (even American Airlines who desperately needed a new fleet.)

In the United States, most of these orders are being made to replace modest portions of fleets that are nearing the outer limits of age.  100 737s for Delta Airlines just means that old aircraft get replaced with new aircraft.  No real change in fleet size.

Now, many US airlines are modestly upgauging their fleets with slightly larger aircraft.  An A319 buyer is going to the A320.  A 737-700 user goes with a 737-800.  This capacity growth amounts to just meeting organic growth in a modest economy such as the United States.

However, in Europe and Southeast Asia, I suspect something else is going 0n.  Some airlines will use some portion of their order to replace their oldest aircraft (Ryanair and easyJet) but I think the vast portion of their orders are going to go towards growth.

In Europe, I think we will see another fare bloodbath before things settle.  This won’t be just between Ryanair and Easyjet either.  Expect all the other low cost European carriers to be involved.  Norwegian, Germanwings, Air Berlin and Monarch all come to mind as airlines that are likely to be affected by a battle.

In Southeast Asia, the competition is already massive with prices already about as low as they should go with airlines planning double digit growth for multiple years.  Someone and something has to give here.  Yes, low cost carriers in this region are revolutionizing travel but they’re also often operating at a loss for marketshare.  Does this sound familiar?

I expect we will see one or more airlines in this region go bankrupt and I have in mind one particular entity:  Lion Air.

Economic growth in Southeast Asia doesn’t occur at all societal levels and that kind of airline growth isn’t sustainable in that region.  Someone will go out of business or will go bankrupt.  Bet on it.

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Alaska Airlines is being excoriated by Alaska residents primarily in Fairbanks for switching their flights between their fair city and Anchorage over to Bombardier Q400 turboprops.   No more jet service.

I have a few words for Fairbanks residents:  Alaska Airlines just did you a big favor.

Fairbanks is likely to get more frequency on flight segments where it will take absolutely no longer to fly the segment.  The Q400 is made for such service and it can provide it reliably and, most importantly, at lower cost than the 737.

Flight durations won’t change.  Dispatch reliability won’t change.  Frequencies will go up.  How is that bad?

Fairbanks will retain jet service to Seattle and Portland, Oregon and it will keep jet service on one 747-400 Combi flight between Fairbanks and Anchorage.

There appears to be a perception that these aircraft are dramatically noisier than the 737.  They are not.  There is also a perception that they cannot climb very high.  They can climb quite high.  Each aircraft can climb as high as one would ordinarily want to climb on a flight segment that short.

There is a perception that the Q400 isn’t good in mountain turbulence.  Those in Fairbanks should observe that all the flights between Portland, Oregon and Seattle, Washington are in the Q400 directly over mountain ranges.

There is a perception that weather will be a real issue for passengers.  Possibly for a small number.  Possibly and depending on whether or not Alaska Airlines makes accomodations for its passengers (I think they’ll handle special circumstances just fine.)   Let me also point out that the climates in both Anchorage and Fairbanks aren’t exactly North Pole-like.   It can get very cold there during storms and winter months.  About the same as what is seen in International Falls, Minnesota where they fly turboprops in and out of all year round.

There is a perception that turboprops are more prone to icing.  They are not.  The altitudes in which icing occur are altitudes that both the 737 and the Q400 spend about the same amount of time in.  Both have anti-icing features and they work well.

And I want to point out one more thing:  Fairbanks city population is 31,000 people.  The entire metropolitan area is 97,500 people.  Waco, TX has 125,000 city population and 235,000 metropolitan population.  Waco doesn’t get 737 aircraft either.  In fact, Fairbanks is roughly equivalent to Sherman, TX in population sizes and Sherman, TX doesn’t even get commercial air service.  Take a minute to go lookup Sherman, TX and we’ll wait until you’re done.

Anchorage – Fairbanks sees about 11 flights a day in aircraft ranging in size from a small 30 seat turboprop to a large 737-400 with 144 seats.  ERA Aviation is flying the same class of turboprop between the two cities multiple times per day with zero problems.

So, basically, there is no problem here.  Just pride over issues that don’t exist.

