Virgin America has announced its intentions to order 60 new Airbus A320 aircraft with 30 being the A320NEO (New Engine Option) with deliveries taking place until 2019.  That means Virgin America will triple the size of its fleet (or more) over the next 8 years. 

While VA already signaled that they planned to buy 40 new aircraft, an additional 20 reflects a certain confidence that it is going to be earning solid profits going forward.  I’m sure that some of the new aircraft (probably the last ones) will replace some original aircraft in this scheme but it reflects a plan for heavy growth between now and the end of the decade.

Let’s put that growth in perspective.  jetBlue has about 160 aircraft presently serving 63 destinations after being in business for about 11 years.  In that fleet, there are about 115 A320 aircraft (with no orders on the books) and 45 Embraer E-190 aircraft (with an additional 60 aircraft).  I use jetBlue as an example because they are somewhat similar airlines with similar service products. 

So, Virgin America thinks it can grow its mainline fleet to about the same size as jetBlue over about the same period of time.   However, jetBlue got to its size in part by using the E-190s to “feed” traffic into their system from smaller destinations.  This would seem to imply that VA will have to think about a similar strategy. 

I suspect VA will start looking at how to build its network around its focus regions.  There is some opportunity on the West Coast but I think they’ll have to look to feed their system in other places as well.  Places such as DFW, Chicago and on the East Coast into New York City and Washington D.C.

Why order now?  Well, Virgin America is solidly in the Airbus camp and now they know what Airbus will be doing with its product line for the next 10 to 15 years.  With that knowledge in hand, it was an opportune time to make that order since Airbus will be very interested in getting airlines onboard with their decision to re-engine the A320 series.  In other words, they probably got a good deal. 

Why the A320NEO?  That goes to efficiency.  Again, VA knows what Airbus’ strategy will be for the next decade and a half and that means they know what kind of efficiency will be offered.  It only makes sense to get the most fuel efficient aircraft possible when competing here in the United States.  Even those that aren’t NEO aircraft will give VA an advantage in that they’ll be new engines with the latest upgrades available and that translates into money saved against the competition.

And they get one more advantage:  They’re at the head of the line when it comes to other potential buyers in the United States such as Delta or United airlines.   Virgin will be receiving the best, most efficient aircraft available as soon as or even sooner than most of its competition.  American Airlines has no new plans for aircraft other than to keep taking on 737-800s at present.  So on VA’s transcontinental flights, it will likely have the most fuel efficient aircraft available and having that advantage in that competitive marketplace means a greater chance of profitability and competitive advantage when it comes to fares.

Virgin has 2 or 3 years to go when it comes to considering how to feed its network with smaller aircraft.  I wouldn’t look for an order in that area for some time to come.  However, when they do start looking, I suspect the Bombardier CS series will be strong contenders for that airline if VA selects the new Pratt & Whitney GTF engines since Bombardier is offering a similiar engine on that aircraft product line.

Filed under: Airline Fleets by ajax
No Comments »

It has been reported loudly that Delta is poised to issue an RFP (request for proposal) for as many as 200 jets and this is an order no manufacturer wants to lose.   The rumour comes just days after a record breaking Airbus order from IndiGo of India.

At this point, it’s still rumour but this one strikes me as pretty much dead on.   Delta has a huge fleet (720 aircraft with about 40 orders in place which include the deferred NWA order for the 787) and quite a few of those aircraft need to be replaced now or in the immediate future. 

Delta has the Northwest fleet comprised of the very old DC-9-5o, MD-88, MD-90, 757, 747 and some older Airbus equipment.  The Boeing fleet from Delta’s legacy side isn’t quite as old but there are some 757s and 767s in need of replacement as well.  Considering the widely varying fleet, it would come as no surprise that an replacement order is due.

Oil prices and future fuel prices will also drive the need for this order sooner than later if Delta’s goal of a consistent operating profit is to be realized. 

Pundits think this is Boeing’s to lose and I disagree.  Richard Anderson, CEO of Delta, has much more history with Northwest and he is no Airbus hater.  This will be an extremely heated competition and I will say that if Boeing were to lose this order or a significant portion of it, that will sting Boeing and its product line for years to come.

The prime driver for selection is going to be based on a number of items.  First and foremost, trip costs for aircraft to serve a particular grouping of routes.  We’ll see orders for single aisle aircraft to serve what I would call non-transcontinental routes.  In today’s world, that would be the Airbus A319 and Boeing 737-700.   Having trans-continental capability in the aircraft would be a plus but these aircraft are going to serve the focus cities of the airline with routes stretching out from the cities but not across the country.   The mission that the MD-88s, MD-90s, Airbus A319s and Boeing 737-700/800s are serving today.

The A319s are brand new and so are the Boeing 737-700s/800s.  This is going to be about replacing the McDonnell Douglas fleet.

Then there is a need for the larger trans-continental capable aircraft that remain single aisle serving longer trunk routes that won’t justify a widebody.  Currently, the Airbus A320 and Boeing 757 are serving those routes.  The A320’s arrived in early 1990’s and the 757s date from the early 1980s to the late 1980s.  The options for replacement here are the Airbus A320/321 and the Boeing 737-800 and 737-900ER.    Neither aircraft actually “replaces” a 757 which has great range and great payload.  I don’t think the A320s are going anywhere yet so this will probably involve a 757 replacement and they (Delta) may or may not want it to harmonize with their existing A320s.

Then there are the 767s.  Some are getting old and some are quite new still.  Delta needs an aircraft stretching between what a 757-300 offers and an A330-300 offers.  The 787 fits this and the fact that Delta has deferred its legacy NWA order for these makes me think that these aircraft won’t be candidates for replacement.

The 747s are pretty old and frankly I don’t think these we very well cared for either.  They need to be replaced and I do think we’ll see orders to do this on these aircraft.  None really serve routes that demand 4 engines so I think we’ll see a replacement oriented around 2 engines.

I think it’s anyone’s guess on the single aisle orders.  Airbus will fight like crazy to win this order with their A320NEO options and Boeing may well have to announce a 737 replacement at a great price to win it back.   Boeing should actually have great incentive to get going on the 737 replacement if Delta is truly interested.  With Delta, Southwest and, potentially, Ryanair all wanting a better 737, there is an exceptionally strong business case to get going on this.

If Boeing doesn’t offer a better 737 in this, I think the order goes to Airbus.

As for the 757/767 replacements . . . well, I’d give the edge to Boeing.  I think the 787 *is* a good answer for these aircraft.  They offer the right amount of extra capacity for growth, long haul capability, extremely high efficiency and flexibility.  I do think it possible that an order might be mixed between the A330 and 787 unless Boeing gets off its duff and gets that 787-9 into production.  The 787-9 is the A330 killer.

Since I don’t think the A330s are going anywhere, I don’t see much opp0rtunity for Airbus’ A350 in this mix.  It’s deliveries are too far off and the A330s just don’t need to be replaced for a long time.

I think Delta’s large widebody strategy is likely going to be a mix of 777-200s and the 777-300ER to replace the 747s.  They already have a fleet of 777-200LR with GE engines so I think they’ll order 777-300ERs with GE engines to replace those 747s.  It will do everything the 747 will do only more efficiently.  I do *not* think the 747-8i will enter into this order.  Delta doesn’t need the capacity and the 777-300ER will serve all the routes the 747 is currently serving with no problem.  The A350-1000 is far too far off and its ability to perform is simply way too unknown for this to be serious contender at Delta.

I do not think that Bombardier or Embraer will enter into this order at all.  They just don’t have a product that meets the needs of an airline like Delta very well at all.

Don’t expect an order announcement for about a year.  Delta will let the manufacturers fight it out with best and final offers for quite some time and it will take time itself to do a detailed analysis.   But I can’t wait to hear their decision.

Filed under: Airline Fleets by ajax
8 Comments »

Next up:  World Alliances

There is never that much revolutionary change in alliances.  Last year, there was a fight over JAL between Oneworld and SkyTeam and Oneworld won but they really were destined to.  It made sense for JAL.  The alliances worked a bit to get better access to areas they were deficient in and to a large degree, they were successful.  I don’t expect much change, if any at all, this year.

The Middle East:

Emirates did what Emirates does:  it ordered more aircraft.  I did what I do:  failed to see how they’ll use all those A380s and 777s.  The financial scene in the Middle East and, in particular, the UAE continues to be weakish and while I suspect it will recover somewhat this year, I think the area no longer carries that gleam it once did.  I don’t see any failures in the near future but I don’t see any airlines really blooming either.  Success there is, as is true for most businesses there, fairly dependent upon oil prices.

India:

Nothing astonishing happened there but it was already pretty mucked up.  It remains mucked up and will likely stay mucked up this year.

The Far East:

China did kind of force their airlines into agreeing to buy Chinese aircraft as I predicted.  In fact, Chinese aviation is suddenly acting very Chinese in that it is being required to toe a more obedient line.  Face is everything there and I don’t like it when airline businesses are operating on the basis of “face” rather than good decisions.  It’s notable that in the launch orders for the COMAC C919 aircraft, each airline took up just 5 aircraft orders each.  They don’t want that airliner any more than anyone else.

JAL has done OK for the year.  They’ve made progress with their finances and they did make some hard choices.   They did have to file for bankruptcy protection and no one should have been surprised about that.  The new CEO, Kazuo Inamori, and President, Masaru Onishi, are succeeding and making hard choices.  Frankly, more so than is characteristic of a Japanese company and they deserve credit and support.  This airline isn’t fixed yet but it is on its way.

Oceania:

QANTAS got hit pretty bad by the Rolls Royce failure on its A380.  United Airlines is still on the US-Australia routes but badly needs to upgrade its product and it doesn’t appear positioned very well to do so.  Perhaps Jeff Smisek & Company will address that better this year.  Delta and V Australia didn’t get to form an alliance and they’re trying again.  Someone has to give in this area and it will be either in the form of a codeshare alliance between Delta and V Australia or in the form of an airline withdrawing from the market (United or V Australia).

South America:

LAN, in fact, did continue to succeed in South America.  So much so, they bought TAM to create LATAM and then bought AIRES (a Colombian airline)covering both the east and west coasts of South America.  LAN is, in my opinion, now a SuperLegacy of South America and that’s a bit dangerous for them.  South American governments are more protective of their countries airlines that is the custom in other parts of the world.  

Curiously, LATAM is now operating airlines in two different alliances:  Oneworld and Star Alliance.  While there is speculation that they’ll continue this with LAN brands in Oneworld and TAM brands in Star, I think they’ll have to pick one and this may well mean a big battle among all three alliances.   This is an area where SkyTeam could do well for itself by gearing up for battle now.

Aerolineas Argentinas:  Well, what can I say?   Well, I’ll say exactly the same I did last year. 

This disaster is much like the country itself.  It won’t go away but it won’t perform either.  No outside airline will consider taking it over after what happened with Grupo Marsans’ ownership.   They lack an appropriate fleet for their flying, a strategic plan for stabilizing their revenues and no clear plan for future growth.  But the Argentinian government also won’t let them go away.  It is a matter of national pride.

LAN Argentina is growing in Argentina but somehow I remain skeptical that it will be allowed to succeed too well.  Why?  For one reason, the government of Argentina owns Aerolineas Argentinas and it has a vested interest in that airline earning money.  For another reason, LAN Argentina is owned by the LAN Group of Chile.  Look up how Chileans and Argentinians feel about each other.

Colombia / Central America: 

Avianca TACA is doing fine and I look forward to seeing how they’ll compete against LAN. 

Venezuela:  Bah!

Europe:

British Airways accomplished a few things.  They got into a royal battle with their flight crew that remains unresolved today in part by being petty.  Their flight crew union, Unite, furthered that argument by being petty.  BA did get their merger with Iberia accomplished and after many, many years they have their anti-trust agreement for trans-Atlantic flights between its European Oneworld partners.

Look for the BA/IB union to do OK in its first year and they may even start looking for another partner as soon as possible.  The anti-trust agreement between Oneworld partners should also add to the bottom line.  However, it’s time to settle this fight with Unite and it’s time for Unite to get real.

Lufthansa is moving along and did do something with their BMI purchase.  I don’t think it did them any good when its CEO, Wolfgang Mayrhuber, started complaining about its ability to compete with the likes of Emirates.  Whether or not he had a real point (and he probably did), it also did signal just how hard a job they’re having with the task of competing with the Middle Eastern airlines.

They also still have their A340s and their plans to add the 747-8i.  They got their first A380 and all I see is fat, fuel consuming airplanes.  This is going to be a problem for them if oil prices rise much more and when you consider that much of their competition is flying fuel efficient A330s and 777s, it makes you wonder about their long term strategy.

KLM/Air France:  More of the same.  I think this airline will need to make an order for new widebody aircraft soon.  Because it remains, essentially, a French airline, I see a large order for A350s and a small order for 777s.  I do not see the 787 in Air France’s future.

Airlines will earn profits and even earn great profits throughout the world.  Many will be “record breaking” but as much from inflation as a recovery.  Those profits will soon start to burn a hole in someone pocket and that is when I think we see capacity growth.  I think that capacity growth will start with the Middle East airlines pursuing more revenue lucrative traffic from Europe and North America.  But we’ll see it happen in the United States, too. 

I would dearly like to see the 787 enter into service with someone and I think we will see it do so.  But Boeing has got to get a rein on itself.  The failures in the 787 program are as much about poor management as they are about stretching technology.  There is too much accountancy going on there and not enough visionary leading.  It’s time for them to start winning and they could do so by winning the KC-X tanker program once and for all.  But it is also time to start talking about what’s next. 

The demands of the 787 program *will* decrease as will the demands from the 747-8 program.  Will it be talk of a 737 replacement or an improvement to the 777?  I think the airlines would like to talk about the 737 replacement and that seems sensible.  Rather than play cautiously, reach again, I say.  Push engine manufacturers to come up with something to raise the game and push technologies again.   It’s also time to talk about the 787-10 and I think there are more than a few airlines who would like to be a part of those discussions.

Airbus is going to muddle along denying any real problems with the A350 until the end of this year.  Then we’ll hear about something delaying the entry into service date by a considerable amount.  John Leahy will insult Boeing and claim the A350 will put the 787 to death but it won’t.   Airbus might well buy the KC-X tanker program but I question the wisdom of this in light of their ongoing A380/A400/A350 problems as well as their announcement development of a new engine option for the A320 series.  When do they earn money the proper business way?

It would be nice to see Embraer make a move into the 130 seat market and I think those guys could do it very well.  Bombardier gets bashed by everyone but I still think they have something with their CS series and I think it will be taken up by another airline soon.

I think we’re going to see another round of fees.  Just as soon as airlines can identify what other parts of their service they can de-couple from the basic flight.  I think we’re going to see airlines put a price on early boarding and we’ll probably see fuel surcharges amounting to tens of dollars.

But let’s hope we see an interesting and prosperous year in the airline industry.

Filed under: Airline News, Airlines Alliances by ajax
No Comments »

The Nordic airline, Scandinavian Airline(SAS), is looking to modernize a good portion of its current fleet of 737 and MD-80 aircraft and Bombardier is reportedly favored to win with its CS300. 

SAS owns a pretty varied fleet which includes both Airbus A320 series aircraft as well as old and new generation 737s (including the unpopular 737-600).  A more harmonized fleet would help.

The problem is, SAS doesn’t necessarily need aircraft that are necessarily big players on medium haul routes.  While it does need some higher capacity aircraft for leisure destinations, it needs smaller capacity aircraft in bigger numbers for frequency.

The CS300 has a nominal maximum range of at least 2200nm and that’s enough for SAS’s world in Europe.  That would allow them to serve all of europe from their hubs of Copenhagen, Stockholm and Oslo or any of their other focus cities as well.  Take a look at what 1900nm range gets you from Stockholm by clicking HERE.

It’s notable that this airline is the only airline that found a real use for the 737-600 and bought 28 of them.  They also have a number of -500 models as well.

The Cs300 would probably fit well into their strategy and offer them a light aircraft with good capacity for flying frequency in their stronghold(s).   They would get an efficient engine for this kind of flying as well.

My guess is that the Boeing aircraft will go away completely over time and SAS will buy more Airbus aircraft for routes requiring more capacity.   Boeing just doesn’t have anything in its product line up that fits the SAS model.

A lot of people believe the CS300 isn’t going anywhere and even I wondered but it seems to me that this might be just the kind of niche Bombardier needs to serve.

Filed under: Airline News by ajax
No Comments »

It’s become more and more clear that airlines are going to likely have 3 or 4 basic categories of aircraft.  First, the 100 to 135 seat category with a range that isn’t transcontinental but which allows a full load fly 3 to 3.5 hours maximum. 

Second, the 150 to 210 category with a range that will include trans-continental routes.  This was previously served by the 757 and 767 but has seen today’s 737 and Airbus 320 families take over. 

Third, the 220 to 280 seat arena which includes flights ranging from trans-continental to trans-oceanic including both the Pacific and Atlantic oceans.  We’ve seen the Airbus A330 and 767 and even the 777 in this area and that’ll continue for a bit longer too.  But it will be owned by the 787, 777 and A350 soon enough.

Finally, the very large aircraft on trunk routes that demand high capacity and high-ish frequency.  The 777-300ER, 747 (-400 and -8i) and A380 are the players here.  In the future, we’ll see more of the 777-300ER and A380 than the 747-8i and I think Boeing will have to come up with an aircraft that fits this area better both in economies as well as seat range. 