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Allegiant Airlines has announced that it will be acquiring up to 19 Airbus A319 aircraft via lease and/or purchase and it expects the first aircraft to enter the fleet in the 2nd quarter of 2013.  Allegiant presently operates a large fleet of very used MD-80 aircraft and recently began flying 757 aircraft as a small sub-fleet to support overwater, long distance routes.

The A319 will support growth initially and represent an aircraft that matches seat count for the MD-80 while offering far greater range.  Range will equate to growth opportunities at Allegiant.

Allegiant believes that the changing market for used A319 aircraft now matches what they originally found for the MD-80 as they began as an airline.   It’s true that the A319 has never been a very popular aircraft in general and is on a downward slide presently.  Major airlines prefer the A320 and A321 which offer vastly superior seat costs.  The 737-700, the A319’s competitor, is also seeing a downward slide in value although not nearly as great.

Rather than be alarmed at Allegiant’s adding a new aircraft type, I would suggest that this is good news all around.  Allegiant will benefit from far better seat economics and will be able to obtain aircraft much easier on an on-going basis.  I fully expect that they’ll look for other good deals on A319s to replace their MD-80 aircraft.

Rather than put them at a disadvantage, I expect that this will allow Allegiant to compete even more aggressively against Low Cost Carriers (Southwest, JetBlue) as well as Ultra Low Cost Carriers (Spirit who already uses the Airbus A319 and A320).

Don’t expect a more comfortable aircraft.  Allegiant will cram as a many seats possible onto this aircraft.  Expect roughly 150 seats and compare that to US Airways’ A319s which have 2 class seating for a total of 124 seats or United Airlines’ A319s which have 3 class seating for a total of 120 seats.  Allegiant notes that it might be able to fit more than 150 seats if an additional overwing exit is added.   Spirit’s A319s have 145 seats with a seat pitch of about 30″ so I expect that Allegiant is planning on a 29″ seat pitch and that is not a comfortable seat in the United States.

It’s a good purchase for Allegiant and signals the direction that residual lease values will have on both A319/A320 as well as 737-700/800 aircraft as the A320NEO series and 737MAX series get ordered by major legacy airlines.  This is exactly what lessors didn’t want to see happen to the aircraft they hold but it was largely unavoidable and particularly so when one sees major airlines upsizing their aircraft considerably.

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United Airlines and Boeing have announced the United purchase of the Boeing 737 finally.  This hasn’t been much of a secret for almost 2 months but it does contain a small surprise.

United is buying 50 737-900ER aircraft immediately to start replacing older 757-200s which really wasn’t on the radar screen based on the rumor mill.  However, this makes sense as well.  United has some pretty old 757-200s with 45 in their fleet that are 21 years or older which are all original United Airlines 757s with Pratt & Whitney PW2000 engines.  Engines that no one regards as the superior choice for a 757.

United owns a total of 93 P&W powered 757s of which 84 will be 20 years old or older as of next year.  There are just 9 more P&W aircraft that will be 19 years old or newer.  It’s not hard to guess that the very oldest are being replaced with 737-900ER aircraft as fast as possible and almost certainly because the old Continental already has excellent operational experience with that very aircraft.  They know it can do the job today.

All of the original Rolls Royce powered Continental 757s are 18 years old or newer with the bulk of those considerably newer.  The Rolls Royce powered 757s remain a very viable aircraft to use for those long and thin routes to Europe and trans-continental routes in the United States.  Those will get replaced eventually but with later build 737-9MAX aircraft.

United says their 100 airplane order for the 737-MAX will be for the -9MAX and that those could be used to replace old aircraft or to expand the fleet.  Trust me when I say that those will be replacing old aircraft as the remaining 757s will be 20 years old or older by the time the -9MAX starts delivering in quantities to United.

Is this bad for Airbus?  I think not.  Boeing almost certainly won this fight on price and that’s OK.  There are still quite a few Airbus aircraft from the (old) United fleet that will require replacement as well.   The oldest are nearing 20 years old but don’t require replacement quite yet so there isn’t a firm order for their replacement quite yet.  Airbus will compete for the A320 replacements in a few years and will have a real chance at winning as it should have some production slots for time appropriate deliveries.

The A319 aircraft are fairly new and a sub-fleet really.  I expect that if United sees an opportunity to unload these aircraft and replace them with E-195 or, perhaps, a CSeries 300, they will.