Nothing much has changed except that the models from Boeing and Airbus are getting freshened or replaced and their ceding the 100 to 135 seat market to Bombardier and Embraer.  The regional jet manufacturers are invading Boeing and Airbus territory and that’s brought along an interesting development. 

We can ignore the Comac efforts to date.  Their plans for a 150+ seat aircraft are just that, in my opinion, plans.  You don’t enter that arena without a lot of experience building something smaller and generally without experience being a partner on similar efforts for a while.  Those aircraft won’t fly, pun intended.

With a couple of exceptions, regional airlines are bringing those new 100 to 135 seat aircraft with them instead of that flying remaining with the majors.  Scope clauses continue to get revised to include larger aircraft and instead of major airlines adopting new equipment to serve those routes, they’re ceding that area largely to their regional airline partners.

The why involves what it always involves:  labor costs.  They can have it flown cheaper by someone else and earn more money.  As that scope increases, however, I do wonder why you would continue to contract that out to an independent airline instead of owning it and its revenue stream.  Why wouldn’t you want to vertically integrate and own that lower cost structure as well as control the service product?

Instead, we see SuperLegacies prepared to sell off their regional airlines and pretty cheaply at that.  Even new-ish ones with pretty low labor costs. 

At some point, these regional airlines are going to see that they can operate their own networks and while they may choose to remain partnered with majors, they’ll also see they can take on more of the risk and much more of the profit available. 

Yes, it’s been tried already a couple of times and while those efforts sputtered at the 50 seat jet level, they won’t necessarily sputter using 90 to 110 seat jets that are coming on line.  Republic may be the first to do it successfully by buying brands and working to build an integrated network while continuing to service partnerships with major airlines, time will tell.  If they are successful, will they one day leave their partnerships with the majors and become a force to content with on their own?

And where does that leave the SuperLegacies in the future?  Will they continue to walk away from the bottom end of flying when it comes to capacity?  Will they continue to cede that work to partner airlines while working to build their long haul flying?  Can they afford to cede that much control on what, today, feeds their networks for that long haul flying?

Filed under: Airline Fleets by ajax
No Comments »

Lufthansa has announced a 48 plane order and while that isn’t all that remarkable compared to many aircraft orders these days, it’s an order that highlights two emerging developments in the airline world.  The Lufthansa order is for all Airbus equipment and it isn’t all for Lufthansa.

Some of this order is for its SWISS subsidiary (A320 family and A330), its Germanwings subsidiary (A320 family) and Lufthansa is getting more of the A320 and A330 family for itself.   The Airbus family concept is clearly allowing Lufthansa to take advantage of greater buying power as well as greater flexilibility amongs its various operations. 

Lufthansa can shift equipment to various subsidiary operations as demands change and can reconfigure that requipment relatively easy to meet the requirements of each subsidiary.  While many already knew and predicted this behaviour, it’s really remarkable in that its now become kind of matter of fact for an airline like Lufthansa.

This isn’t something Boeing really offers.  Not yet.  Boeing offers its 737 family, yes.  But it doesn’t have that type transition flexibility between a narrowbody family and a medium range/ long haul widebody family.  Not quite. 

The 787 and 777 will offer reduced transition times between the two types and that’s a good thing.  But there is no such animal between the 737 and its bigger siblings.  In addition, there is no real such thing between the 787/777 and the new 747-8i either. 

Boeing builds a great airliner and arguably they build a more cost efficient airliner in many respects when considering the aircraft and the trip itself.  What Boeing hasn’t yet instituted is a product line that is friendly across all kinds of operations that a large airline might have. 

It’s a core strength of Airbus and, frankly, a differentiator that, I think, will prove itself more and more valuable over the next two decades. 

The 737 replacement is a good place to start.  This will be a family of aircraft designed to meet the needs of airlines from about 150 seats up to 220 seats where the 787 will take over.  The 787 is advanced enough that making the 737 a baby 787, operationally speaking, could offer some additional value to airlines in the coming years. 

US Airlines haven’t exactly gone for this kind of family concept.  Not yet.  Northwest and United Airlines and US Airways all bought Airbus but they bought them without intending to realize the family concept from narrowbody to widebody.  I think that will change.  As we see SuperLegacy airlines develop, I think we’ll see a desire to harmonize more, not less over time.  More on that tomorrow.

Filed under: Airline News by ajax
No Comments »

During and after the Farnborough Airshow, there has been a lot of speculation and commentary on Bombardier’s inability to announce a new order for their C-Series.  Many speculate that it is because it’s a bad aircraft and it has no hope of competing.

I think it’s because what orders did show up at Farnborough were for immediate needs, not future fleet replacement and/or growth.  Those who bought aircraft, bought them for near term delivery and they bought aircraft that fit into existing fleets.  While the industry is recovering, it isn’t exactly flush with cash for making long term purchases yet. 

Will the C-Series fly?  Yes, I think so.  In fact, I’m a bit unsure of why everyone is so ardently against this aircraft.  Bombardier knows how to make a jet and they know how to grow a jet from a base model.  Their current aircraft are well liked, frequently purchased and as efficient as any other in their class.

I am a bit dismayed that Boeing and Airbus have decided to cede the 100 to 130 seat market.  I think there is more opportunity there than is being identified but I’ll also concede that it requires a sub-737 class development that neither company likely has the money for right now.  On the other hand, a partnership with another manufacturer to design and build an aircraft for that market that would allow fast transition between one jet and another would be very advantageous.  It’s doable.

The 3×2 economy seating layout is a bit of a risk for them but not as much as many seem to think.  Frankly, it’s my preferred arrangement vs a 3×3 layout.  Let’s face it:  anyone who has owned DC-9/MD80/MD90/717 aircraft knows that the arrangement can play well.

Range is the real concern.  I’m not sure these have to have trans-continental capability but I think they need the ability to fly at least 2/3’s the width of the country fully loaded.   Nominally, they have that capability as “max range” at the minimum.  Practically, I don’t know if they do and I suspect they may be a bit deficient.  I also suspect their cargo capability may be a bit anemic as well. 

The real risk on this platform is the engines.  Pratt & Whitney Geared Turbo Fans are the choice and we have not seen engines that are meeting their fuel consumption targets yet and it remains to be seen if those engines are as reliable as they need to be.  They cannot be merely “reliable” for that class.  They need to be CFM-56 reliable because those aircraft are going to see a lot of cycles each day.  I think that is far from proven when it comes to the P&W engine.

Yes, I think the aircraft will be built and I think it will be used here in the United States.  Successful?  I don’t know.  It depends on what you define as successful.  I don’t see this aircraft selling thousands of units but it isn’t fully defined yet either.

Look for similar speculation and derision about Embraer building a similar aircraft.  I think people just don’t want to see these guys moving in on traditional Boeing/Airbus territory.

Filed under: Airline Fleets by ajax
No Comments »

United Airlines announced a second quarter profit of $273 million and that’s an impressive result.  If Continental’s come in as impressive as that, the heat will be on American Airlines in ways we can only imagine. 

Speaking of United and Continental . . . their respective pilot groups have come to an agreement on transition.  There is a transition agreement now in place for them but don’t think this means that the groups are near a final merge agreement.  The transition agreement just governs how the two airlines will operate with the pilots during the merger transition.  I suspect that obtaining a final agreement is still going to be a bit bloody.

BA cabin crew have rejected the latest British Airways offer for settlement.  After voting was completed, the latest offer was rejected by about 2/3’s of the labor group.   While that isn’t wholesale rejection, it’s significant enough to be a real problem.  The hold up is the restoration of flight benefits.  BA did finally agree to restore flight benefits to crew that had originally had them taken away for participating in the first round of strikes earlier this year.  However, they were restored with loss of seniority and that means they were restored as if these crew were entry level again.  This is an area that I’m afraid I side with the union on.  Those flight benefits shouldn’t have been taken away as a punitive measure and its the one big misstep by Willie Walsh.  The smart move would be to cave in, get another vote going and come to a final settlement. 

At the Farnborough International Airshow, single aisle aircraft orders are happening at a rapid clip.  Both lessors (GECAS, Air Lease Corp, etc) and airlines themselves (LAN, Flybe, etc) are ordering large amounts of aircraft for delivery over the next several years.  LAN has an agreement for up to 50 Airbus A320 class aircraft and Flybe has ordered 35 of the Embraer E-175 jets.  GECAS, GE’s leasing arm, has ordered 40 737-800 aircraft.  Still, I think this reflect the rather dismal orders placed last year more than it does resounding growth for the next few years.  In other words, I think a lot of these are replacement equipment rather than aircraft purchased for growth.

Filed under: Airline News by ajax
No Comments »

Since the widely known WTO ruling on Airbus and it’s launch aid from member countries came out, there has been a lot of speculation on its implications for the airliner market, Boeing, the KC-X tanker and what the WTO might rule against Boeing on in its counter-claim.  Conventional wisdom is that both parties will get slapped heartily and that might end up being somewhat true although I suspect that far less will be found against Boeing. 

The difference is in the business models.  In many respects, Airbus/EADS has been run much like a state owned entity and its financing has largely derived from loans from member countries or with member countries’ backing.  Boeing, on the other hand, operates much more as a commercial entity and while it does benefit from things like tax breaks (on a state and local community level) as well as from participating in research and development efforts on the part of the government, it’s primary method of financing its commercial product line is from the financial markets.

When Boeing needs money, it goes to the markets and obtains market rate financing in the form of loans, bonds or through stock sales.  That’s the key difference between Airbus and Boeing.   Boeing follows a traditional and, more importantly, acceptable model for its financing.  A model that makes it difficult to show harm to Airbus/EADS. 

I think both parties will have to modify their behaviour going forward but I think Airbus’ compliance will have far greater and far more long lasting effects on its business model than anything Boeing will have to do.  I also think that Airbus/EADS remains tied to answering to its member countries on things like exports and employment and that makes it much more difficult to outsource (a la Boeing) and/or manufacture their aircraft in other countries. 

In the long run, Airbus’ compliance will make them a stronger and more competitive business because they’ll retain the advantage of selling to their member nations but they’ll also understand how to respond to their financial needs as well as their customer markets. 

In the short run, it just got a lot more difficult for Airbus/EADS to launch new models because they’ll likely have to “pay back” that launch aid and obtain commercial rate financing.  In addition, their commitments to the A380, A350 and A400 projects make it very tough for them to obtain financing for and launch a new project such as an A320 replacement or a model that competes more effectively with the bottom end of the 787 model lineup. 

For Boeing, it probably means forgoing or even paying back tax incentives and it will mean Boeing having to examine where it builds its aircraft much more closely in the future.  Don’t be surprised if more of their production moves out of Washington State over the next 20 years.

Filed under: Aircraft Development by ajax
No Comments »

And, no, jetBlue isn’t buying the 737.  I’ve found three interesting items to comment on involving the 737 and jetBlue and New York city separately.

First, Southwest Airlines COO and Exec VP Mike Van de Ven has made a statement that re-engined aircraft whether they are a 737 or A320 won’t offer enough improved performance to be attractive to Southwest.   And I think there is a message here, particularly to Boeing, about what SWA wants and may be willing to buy.  Southwest is a huge customer  for Boeing on the 737 and Southwest is just the kind of customer Boeing wants to kick-off with.  

I think Southwest wants a new 737 replacement from Boeing and I think they’re signaling that they would be willing to become the launch customer for the right aircraft.  COO Van de Ven said: 

“I believe that a new narrowbody aircraft will produce one of the single most significant steps toward meeting our economic challenges.”

If nothing else, it’s a message to Boeing saying “please don’t re-warm the 737 again, we need you to work on a new replacement and deliver that as soon as possible.”

The Fort Worth Star Telegram Sky Talk blog has THIS story about the DFW Airport Board and its recent retreat.  It’s notable that they mention that they’re trying to use incentives to get jetBlue to start service between DFW and Boston.  Currently, American Airlines is the only non-stop airline on that route and, no, the fares are not cheap.  Frankly, I don’t think jetBlue will cooperate given their recently announced interline agreement and slot swap with AA.

However, this points up my chief rant about my home town area.  We do not have enough competition at DFW airport and I believe that AA is challengeable on both  fares and service.   Delta has begun challenging American on the Chicago – NYC (La Guardia) route and American is responding, currently, with triple air miles awards to retain its customers. 

More significant is that Delta has decided to go head to head with American on a route that American has *owned* for decades.  The big worry is about mergers and reduced competition they might create in the US market.  To the contrary, I think the latest round of mergers is going to lead to 4 legacy carriers who are going to start looking at each other’s dominance at various airports and, in particular, who isn’t making money and cannot afford to indefinitely “buy” routes with low fares.

That would be American Airlines.  US Airways is a bit weak in its route system but they earn profits.  AA doesn’t and hasn’t in a long time.  Delta’s incursion on the NYC-Chicago route is novel and it may or may not work but Delta has enough financial staying power to sit on that effort for a long time in hopes of building the business.   What happens when someone like ContiUnited comes along decides that AA shouldn’t own DFW-LAX?  I think we’re going to see plenty of competition in the airline world.

Filed under: Airline News by ajax
No Comments »

The Dallas Morning News Aviation Blog has this post HERE about analysts beginning to like the idea of a merger between American  Airlines and US Airways.   This marriage occurred to me back in April and you can read my post HERE.  Eric Torbensen at the Dallas Morning News thinks it is a terrible idea and I disagree.

The real reason to perhaps not do a merger between these two airlines is that American Airlines is terrible at mergers.  Their employees don’t embrace them and their executive corps approaches them like predators.  As a result, mergers at AA tend to be plain “consumption” rather than growth or partnership.

Now, if they could embrace a merger, I believe one such as this could be good for them.  First, a merger like this wouldn’t definitely not be sexy.  The sexy merger partners are now fully occupied and, frankly, there was perhaps just one that really would have qualified as sexy and doable for AA and that was Northwest Airlines.  They’re gone. But just because an AA / US Airways marriage isn’t the sexiest thing on the planet and just because it doesn’t necessarily bring the gains that another partner would have provided doesn’t mean that it doesn’t make financial sense. 

This one could.  Look at the route maps first.  US Airways offers a hub presence in two areas of the United States where AA is actually a bit weak.  Phoenix is a nice hub in the web and while it isn’t the strongest hub in the country, it does pretty well.  Yes, Southwest is there but guess what?  AA knows how to compete with Southwest. 

Charlotte is a nice Southeastern US hub that pvovides coverage in area that AA hasn’t gotten much traction.  AA tried having a hub in Raleigh (didn’t work) and has, from time to time, tried to expand Nashville.  It has Miami but that really is more of an international gateway city than it is a domestic hub.   So AA has presence in some weak(ish) focus cities for the SE that the Charlotte hub could change for them. 

So, in terms of a domestic network, it works.  It really is quite complementary to AA’s existing system.

There is some compatibility between the executive leadership of the two companies.  Doug Parker is a former AA manager, for example (and his wife still is an AA flight attendant) and some of the other executive staff has roots in AA as well.  Some that don’t are from Northwest and the cultures between Northwest and American Airlines aren’t dissimilar either. 

But let’s talk about the romantic international part of this.  No, US Airways doesn’t offer much to AA that it doesn’t already have.  It’s US Airways weakest area.  But it isn’t a money loser and there are some hidden benefits.  American can probably either A) redirect feed for those flights to one of their existing gateway cities or B) bolster the US Airways international product and make the US Airways international flights a bit more of a competitor.    The smart team would do both.

There is another benefit:  A more diversified fleet.  There is some overlap between the two companies (737, 757 and 767 equipment but the US Airways mainstay aircraft are Airbus aircraft now.  The A320 series aircraft could be useful to redeploy onto AA routes currently being served by the MD-80 fleet.  The Airbus A330 equipment could be redeployed to AA routes requiring a little more capacity than a 767 but which aren’t in need of a 777’s size or range.

Finally, such a merger would offer Oneworld domestic coverage in areas of the US where it is definitely weak.  The Oneworld alliance leans on AA only in the US and the other two alliances were bolstered by at least 2 airlines domestically.  This is a great opportunity to improve the Oneworld alliance. 

There is value in such a marriage.  The problem is, the people who know how to do this kind of marriage and make it work are at US Airways, not AA.  Doug Parker and Company understand the value of a union like this and know that you embrace the partners strength and use it.  Gerard Arpey and Company come from a school that is more about being a predator and consuming your competition without really embracing them as partners.  Since AA is so much larger than US Airways, it’s Arpey who would lead such a merger and I don’t think he’s the right one. 

Actually, I think Doug Parker could do fantastic things for AA.  If he can succeed with US Airway’s assets and weaknesses, he very likely could do wonders for an airline like AA with its resources.  But the AA board would have to want him and despite the recent flare ups against Arpey from analysts, Gerard Arpey still holds the full confidence of AA’s board of directos.  He isn’t going anywhere anytime soon.

Filed under: Airline Fleets, Airline News, Airlines Alliances by ajax
2 Comments »

For a light Sunday, here are some videos of rather dicey crosswind landings by various aircraft.

Boeing 747 at Hong Kong’s Kai Tak Airport

Airbus A320 at Hamburg Airport

Singapore Airlines 747-400 landing in Zurich

The Airbus A380 learns to land in crosswinds

The Boeing 777 learns to land in crosswinds. Bonus shot of a 747SP doing the same.

The Concorde attempts a crosswind landing and decides to abort it on re-heat.