There are lots of aircraft orders to come over the next few years.  Both United and Delta really haven’t addressed all their needs here in the United States and even US Airways will need to start thinking about the next step some time soon.

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Periodically it’s fun for mainstream media to hype the Chinese threat to Boeing and Airbus in the coming years. Irresponsible people point to the homegrown aircraft the ARJ-21 and the coming Comac C919 as evidence of this.

There are a few problems with this. First, the ARJ-21 really isn’t quite 100% homegrown. It is a regional jet based on tooling that China had from its assembly of the MD-90 aircraft. It’s wing was designed by Antonov and it’s cabin cross section, nose and tail are identifical to the DC-9 series.

Second, this aircraft hasn’t proven all that ready for real use. The wing designed failed stress testing thus limiting flight test envelopes at the direction of the Chinese Civil Aviation Authority. There are some reports that this jet is not particularly light for the mission conceived of for it and it isn’t being designed to be exactly a leap ahead of existing regional jets that not only do the job as well or better but which have far superior support in the world (Embraer E Jets and Bombardier C-700/900/1000).

It’s likely that the ARJ-21 will enter into service and find itself wholly irrelevant.

The same fate is likely for the Comac 919. This is a paper aircraft conceived as a competitor to the Airbus A320 series and Boeing 737 series aircraft. The C919 will use a CFM LeapX engine and is targeted to have a range that is significantly less than current Airbus and Boeing models have much less the new A320NEO and 737MAX aircraft. I already smell trouble here.

Comac is using technologies from avionics companies and engine manufacturers but lacks experience at integration and production that make such an airliner possible on a commercial basis. In many respects, for such an airliner to gain credibility in the marketplace, it almost has to be better than A320NEO and 737MAX offerings and it isn’t. Not on paper and certainly not in real world performance. It’s sub-par in every way.

The belief that a superior price will win over airlines is wrong. That superior price is unlikely to be less than what aircraft manufacturers are already offering airlines making large orders and price is only one component of acquisition. Other things involved are its cost to operate, cost to maintain and support from the manufacturer. The Comac 919 is not going to meet or beat either Airbus or Boeing in these areas.

So why would any airline buy such an aircraft? Because the Chinese government told them to, that’s why. It has orders but they come from Chinese airlines and in exceptionally small quantities.

Until China takes on a project that it can achieve integration and competitive operating economics on, it won’t learn how to build a major airliner. The idea that a chinese competitor arrives in the market place even in 2020 is silly. At this point, one could use a crystal ball and guess. My guess is that it is 2030 or beyond and by that point we’ll see Boeing and Airbus offering hyper-efficient new airliners that raise the stakes even higher. 2030 seems a long way off but it is only 18 years away. Look how long it took Airbus to gain marketplace traction with its product line under what were arguably far superior conditions compared to Comac’s. When you do, even 2030 seems awfully optimistic. It could happen but I, personally, wouldn’t bet money on it.

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Emirates CEO Tim Clark has decided to beat the drum of wanting a new, upgraded and revised 777 and he would like Boeing to announce it pronto.  Emirates has a very large fleet of 777 aircraft and likes to retire its aircraft from the fleet after about 12 years.  They also have the A350-1000 on order (20 orders) and have behaved very cool towards Airbus over that aircraft’s delays and its inability to be a real game changer against the 777.

Boeing probably has done a fair bit of definition for the 777-8X/9X aircraft and its likely they’ve held substantial conversations with customers to get a better feel for what should be offered.  I’m not entirely sure that what is offered is going to make Tim Clark happy as he generally wants more, More, MORE range in an aircraft.  Sadly, most airlines don’t need ultra-long range capability nearly as much as they want excellent fuel efficiency and very low seat mile costs.

The 777-8X is likely to be somewhat satisfying to Emirates but I suspect the -9X won’t be quite what they want.  Remember that Emirates wanted to see a 747-8i that had a few hundred more nautical miles range and Boeing wouldn’t give that to them.

It’s a tough position to be in at Boeing.  Emirates could act as a launch customer for a very successful upgrade of the 777.  On the other hand, Emirates will be the toughest critic possible of the aircraft all through development.