Filed under: Trivia by ajax
1 Comment »

It’s being reported by Aviation Week that a Morgan Stanley financial analyst is now predicting that Boeing will soon announce a 737 replacement development program.  See that article HERE.  Her reasoning is somewhat sound but is also tinged with a financial analysts viewpoint. 

Financial analysts see a re-engine program adding little if anything to Boeing’s financial performance.  A new aircraft would potentially garner hundreds if not thousands of orders during the development period and that backlog of orders would offer confidence to the financial world.   Fortunately, engineers run Boeing.  Creating an aircraft for the sake of a balance sheet is an unwise move unless many other criteria are met as well.  Most of those criteria are engineering related such as engine development maturity, new materials (CFRP for instance) maturity, etc.

This analyst also speculates that a re-engined B737 vs a re-engined A320 could still be 8 to 10% less efficient than the Airbus product.  Now her engineering prowess is really showing.  The two aircraft are neck and neck now.  Both would need substantial engineering changes to accomodate a new engine.  The new Pratt & Whitney GTF engine still is not showing the performance that has been promised.  In fact, in a Boeing vs Airbus matchup between like models, the Boeing generally has the lowest trip costs so far.  It’s an almost insignificant advantage but it exists and it shows this analyst hasn’t done too much homework.

Finally, there is more talk of this new aircraft being a twin-aisle development for faster boarding.  This one I doubt.  A twin-aisle wouldn’t just require a larger fuselage but it would potentially be heavier if kept as a circular cross section.  A new fuselage shape might lend itself to such a development but I really doubt it.  The 737 market is from about 130 to 180 seats.  A twin aisle means a shorter length and that means things like a taller tail.  It would imply more “structure” being necessary and more structure generally means more weight.  More weight means higher costs.  Perhaps a new fuselage shape might work but that means lots of new engineering and materials potentially.  I wouldn’t rule it out completely but I would give it an extremely low probability. 

That said, I would be less surprised to learn of a “twin” development of two sub-families somewhat similar to the 757/767 developments.  An aircraft family capable of serving from 120 to 160 passengers and, perhaps, another serving 160 to 200 passengers with a great deal of commonality might be the answer everyone is looking for.  That would allow Boeing to optimize their aircraft structures for missions in those categories and, at the same time, potentially offer commonality in engines, aircraft systems and pilot ratings. 

I continue to believe Boeing will announce a new program in the next 18 to 24 months.  I do believe it will be for a single aisle airliner(s) and I do believe that it may have an entry into service late in the decade.  Everything else is just a guess.  For earlier comments on this, you can read THIS blog entry. 

The argument that current 737 owners are afraid that a re-engine or new development program will hurt their aircraft values is barely valid.  It may hurt their values but if Boeing can engineer a new aircraft meeting offering a great gain in efficiency, then it is time to start developing it.  If they cannot, then they’ll wait.  There is no value to either Boeing or the airlines in waiting longer than necessary.  When the risks reach an appropriate level, they will launch this.  The question is, have those risks gotten to a point that they are acceptable?

Filed under: Aircraft Development by ajax
No Comments »

Now that the 787 has entered into flight testing and has shown itself to be what was predicted and, possibly, even better, eyes are turning towards what happens next.   With entries into the market by Bombardier and Embraer with aircraft that isn’t quite a regional jet and almost a mainliner of today, new pressure is on Boeing and Airbus to start defining the future. 

New Boeing 737 and Airbus A320 replacements were expected to be announced by now originally and airlines were disappointed when both manufacturers stated in 2008/2009 that such aircraft won’t arrive before 2020 or beyond.  Airlines have asked that the next generation of aircraft have 20 to 30% better efficiency than the current aircraft or even more.  In the past, those kinds of gains were actually possible. 

Since both airlines feel that that date is so far in the distance, there has been new talk of re-engining both aircraft lines with new, more modern engines from Pratt & Whitney (GTF) or CFM (Leap-56).  Unlike many conversations, this isn’t about offering these engines on existing aircraft but about offering these engines on new build aircraft for the future. 

Everyone anticipated a CFRP Boeing being announced just 2 years ago.  Another blogger and journalist, Flightblogger, wrote this entry HERE about comments made by Boeing’s new Commercial Aircraft CEO, Jim Albaugh, about the difficulties in “scaling down” CFRP for smaller aircraft.  CFRP current requirements make it ideal for medium to large aircraft but present difficulties in making a smaller aircraft because you cannot “thin” the material as much. 

Both Boeing and Airbus are studying re-engine concepts at present and the Airbus A320 line is actually a better candidate for this since it stands a bit taller off the ground and is able to accommodate a new engine without necessarily re-designing landing gear, etc to fit a larger engine underneath the wing. 

I actually think we will hear about a new 737 replacement sooner than what Boeing has indicated.  It’s clear they’ve become more comfortable with the emerging engine technologies or they wouldn’t be talking about a re-engine effort.  They’ve also come a long way in using CFRP and learning about its properties and challenges than they were just 2 years ago as well. 

The truth is, there won’t be a 40 to 50% gain in efficiency in the next models.  Those kinds of gains were attained at a time when jet engine technology, wing technology and aerodynamics were still in their infancy relatively speaking.  With the passing of nearly 30 years since that phase, we’ve seen great gains in efficiency but nothing approaching what we saw prior to 1980 or so. 

I suspect that Boeing will identify what is straightforward engineering and what needs to be developed to bring an aircraft online sooner than later and may well make the investment.  Timing is everything on these efforts and the company is poised to complete two long, challenging projects in the near future (747-8 and 787).  What remains are derivative developments of the 787 (definitely a -9 and probably a -10) which will be reasonably easy jobs compared to the last 6 years.  Now there is room to work on the next big thing. 

Many have speculated that the next big thing is another widebody.  But with Boeing poised to continue to reap benefits from the 777 as it appears it will continue to outperform the A350 in many missions, a 737 replacement suddenly looks more logical.  More to the point, it’s a response that Airbus cannot afford to make at present given its heavy commitments to the A380 (can’t scale production up adequately), A350 (barely defined as the -900 and with almost no real definition for the -1000) and A400 (way over budget and potentially diminishing orders as they enter into flight test) development projects. 

I don’t think we’ll see this announcement this year or next.  I do think 2012 might be the year we begin to hear Boeing make noise about a new aircraft vs the Airbus A320.

Filed under: Airline Fleets by ajax
No Comments »

Both Boeing and Airbus have a great selection of single aisle aircraft for domestic/trans-continental service in their B737 and A320 series families.  Both have excellent widebody families for medium to long haul service too.  The single aisle families can carry anywhere from about 130 to 190 passengers and that’s a pretty nice cross-section.  The current widebody families (and I’m excluding the 767 from this characterization but you’ll see why in a few minutes) accomodate a broad range of passengers ranging from about 270 to 400+ passengers.  Each even has new widebody family aircraft being introduced now and over the next 5 to 7 years that promise fantastic efficiency at incredible ranges.

Where is the aircraft to serve the 200 to 250 passenger count on a trans-continental/trans-Atlantic system?  Yes, the A330 and B767 are there but they’re really not quite the aircraft for that anymore.  The A330 is best as a -300 series aircraft and that encroaches into the 270+ territory.  The 767 is still being built but it is, for all intent and purposes, a discontinued aircraft. 

Previously we had the 757 and 767 capable of carrying that 190 to 250 passenger range on routes ranging from 2800 to 5500 miles and that market remains very active.  But no one is building a new aircraft for that segment.  The 787 misses it by a touch too many passengers and the A350 misses it by much more.  Neither the 737-900ER nor the A321 is capable of traversing the Atlantic ocean from the east coast of the US to points inside the middle of Europe.   They can barely make it across the continental United States.

Everyone is interested in aircraft for long haul routes that are intercontinental / trans-Pacific routes that yield quite a bit of revenue but for which there remains a fairly limited market.   Who is going to build the aircraft capable of flying from Northeastern United States to Berlin or Rome or Athens or even Helsinki without being too much aircraft?  Yes, the 787-8 can handle that route and probably handle it pretty well but it offers only a small marginal improvement on efficiency for those routes. 

It would appear that the world market could stand to see another A300/767 sized aircraft that offers the kind of efficiency we see being promised in the 787/A350 aircraft being built today.  And that really shouldn’t be difficult at all for either manufacturer.  The fuselage sizes and engines necessary are known quantities.  The technologies to raise the efficiency needed for those routes are all available today.  There is no challenge to building this kind of aircraft but it doesn’t even appear to be on the drawing boards (or, rather, CAD screens) of either company. 

There are a lot of 757/767/A300/A330-200 aircraft still out there but they’re aging fast and have a limited lifecycle left at virtually any airline.  I do wonder why airlines aren’t pushing more for a 200 to 250 passenger, 5500nm aircraft particularly since we’re talking about routes that are medium haul, bread and butter routes for much of the global airline system.  It is a sweet spot being ignored and I think that the manufacturer that identifies it and addresses it sooner, rather than later, is the manufacturer who enjoys a healthy order book for the next 2 to 3 decades.

Filed under: Airline Fleets by ajax
No Comments »

Republic Airways Holdings, Inc., the parent company of Frontier and Midwest as well as 4 other regional airlines, has ordered 40 new Bombardier CSeries CS300 jets with options for another 40 as well. 

The CS300 will seat about 120 people in a mixed class layout and has enough range to fit current Frontier/Midwest needs especially if they select the CS300ER (about 2900 nautical miles range).  It’s an aircraft that really begins to infringe upon B737/A320 territory (especially the A318) and which promises very good efficiency, particularly for the kinds of missions Republic flies. 

These are most certainly for the branded Frontier/Midwest network.  They fit the missions that both of those brands are flying now and compliment the existing A319/A320 Frontier fleet as well as the EJets currently flying for both Frontier and Midwest.  The CSeries 2×3 Economy configuration has the potential offer a better product than many airlines offer with their larger aircraft since a passenger has just a 20% of getting a middle seat versus 33% chance on a 737/A320 aircraft. 

These aircraft will not fly for the regional airlines serving legacy airlines such as Delta, US Airways or United.  The unions for those airlines will never allow that kind of semi-mainliner aircraft fly on behalf of the legacies.  No doubt Republic look to re-allocate some of their EJets such as the E170 back over to such flying and this purchase gives them more flexibility in the future. 

This is  a big order for Republic Airways.  Nominally worth about $3Billion, Republic no doubt got significant discount for being the launch customer of this version (Lufthansa has already ordered the CS100) but it does make me wonder if they can afford the order right now since Republic has spent much of its cash holdings and it remains to be seen if legacy airlines are going to be happy about continuing contracts for regional service with an airline that is now competing with them on a mainline level.  Time will tell since these jets aren’t due to enter service until 2013 and there will likely be some delay added to that rough date.

Filed under: Airline Fleets, Airline News by ajax
No Comments »

I tend to ignore Virgin America often even when they do make the news.   I’ve had a lot of trouble figuring out what this airline is supposed to be and even more figuring out whether or not they are really going to succeed. 

VA has made some news in the past couple of months, though, and I figured it was time to talk about them. 

Virgin America began as a concept annunced by the irrepresible Richard Brandon (founder of Virgin Atlantic and the Virgin Group) and it went through quite a few iterations before it launched.  It changed its announced name from Virgin USA to Virgin America, for instance.  Ownership structure was fiddled with several times to meet US restrictions on foreign ownership of airlines.  Business leaders changed and their original CEO, Fred Reid, was eventually removed to satisfy the DOT and gain permission to launch. 

Their approach to finding a home was weird to me and kind of reflected a European viewpoint that led me to believe they weren’t necessarily looking at the US market properly.  After leading a kind of competition to find a home, Virgin America settled on San Francisco as its “operations” home and New York City as its “corporate”  home.   Neither location struct me as particularly wise because NYC and California are expensive places to operate and they’re no more representative of the United States than a lot of other locations.

While they went through the start up process, Virgin America faced a lot of criticism from other airlines.  Flatteringly, it was quite a bit more than many startups have received over the years.  On the surface, the objection was always to the perceived foreign ownership of Virgin America.  My own sense was that other US major airlines saw another potential jetBlue starting up and given jetBlue’s success, yeah, it would worry a few airlines. 

Strangely, at the end, some of the loudest objections came from Continental Airlines who, from my point of view, had the fewest reasons to fear Virgin America’s competition.  Continental had a strong 2 class operation that was highly favored by businessmen for both its service, comfort and frequent flier program.   From my perspective, American Airlines and United Airlines had the most to fear from this upstart’s trans-continental plans.   Even jetBlue had some reason to be worried since VA’s product most closely competed with jetBlue’s and had the biggest chance of nibbling away at jetBlue’s customers.

I think the biggest concern from existing airlines was that, once again, a well financed 2 class airline was entering the market that had low labor costs and brand new efficient aircraft.  Startups always have low costs because the airline industry is based on seniority.  A new airline with all new employees quite naturally has some of the lowest labor costs but that does change over time and it really depends on the airline on whether or not those costs rise dramatically or not. 

jetBlue has been able to keep its labor costs relatively low by being pretty good at taking care of their employees, for instance.   By having such low costs, airlines like jetBlue and VA, are able to compete very hard on those trans-continental routes that are many airlines bread and butter. 

When VA agreed to remove CEO Fred Reid from the operation after no more than 9 months of operation after the certification was awarded, they had to go find a new CEO.  Now, Fred Reid never had the kind of reputation that I would expect an operation like VA to need or want.  Formerly of Delta, Fred Reid performance at Delta was mixed and he certainly wasn’t a charismatic leader which I thought would help VA quite a lot in the US.  Richard Branson’s kind of bravado has never played nearly as well in the United States as it has elsewhere in the world.

My thought was that VA would seek a more personable, charismatic leader who would not only have a strong airline background but who would also be a good public figure for this venture.  VA, apparently, felt otherwise and found their next CEO at American Airlines in the form of David Cush.  

Mr. Cush certainly fit the bill when it came to having a strong airline background.  He had 20 years of airline experience in a wide variety of positions and a great education too.  The thing is, Cush did it all at the most conservative of airlines, American Airlines.  Huh?  Yes, Cush had youth going for him and he does present himself rather well but it still didn’t mesh in my mind.

I suspect VA’s investors, most particularly its US investors, wanted someone who had a very strong financial background and who understood just how important it was to preserve cash and operate with strong controls in place.  They had, after all, funded VA with more money than had ever been put together for an airline startup in the US when VA began.   He did most recently work as Vice President of Alliances and Chief of Sales for American and this hints at Mr. Cush’s ability to access corporate clients.  With VA’s transcon strategy, this kind of made sense.

Virgin was so delayed in getting permission to start up, it leased several of its delivered Airbus A320 aircraft to the late Skybus Airlines.  When they did begin to operate, they were hindered in fully starting up operations because some of those aircraft were occupied until Skybus failed miserably. 

But . . . operate they did.  Finally in August of 2007 and fully 2 years delayed, they began flights between San Francisco and NYC and Los Angeles and NYC.  This wasn’t a bad start in that they were connecting major business centers with lots of traffic but it didn’t allow them to really get high utilization of their aircraft and pricing on those routes has always had lots of competitive pressure so they lost lots of money operationally. 

Every airline loses lots of money in its first months and years.  Airlines really operates lots of small businesses.  Each route is really its own business and it takes time to grow those routes into profitable operations and it takes varying time to do it for each route.  It is an investment that takes time to go profitable and much more time to provide a good ROI (return on investment.) 

VA was off and running and I was still scratching my head.  There were still many parts to this airline that defied rational thought in my opinion.  Tomorrow, more on VA and its service and routes and where it is today.

Filed under: Airline History by ajax
No Comments »

I don’t spend a lot of time on two aircraft manufacturers who really are the first real potential competitors to Boeing and Airbus in the future.  Embraer and Bombardier. 

Let’s take a look at Embraer today.  Embraer, a Brazilian aerospace company, got its start in the 1960’s and entered the commercial aviation world with its EMB 110 Bandeirante (1968) and EMB 120 Brasilia (1983) serving the small commuter turbo-prop market. 

These tough aircraft from Brazil managed to serve a need in many US markets and I remember them flying for American Airlines in the 1980’s and 1990’s.  American Airlines used them to fly multi-stop routes from their DFW hub and others such as Delta and United used them similarly from their hubs.

It was the ERJ-145 that Embraer brought to market in 1995 that took this company to a new level.   This line of regional jets were the first to combine small size (as few as 30 seats and as many as 50 seats) with modern turbine jet engines to provide a (near) mainline aircraft experience to the small feeder routes of major airlines.   Unfortunately, these aircraft were only economical to operate when jet fuel was inordinately cheap through the 1990’s and early 2000’s. 

Embraer knew this and began development on a larger, more capable family of airliners that aren’t quite regional jets and aren’t quite mainliner jets.  These new jets, now referred to as “E-Jets”, are the ERJ-170/190 family and this is where Embraer signaled its willingness to encroach on the territory of Boeing and Airbus. 

The E-Jets, introduced in 2002, have a seat capacity ranging from 80 to 120 people in an all coach configuration and, at first glance, that doesn’t seem to quite reach into the 737/A320 territory but its worth another look.  The E-Jets, at least the larger E-190/195, offer similar size and range to the early 737-100/200 and the first DC-9 series aircraft.   This was confirmed when David Neeleman (founder of Morris Air and jetBlue) chose them to start his new airline in Brazil, Azul.   US Airways is now deploying this aircraft on its East Coast shuttle routes. 