Boeing has quite a handful of things going on right now, too.  The 787 program is getting better and better but still requires quite a bit of care and feeding in order to develop the 787-9 and 787-10 over the next few years.  The 737-MAX program will keep a large portion of engineers busy for the next 5 to 6 years and that leaves very little engineering capability left over for the 777 development.

I think we’ll see some sort of firm definition get announced early next year and I think that an authorization to offer the aircraft will only come after Boeing sees customers signal their willingness (and even eagerness) to buy the aircraft from around the world and not just from the Middle East.  That is going to take a while.

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Boeing has revealed more details on its definition for the 737MAX now and one significant revelation is the decision to add 8 inches to the nose gear.  This was the tough choice engineering wise.

A new pylon and strut for engines will be used in the style of the 787 and the rear tail cone will be extended and the area above the elevator thickened to improve aerodynamics.  Electronic bleed air will be added to improve cabin pressurization (which is much like how the A350 will use bleed air)and better means more efficient fuel burn.

Airbus boxed Boeing into this aircraft by introducing the A320NEO.  I firmly believe that Boeing was leaning towards a new aircraft but also needed time and space to get where it needed to be with that aircraft.  Airbus’ introduction of the NEO made it much more imperative to deliver more efficiency now rather than a decade later.

But with the decision made, I also have to credit Boeing for appearing to have decided to go all in.  They are working very, very hard to bring as much advantage as possible to the single aisle wars with Airbus.

Some perceive that Boeing has been slow to release details and I understand that perception but the truth is that American Airlines’ order last summer forced their hand into a premature announcement.  Had they not had to make that announcement, these new details would seem very much on time.

Most believe that the status quo between the two manufacturers will be maintained.  It is thought that Boeing will have a slight advantage that, according to many, will remain about 2% better than Airbus.

I have a feeling that Boeing might be aiming higher.  I don’t think the decisions they are now announcing about this aircraft reflect a company that is struggling to maintain the status quo in the marketplace.  They appear to be working very hard to make every gain possible against their competitors to bring even more to the table.

Why do I think so?  Because these changes add more risk to their ability to deliver this aircraft in 2017.   If there is one thing Boeing knows, it’s that they cannot afford to damage their credibility with airlines further with a late arrival of the 737MAX.  This is not an all new aircraft with all new materials and airlines will expect it on time or early.

This won’t be revealed a la One Big Announcement John Leahy Style.  Boeing will simply add more and more substantiation to their claims as they continue discussions with airlines.  At the end of the day, most airlines prefer to see results over having a grand announcement.

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It’s funny, some people think Southwest showed some LUV for the Airtran 717 fleet when the merger was announced between the two companies.  In fact, Gary Kelly simply said that, at that moment, the 717 was intriguing to SWA and certainly not a harmful aircraft to Southwest’s fleet plans overall.

After the merger, Gary Kelly started talking about how they don’t fit and they don’t want them.

The 717 is a good aircraft and it would fit some of Southwest’s flying quite nicely but . . . it would complicate scheduling and I think that’s what Mr. Kelly doesn’t want.  If Southwest has a 737-700 go technical at an airport, it’s not a problem to drag another 737-500/700/800 up to the gate and hand it over to the pilots and flight crew to use for their needs.  You can’t drag a 717 up to the gate and hand it over to the same pilots.

I think the 717 is leaving and I think it will be gone in 2 to 2 1/2 years.  Holly Hegeman of Plane Business says they are going to Delta and its a done deal.  I say they’re leaving and they’ll find homes somewhere.  Boeing Capital if nowhere else.  Delta probably could and would be interested in them as they are cheap and fit a seat count that Delta had and no longer has in its mainline fleet.  (DC-9-30/40/50 aircraft are leaving the fleet)

The real shame, in my opinion, is that the 717-200 wasn’t expanded into a longer range 717-300/300ER aircraft.  I think that would have breathed real life into that airframe and I think it wouldn’t have hurt the 737 line at all.  But it became an orphan and, as such, it became unattractive to most airlines.  That said, it will remain in the world for at least another decade if not more and it’s got some highly efficient engines that justify its purchase when combined with the used market price for a 717.