These aircraft offer something that neither the 737, A320 or DC-9 never offered:  no middle seats.   Designed for a 2×2 configuration, these aircraft offer a coach experience that really is no different than the current offerings from Boeing and Airbus and, in some cases, really better.   These aircraft are now serving the routes originally serviced by first generation 737’s and DC-9’s. 

And what’s next?  Embraer has shown it has the technical expertise to offer a mainline aircraft and if it expects to grow as a company, the next step will find it offering a 737/A320 competitor.  If timing is anything to go by, I would be unsurprised by a new airliner being offered in 5 years or so and quite likely offering the new Pratt & Whitney GTF engine.  

With both Boeing and Airbus deferring development on the 737 and A320 series of aircraft for as much as 10 more years, there is an opportunity there for makers such as Embraer and Bombardier since even major US airlines are eager to re-develop their fleets with more fuel efficient aircraft.

At some point, both Boeing and Airbus will have to make a few choices.  They can choose to cede the 100 to 140 seat market which is tough to imagine given that this where aircraft are truly mass produced. 

They can choose to form a partnership with Embraer and/or Bombardier and co-market a new aircraft under one or the other’s brand names.  Airbus has some ties to Embraer and Bombardier has had contact with Boeing over the years but neither has anything approaching what would be called a close tie.  I think there is some likelihood of this happening and, frankly, I expect that whoever forms ties with Embraer is likely to succeed.  Embraer has a bit more financial strength and a much cheaper labor base to manufacture from than Bombardier (located in union-heavy Canada).

The final choice is to go head to head with Embraer and Bombardier.  From a personal viewpoint, I hope that both Boeing and Airbus take this route.  It can mean only better aircraft in the future for everyone.  However, both Boeing and Airbus are currently manufactured in areas with strong union ties (Boeing is reducing this risk with the establishment of an assembly line in South Carolina and Airbus is “experimenting” with an assembly line in China for low production volumes) and with a relatively expensive supplier base. 

There is no doubt that Embraer offers a great product and certainly possesses the ability to take it to yet another level.  They are poised to take advantage of another family of aircraft that could be made in a way that type ratings between the E-Jets and a new, larger family could be shared.  This would be very attractive to a wide variety of airlines.  

Whatever their choice, Embraer is one to watch.

Filed under: Aircraft Development by ajax
1 Comment »

The Boeing 787 and Airbus A350xwb are commonly compared to each other over the past few years but are they really similar aircraft?

In one sense, yes, they are.  Both aircraft make substantial use of CFRP for instance.  Boeing makes the fuselage of the 787 as a full “barrel” and Airbus plans to use CFRP panels using an more conventional structure underneath.  Both will also use similar engine and engine technologies although Boeing is using a system that eliminates “bleed air” from its systems for the first time while Airbus retains it. 

They are both aimed at the medium to long range market although Boeing’s 787-3 (if it ever comes to fruition) is aimed at domestic markets primarily in Japan with a planned range of about 3000 nautical miles maximum.  When the introduction of this aircraft was delayed in favor of the 787-8 and 787-9, Japan Air Lines transferred its orders to the 787-8 and All Nippon Airlines reduced its order and transferred the remaining to the 787-8.  Ultimately, I suspect this aircraft may be developed to offer trans-Atlantic, US transcontinental and Japanese domestic capability.   That would mean a range increase of probably as much as 1000 nautical miles which would still be 1500 or more nautical miles less than other 787 models.

Both were initially introduced as 3 models.  Boeing has firmly offered the 787-3/8/9 and Airbus has firmly offered the A350-800/900/1000.   However, the variants of each manufacturer do not match up one for one.

The 787-3 and 787-8 will be a bit smaller than the first A350-800 model.  Instead, Airbus targeted its A350-800 model to match up against the 787-9.  The A350-900 and 1000 more accurately match up against the Boeing 777-200/300 aircraft. 

What drove the development of each of these aircraft is more important and shows the difference.  Boeing needed a replacement for both the 767 and the 757.  Those models were more than 20 years old and had issues with continuing to be capable aircraft for airlines.  The 767 was unable to carry cargo competitively with the A330 and A300 Airbus models and its engines were becoming fuel inefficient for many routes.  The 757 had morphed to a medium haul / trans-Atlantic model but didn’t quite have the legs to reach Europe except from extreme East Coast destinations. 

Boeing already had the 777-200 which filled a gap between its 747-200/400 models and it didn’t need to replace it since the 777/200ER was quite young and it had the 777-200LR coming online shortly.  It needed an aircraft that was capable of carrying a passenger load from 230 to nearly 300 with a full cargo load on at least medium range routes of 5000 nautical miles or more. 

In addition, airline trunk routes were fracturing so it needed its next aircraft to be capable of flying much longer routes so the new aircraft had to be capable of flying routes from 5000nm to 8000nm efficiently.  Something that the 767 wasn’t capable of and the 777 wasn’t very suited to capacity wise for the shorter ranges.   So Boeing defined the 787 to fill that gap.

Airbus was faced with a different problem.  The A330 was and is still a strong seller and an excellent competitor for the 777-200 on medium range routes.  It had the A380 coming online as a competitor to the 747 which left a large gap between the A380 and A330 because airlines had never really bought into the A340 model line.  The A340 was an inefficient competitor to the 777-200/300 line of aircraft because it used 4 engines (as opposed to 2 engines) and possessed a fuselage that was slightly too narrow to be stretched for more capacity without other problems cropping up. 

What Airbus didn’t have was a real 777 competitor and that’s what it needed.  After going through several definitions of the new aircraft, it arrived at the A350xwb.  The A350xwb-900/1000 compete directly with the 777-200/300 models in capacity and range.   However, where customers are already seeing a deficiency is in cargo capacity. 

Although the A350 is not yet completely defined, it appears that while it may have lower costs per available seat mile, the 777 will continue to be able to lift and carry several tons more cargo in addition to its passengers.  In real world operations, the two may be very even competitors unless and until Airbus is able to offer higher thrust engines (100K pounds of thrust or better), this deficiency will remain.  Currently, Rolls-Royce has shown some willingness to build to that thrust capability (borrowing on their engine technology for the 777) but GE has shown no interest in developing a new engine using GEnx technology to meet the specifications of Airbus’ A350-1000 model leaving a large gap.  GE sees such an engine cutting into its current customer base on the 777.  Current 777-200LR and 777-300ER models have GE engines capable of 110K and 115K thrust respectively.

Both models promise to be excellent, successful aircraft because they fill needs for each manufacturer’s customers.  Both brands needed those models to fill very important places in their lineups.   Even airlines see these aircraft as more complimentary than competitors as evidenced by many large airlines ordering both models. 

The Boeing 787 promises to be successful with US, European, Japanese and, possibly, Australian airlines.  South American airlines will likely follow in 5 to 10 years.   This aircraft will serve airlines whose routes are either long and thin or those that have high frequency. 

The Airbus A350 will serve routes that are fat and long primarily and will likely be used by airlines based in the Middle East, South East Asia, India, Australia and by some in Europe.   This aircraft is more a trunk route airliner that will serve routes with lots of density, low to medium frequency and of 5500nm distance (at the least).

It is notable that Airbus faces an issue that Boeing doesn’t have with the 787 and that is customer base.  Nominally, both companies have a healthy order book for each respective aircraft.  The 787 has well over 800 orders and the A350 has well in excess of 500 orders.   Both have an average of 15 orders per customer even.  However, the customer base for the A350 is really quite a bit more narrow than Boeing’s.

Airbus has roughly 505 orders for its A350 aircraft line up and of that, the only truly significant large quantity orders come from a few airlines based in the Middle East or South East Asia.  More than half of those orders (284) are attributed to just 13 customers from Africa, the Middle East and South East Asia.  Of those 13 customers, 7 customers should be considered as somewhat dubious in light of the present world wide economic climate in the airline industry.  Of the remaining 6 customers, 3 airlines and one leasing company (Emirates, Etihad, Qatar and DAE Capital) account for 205 of those orders.  The A350 will need to find a wider customer base for all its models to reduce the risk the order book currently has.   Those three main airlines are each based in the UAE (United Arab Emirates) and while successful today, have dubious opportunities for their continued growth over time. 

Boeing’s order book is stretched more evenly across airlines of the world and on most continents.  While Boeing does have some dubious order holders, they are fewer overall and comprise a vastly smaller portion of the order book both percentage-wise and in total orders.   Boeing has much less risk in its order book.

Boeing should begin deliveries to customers in the 4th quarter of 2010 or about 10 months from now.  With a second production line expected to come online in 2 to 3 years, Boeing is well placed to fill its orders and have enough production slack to fill new orders from major airlines.   Within the next 2 years, expect to see the 787-10 defined and design work begun.  The 787-10 will likely be a 777-200 competitor in some respects but it also allows Boeing to define a new 777 or replacement model that reaches further upwards in capacity in the future.