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A number of analysts have noted that the real goal for Airbus this next year is to sell production slots that are open for current A320 aircraft up to and including EIS for the A320NEO aircraft.  Both Boeing and Airbus need to find ways to preserve value on existing aircraft lines until their new generation aircraft enter into service as well.

It’s a delicate line they each walk.  You want to satisfy airlines with new aircraft but some of those who buy aircraft are lessors and you don’t want to anger them by depreciating their assets they already hold.  And a market glut of aircraft can result in depreciating demand for your new generation aircraft because the capital costs for current generation aircraft can become low enough to make sense for airlines to buy and use.

A good example of that last part is Delta buying more and more MD-90 aircraft.  The capital costs are low compared to current Boeing aircraft and the airliner provides close to current Boeing efficiencies. 

Both manufacturers know that their order books are soft.  Both know that some who have ordered both current and next generation aircraft aren’t necessarily going to be around to take delivery on those aircraft 5 years from now.  One great example is Lion Airways order from Boeing.   The dirty secret about that order is that Lion isn’t an airline with significant risk both in operations and financially. 

Airbus need to work hard getting their current production sold until their aircraft are in place but without depreciating values and without massive discounts to encourage orders.  It’s a tall order and a difficult challenge for both manufacturers.

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Given all the airlines who have flights to Hawaii, a huge leisure destination, is Hawaii the right choice for an airline such as Southwest Airlines?

I think it is.  Make no mistake, the market that Southwest would enter into after such a decision is the incredibly competitive West Coast to Hawaii market but I think Southwest could offer something that even the experienced airlines can’t. 

Exceptional service and better than average comfort in economy class.  Let’s leave out the idea of flying there in Business Class on your airline points.  It’s irrelevant to earning revenue.  Instead, let’s consider the economy class service of airlines serving Hawaii.  The cheap seats that people *buy* to go on a vacation.

You can bet that Southwest can offer a better than average experience to Hawaii and I think they can do it profitably with the 737-800 and very profitably with 737-MAX8 aircraft. 

Will we see it this year? No.  In fact, I would argue that it’s unlikely we’ll see it in 2013 but I do think we’ll see it in 2014 and I think that, like most SWA efforts on new routes, it will be done in a way that will be both highly efficient and highly rewarding to a customer. 

Consider that a flight from LAX to Honolulu isn’t any farther than some of Southwest’s trans-continental flights today and that their choice of aircraft can and will permit them to offer no bag charges for the first 2 bags.  Their seating is more generous than average and their flight crews are generally happy to see you and serve you.  Better yet, SWA frequent flier members can use their points for a *value* oriented flight to Hawaii that based on points values probably will seem frugal compared to many airlines.

That’s a powerful recipe for success.

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Ryanair’s CEO Michael O’Leary has decided to express his disappointment in what they’ve seen of the 737MAX so far.  He mentions that what they’ve seen from the A320NEO so far, they’re impressed but what they’ve seen of the 737MAX so far does not.  O’Leary, not surprisingly offers that anybody buying aircraft right now is nuts given the prices. 

But the world has changed.  It’s not the late 1990’s or early 2000’s and manufacturers are not struggling to sell aircraft.  To the contrary, they are struggling to meet demand based on orderbooks.  Ryanair got stunning prices for their original massive orders.  Enough so that they could buy them, operate them for a few years and sell them at a profit.  Neither Boeing nor Airbus is interested in making such deals anymore and rightfully so. 

Airlines put off buying large quantities of aircraft for quite a long time and now the legacy airlines not only want them, they need them.  If O’Leary and Company wish to continue to operate a successful ULCC, they’ll be lining up to buy them as well because they do offer the kind of incremental gain in efficiency that is going to make the world’s legacy airlines much more competitive with ULCC’s like Ryanair. 

The truth is, I think the Airbus A320NEO does fit Ryanair’s needs a bit better these days.  But that would require a fleet change that would take years to accomplish and with A320NEO delivery positions reaching “unobtanium” levels for the next decade, the 737MAX probably does offer the best option given their position.  One thing is sure, the COMAC 919 isn’t going to deliver what Ryanair needs and certainly not on time.  Airbus can’t build more even faster to meet the demand on the A320NEO even with some airlines orders going away.  So I’m not sure why O’Leary wants to make an enemy of Boeing.

The truth is, Boeing will be happy to sell to O’Leary and take his abuse while they do it.  They’re just not going to give away aircraft anymore and it appears that it will take O’Leary a while longer to realize the position he and his airline are in.

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World Alliances

I’m not sure we’ll see much in this territory for SkyTeam or Star Alliance.  They’ll continue to succeed and be smart in their attempts to gain more dominance in more parts of the world.  I think Oneworld is going to be smarting through this next year as a function of health problems at founding members American Airlines and QANTAS.  I also think that gaining the LATAM membership is not nearly as “sure” as they think it is. 

The Middle East

After ordering an insane amount of widebodies in 2011, Emirates will order another insane amount of widebody aircraft and beat up on Boeing about its 747-8i.  This has begun to feel like an addiction problem.

India

The airline industry in India has imploded and we’re just watching the mushroom cloud of debris settle.  For 2012, more explosions and more governmental heads will push even deeper into the sand.   Air India has already become the new Alitalia.

The Far East

Chinese airlines will order more aircraft and I expect we’ll see orders from them for 777s and A380s and possibly some A350s.  Not unlike 2011.  I don’t think we’ll hear about any stunning orders from that part of the world, however. 

China will tout its COMAC C919 even harder and most of us will try desperately to keep from laughing even harder.  Ryanair will back away from this aircraft quietly, I think. 

Japan will find ANA deploying more and more 787s on more and more routes with more and more success with that aircraft.  JAL will take delivery of its 787s and find that they not only work well for JALs needs but actually exceed expectations.  I think we’ll see an order for some more Boeing aircraft from JAL this year and I think it will be the 737MAX and 777-300ER.  No huge numbers but large enough to make a splash.

South America

LATAM got its approval from Brazilian and Chilean authorities (barely) and LATAM will begin consolidating its operations to make more money.  I think we’ll see a largish order from LATAM and it will be for an airliner to replace aircraft on both the Brazilian and Chilean side of the airline.   The aircraft of choice will be, I think, the Airbus A320NEO and I think they’ll bump up orders for the 787 and 777 as well.   TAM has 27 A350-900s ordered and I think that order *might* be at risk.  The strategy of using Airbus for narrow bodies and Boeing for wide bodies seems to be a smart one for airlines in that region.

I don’t think we’ll see more consolidation in South America but I do see South America becoming a bit of a battle ground between airline alliances.  Most see LATAM going with Oneworld and while I can’t disagree with the arguments, I think that SkyTeam and/or Star Alliance might just swoop in with one hell of a package that may be too hard to resist.  If this happens, Oneworld and American Airlines gets kicked in the groin in South America.

Aerolineas Argentinas?  The Alitalia of South America in 2011 and the same in 2012.  Enough said.

Europe:

British Airways managed to get through 2011 without any huge problems and saw Willie Walsh move up to the CEO position of International Airlines Group which means Willie’s still in charge.  Iberia, British Airways’ sister airline, saw Willie stirring things up with plans for a LCC subsidiary.  Iberia pilots decided to strike because shooting onself in the foot can’t be just an Indian thing.   IAG also managed to get a tentative deal to buy BMI from Lufthansa and become the Emperor of slots at London Heathrow . . . maybe.

Virgin Atlantic didn’t die, didn’t find new partners and didn’t extricate itself from the chokehold that Singapore Airlines has on it.  Richard Branson actually didn’t make the news very often except to shout, stamp his feet and act insulted that Virgin Atlantic wasn’t able to do a deal to win BMI.  Expect Virgin Atlantic aircraft to start carrying some message against the IAG deal for BMI.  I actually think that Virgin Atlantic will have to find an airline alliance to join and if I’m right, I would lay very heavy odds on it being the Star Alliance. 

Lufthansa did itself a favor and got rid of BMI and I expect they’ll continue their very conservative mangement of the airline and the subsidiary airlines.  I do wonder how much longer Lufthansa can rely upon its A340 aircraft and somewhat expect Lufthansa to bite the bullet and buy the 777.

KLM/Air France:  I see nothing here at all.  Not in 2012.  I don’t expect a large widebody order nor a narrowbody order. 