Boeing’s next moves are likely to be, in order, the 787-9, the 787-10 and then either a refresh of the 777 model as a next generation enhancement with extensive use of composite materials, new engine technology and likely following a systems approach similar to the 787.  If it isn’t a refresh of the 777, it will be a new model to replace the 777 with capacities just above the present 777-200 and finishing with capacities a bit past the current 777-300.   A 737 replacement should follow once that 777 issue is nearing production.

Airbus currently has the A330 and plans to continue production for several more years.  However, Airbus is due to be left with two serious gaps.  First, the gap between the A321 and the A330 which nominally should be filled with a 787 competitor.   This is likely where Airbus goes next but not before 2015 or later.  Then, Airbus also has a bit of a gap between the A350-1000 and the A380.  This gap really isn’t so important for the next 10 years but its one they’ll have to watch since Boeing will be positioned to offer a right-sized aircraft in that market in the form of a 777-refresh, 777 replacement and their about to be introduced 747-8i.  After filling the A321/A330 gap, Airbus will likely go to work on their A320 series replacement which, I suspect, will be sized at slightly larger capacities than the current A318/319/320/321 lineup.

Filed under: Aircraft Development by ajax
2 Comments »

For more than 10 years, much has been made of the “launch aid” given to EADS/Airbus for producing new aircraft.  A recent preliminary WTO (World Trade Organization) ruling has said that the aid given for launching and producing the A330 was illegal. 

Europe/Airbus has prosecuted a counter-claim to Boeing stating that the tax incentives given by both states and the federal government as well as defense industry contracts illegally aids Boeing.

To a lot of people, it seems as if both sides have a point.  To Louis Gallois, CEO of EADS/Airbus, it certainly seems that way.  He’s actively pursued independent negotiations to settle the issues away from the WTO.   Boeing, on the other hand, has remained steadfast.

Like a lot of conflicts such as these, there are valid points on both sides.  I think the best way to look at the issue(s) is to test them according to a standard of transparency and economic competitiveness.

Airbus actively competes with Boeing around the world and does a fine job of it as well.  There is no doubt that their aircraft are world class and quite capable of competing in the marketplace against Boeing’s products.  An airline who buys Airbus isn’t putting itself at a disadvantage. 

It’s how Airbus got there that rankles most.  Originally a state financed consortium of aerospace manufacturers, Airbus received open funding from national governments to produce aircraft.  Ordinarily, this tends to be a bad idea since the product produced is often not market competitive.  That certainly wasn’t the case with Airbus’ products.  They sell on features and capability.  The A320 series can be considered the equal of the Boeing 737 series.  The same is true across the line.

It was important to Europe to find a way to continue building airliners and there is a good argument that the rise of Airbus has kept Boeing (and, previously, McDonnell Douglas) honest.  I would certainly agree with that.   Indeed, one could say that the demise of McDonnell Douglas’ commercial aircraft business was due, in part, to the rise of Airbus since MD found it very difficult to compete against Airbus’ aggressive pricing strategies in markets where McDonnell Douglas was the legacy supplier (Europe and parts of Asia as well as the United States.)

The line was crossed when Airbus didn’t transition to a self financing entity as the A330/A340 aircraft were being developed.   Airbus didn’t have to go to the market to borrow money, they went back to the respective European governments for more “aid”.   And the biggest part of the problem is that the aid wasn’t exactly required to be paid back.  The conditions were that *if* Airbus sold that line into profitability, the governments would start receiving a portion of those profits. 

That’s a big if.   Indeed, the current Airbus A380 program points to the problem with such a murky requirements.   This is an aircraft that, at best, has an extremely limited market and continues to struggle even with low volume production.  Deliveries are massively delayed and Airbus continues to depend on orders from a relatively few airlines to support the production.  At the same time, there is no pressure from the financial markets and/or shareholders to justify the production with potential profits.  Lacking that pressure, Airbus continues with a program that could never last in the United States.

The same was true for the A330/A340 program.  While the A330 is an unqualified success, the A340 never was.   The problem with this program is that the A330 succeeded not just on capability but price.  Airbus didn’t have to pay the rent on the money it borrowed to develop and sell the aircraft and was able to offer a capable aircraft at a price competitive with the Boeing 767.  It’s notable that, in many respects, it should have been competing on price with the Boeing 777 instead. 

In the United States, it’s true that we do support our manufacturing base with certain tax incentives.  However, it is notable that while Boeing might not have kept its production in Washington state, its laughable to believe it would have traveled outside of the United States.  Those tax incentives merely kept production where it was inside the US and even those incentives no longer seem to be enough.  Witness Boeing setting up a second production line for the 787 in South Carolina.

When Boeing needs to raise money to launch such a venture, it has to go to the international capital markets and borrow money.  Boeing must pay market interest rates for that money and, most importantly, it must make a solid case for the product they want to produce and its potential profitability.  I assure you that capital markets are an unforgiving place and without justification for their request for money, no one would loan it to them.

Boeing does receive research and development funds for defense work that does contribute to its body of knowledge for building commercial aircraft.  Boeing’s capability in manufacturing CFRP (Carbon Fibre Reinforced Plastic) derives from such defense programs.  However, there is a difference in how Boeing gets those funds.

Boeing must compete with a number of aerospace companies for those funds and justify its ability to deliver.  Those aerospace companies are largely US based but also include companies from Europe such as BAE, Airbus and others.   In order to receive that funding, the companies must make a financial case for them being the best to receive funding and if those companies prove incapable of delivering results on a funded program, it usually is terminated by the government.  The US Defense Department doesn’t just continue to fund a program for the sake of funding it. 

The difference in these arguments about illegal funding between Boeing and Airbus is really about transparency and competitiveness.  Boeing must be transparent and routinely demonstrate to the markets and the US government that it is not only doing what it said it would do but also succeeding in the world market place.  Airbus, on the other hand, answers to governments whose prime interest is in supporting an aerospace industry and has yet to have to justify itself to the world marketplace. 

I suspect that if the European governments involved in Airbus had adopted a hands off approach with the A380 program, the US government and Boeing would have declined to pursue a WTO case against Airbus.   I think some sort of arrangement would have still been possible if Airbus had justified their new A350 program in the world marketplace but they once again gratuitously accepted launch aid from governments who brazenly offered it in spite of their pledge to be fair participants within the WTO.

Both France and Germany have been particularly bad in their behaviour on all things Airbus.  National leaders of both governments have been known to fly to countries where Airbus is competing for a sale and nakedly pitch the Airbus product as a national interest priority and make the sale with inducements such as defense sales and other side trade agreements.  The United States has been known to flirt with this but never has engaged in such open pimping of their own industries.

The KC-X tanker program is the next battlefield.  Pitched against the DoD’s desire to have a real competition for the program (there are only two remaining manufacturers in the world capable of producing the aircraft:  Boeing and Airbus) and the fact supported case that the Airbus A330 derived tanker was and continues to receive state sponsored support and aid.*

What happens?  The United States has a decision to make in the next 2 to 3 years.  It either aggressively stops the unfair trade practices of the European governments (primarily France and Germany) or it must decide to fight fire with fire.   Wisely, the US government wants to avoid having to resort to the same tactics to support the US aerospace industry because they know the consequences are potentially very bad.  Competitiveness in our aerospace industry is, quite literally, what has kept us on the top of the hill when its comes to our nation’s defense.

Those same European aerospace industries supporting Airbus, also participate in the US defense contracts and have become essential to the US defense.  Companies such as BAE Systems are now prime contractors producing for the US and to ban them from competition is both bad for the US as well as the US industries.   Such is the web a global marketplace produces. 

My guess is that the US will seek to defend its ground by offering even more support to businesses and governments around the world in the form of low cost or no cost financing.   US Trade Representatives will be empowered to offer better and better terms to facilitate those sales and its hard to compete with the financial might of the US government.  

Until the US starts to aggressively combat EADS/Airbus and their supporting governments, the practices won’t stop.   Those governments have always pursued such policies and have never stopped engaging them until it became unprofitable to do so.   There is no historical precedent for them to play “fair” with, possibly, the exception of the UK.

*  Nominally the KC-X tanker program is a competition between Boeing and Northrup Grumman.  However, Northrup Grumman essentially is the “front” for Airbus where Airbus will produce the base airframe and Northrup Grumman will do the conversion modifications in Alabama.  NG and Airbus have promised to ultimately produce the A330 in Alabama after the first 20 or so airframes are built.  However, the A330 airframe isn’t that much younger than the 767 and the market for the aircraft is already quickly diminishing with the rise of the 787, A350 and even the 777.  The idea that a single tanker program could justify setting up such an assembly line without commercial demand is far fetched at best.   It’s a promise that is easily taken back after production started.

Filed under: Aircraft Development by ajax
No Comments »