I do expect Ryanair to make an order and I do think it will be the 737MAX.  In fact, I think it may well end up being the 737MAX-9 instead of the 737MAX-8.  Instead of repudiating the C919, Michael O’Leary will just quit talking about it.  Instead, he’ll suggest stripper poles could be installed on Ryanair aircraft. 

All in all, I think it will be a tough year for European airlines.  The financial crisis on that continent will make it very hard to earn an honest profit and Middle Eastern airlines will continue to erode the long haul traffic that European airlines have enjoyed for decades.

Tomorrow, a summary of what I see for 2012 and the world airline industry.

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Over the past 12 months, FlyingColors has doubled its readership and has seen nearly 1000 blog entries reached with enough words written to equal a book with over 1700 pages.  But enough about me, let’s look at the last year in the airline world.

North America:

Southwest Airlines did its deal with Airtran and bought itself an Atlanta base of operations and some very valuable landing slots at Northeastern airports.  As if that wasn’t enough, it made a firm deal on a bunch of 737MAX aircraft and agreed to take on even more 737-800 aircraft for its routes.  However, the airline wasn’t without some trouble:  Airtran pilots tried real hard to step on their on feet in a seniority deal with Southwest Airline pilots.

American Airlines struggled (more) and lost more than a Billion dollars (again).  Instead of making any real progress with its labor force, it decided to file bankruptcy but not before having made a historic order for aircraft from both Airbus and Boeing for the A320 and 737 series aircraft (with both A320, A320NEO, 737 and 737MAX in the mix).  2011 also saw long term CEO Gerard Arpey depart the company (to work with former Continental CEO Larry Kellner) and AA President Tom Horton took over.

Virgin America has horned in on American’s routes, Frontier has struggled more and more under Republic Airways leadership and US Airways still doesn’t have pilots or flight attendants integrated onto one seniority list.  JetBlue decided to fly more to the Caribbean, entrench itself even more at JFK airport and blew it during an October snowstorm (again).    United and Delta made money.  Quite a bit actually.

I think we’ll see Frontier either spun off rapidly in 2012 or the rapid decline of the airline necessitating bankruptcy of Republic Airways.  I don’t see a real strong suitor for Frontier except, perhaps, JetBlue but since Frontier isn’t based at JFK airport, I do wonder at JetBlue interest in an airline like Frontier.

I think we’ll see Alaska Airlines find even more odd partners for its success and still manage to cozy up close to Delta while doing it.  Southwest will start painting Airtran aircraft in its colors and operating even more great deals to more places from Atlanta but I also think that if any slots at JFK, LGA, EWR, IAD or DCA come available for purchase, Southwest will bid the cost of a Boeing and lose again.

I think it’s possible that Virgin America will make money in 2012 and I think it is really possible that we’ll all be pleasantly surprised by that.  The determining factor?  Cost of fuel. 

United will order a nice chunk of aircraft and I’ll bet that it will be an order similar in mix to the American Airlines order from both Airbus and Boeing.  However, I do not think it will be similar in size.  I think it will be a partial fleet replacement with lots of options for incremental change in the fleet.

I think Delta will continue to make a big pile of money with very little controversy surrounding it except that I think Delta will look for and execute a plan to encroach on more Legacy and SuperLegacy airline routes as it has announced its intention to do so from La Guardia Airport.   I also think that Delta will decide its not afraid of Southwest and it will decide to give Southwest a taste of bullying it hasn’t experienced before.   Particularly in Atlanta.  It’s not just an opportunity for Southwest to succeed in Atlanta but it is also an opportunity for Delta to capture lost customers.

I think we’ll see capacity restraint for another year and higher air fares than seen in a long, long time.  I do not expect to see another new airline show up and I think we may well see one true LCC depart the picture if things get particularly rough with respect to fuel prices or competition.  Milwaukee will become the regional airport it was intended to be instead of a bloody battleground between LCC airlines.

Tomorrow:  The rest of the world

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Well, it’s 150 firm orders for the MAX and another 58 for the 737NG.   Close enough to my own predictions that I’ll gloat for a moment.

I’m done.

Southwest becomes the launch customer for the 737MAX and this becomes Boeing’s biggest order ever.  More importantly, it’s the ring of legitimacy that Boeing hears in its ears now.

Filed under: Airline Fleets by ajax
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