Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
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Pontifications: Bombardier’s challenges beyond Boeing complaint
By Scott Hamilton
May 8, 2017, © Leeham Co.: The fallout and speculation continues after Boeing filed a complaint April 27 over Bombardier’s deal for 75+50 CSeries with Delta Air Lines.
The complaint was filed with the US government and the International Trade Commission.
Our stories are here, here and here.
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Boeing targets Bombardier for “dumping” CSeries in US
April 27, 2017, © Leeham Co.: The Boeing Co. late today filed a petition with the US government, charging Bombardier with “dumping” the CSeries in its deal last year with Delta Air Lines for 75+50 CS100s. Delta can convert the order to the larger CS300, which competes with Boeing’s 737-700/7 MAX.
Boeing claims Bombardier sold the airplanes for about $20m, against a cost to build the airplanes of about $33m.
Delta Air Lines ordered the Bombardier CS100. Boeing claims the low price constitutes “dumping,” as defined in regulations.
The 1,039 page complaint cites as one of its references Leeham News and Comment. A redacted, 147 page version may be downloaded here: BBD Complaint 042717.
A Wall Street Journal article and Financial Times article summarize the complaint.
Boeing’s press statement is below the jump.
Delta Air Lines competition
Boeing competed in the Delta competition, offering a combination of used Boeing 717s and, LNC believes, new 737-700s. The fully amortized -700s can be offered at a very low price, compared with the new 737-7 MAX (which at that time was the 125-seat, two-class version, not the 149-seat configuration it has since become). Boeing beat Bombardier in a hot contest at United Airlines, predating the Delta deal, by offering the -700 at a rock-bottom price believed to be in the $24m range, a price Bombardier could not then match. (A United official denied the $24m price to LNC, but others cited this number.)
Since the United deal, Bombardier received investments from the Quebec provincial and federal governments specifically tied to the CSeries, and more than US$1bn from a quasi-government pension fund for a stake in Bombardier’s rail unit. The investments are widely considered to be bailouts that prevented Bombardier from declaring bankruptcy due to cost overruns and delays from the CSeries and Global corporate jet development programs.
Bombardier took a US$500m “onerous contract charge” in connection with the Delta order and one from Air Canada.
Rival Embraer immediately cried foul and alleged the government monies violate World Trade Organization rules. Bombardier says the financial structures comply with WTO rules. Brazil, at the behest of Embraer, filed a formal complaint with the WTO. Boeing, while not filing its own WTO complaint, joined in the action, according to press reports at the time.
Boeing’s action today so far is limited with the US government.
Delta reviewing Airbus wide-body order, but more is going on
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Introduction
April 12, 2017, © Leeham Co.: Delta Air Lines today said on its earnings call that it is reviewing its wide-body order with Airbus.
At face value, the Delta statement might seem alarming. But as so often becomes the case, the “review” may not be what it seems.
Summary
- There is more activity about fleet requirements than simply “reviewing” the wide-body orders.
- Delta’s preparing to issue an RFP for single-aisle Airbus A321neos and/or Boeing 737-9/10s.
- Boeing hopes Delta will be a launch customer for the MAX 10.
- The NMA/MOM aircraft could be involved.
Pontifications: Branson gets pissy over dropping the Virgin America name
By Scott Hamilton
April 3, 2017, © Leeham Co.: Sir Richard Branson came to Seattle last week to promote the new service by Virgin Atlantic Airlines to London. In a hissy-fit, he promptly pissed on Alaska Airlines for the business decision to drop the Virgin America brand in 2019.
Alaska, of course, acquired Virgin America last year. The acquisition didn’t sit well with Branson, who nevertheless made out well in the deal.
Although Alaska officials said they would decide later whether to retain the Virgin brand, only those with wishful thinking gave any chance of this happening.
Richard Branson in Seattle for Virgin Atlantic’s new service to London. USA Today photo via Google.
Branson certainly knows this. In 1997, Virgin Group acquired the low fare carrier Euro Belgium Airlines for $60m and promptly dropped the name in favor of Virgin Express.
VE lasted only nine years; it ceased operations in 2006 when it was sold and merged into the new Brussels Airlines.
Branson’s whining over Alaska’s decision to operate the merged operations into the Eskimo’s image smacks of hypocrisy.
Let’s also remember that his Virgin Atlantic is 49% owned by Delta Air Lines, which is building a hub in Seattle in competition with Alaska. The fight between Alaska and Delta is sometimes bitter.
Branson’s criticism of Alaska might have as much to do with Virgin Atlantic’s partnership with Delta as it does his own bruised ego.
Major fleet decisions may not be positive for Airbus, Boeing
Pontifications is off this week.
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Introduction
March 20, 2017, © Leeham Co.: There are some major fleet decisions that will probably come down the pike this year at American, Delta and United airlines. Not all of them are going to be viewed positively by Airbus and Boeing.
There is also a serious warning sign emerging from the Middle East that could have serious, negative impacts on Airbus and Boeing.
Summary
- American Airlines doesn’t want its Airbus A350-900s any more. Consolidation with US Airways appears to have made these surplus.
- Delta Air Lines, which so far eschewed any orders for the Airbus A320neos and Boeing 737 MAXes, is understood to be readying a Request for Proposals to be issued this year.
- United Airlines doesn’t want its Airbus A350-1000s any more. Picking up cheap Boeing 777-300ERs appear to have made these surplus.
- Emirates Airlines, reacting to Brexit and Donald Trump’s travel bans, is undertaking a full business review in response to a sharp drop in bookings.
Pontifications: Boeing MAX 10, “797” NMA dominated ISTAT headlines
By Scott Hamilton
March 13, 2017, © Leeham Co.: The soft launch of the Boeing 737-10 and the prospective Boeing “797” Middle of the Market aircraft easily were the headline news items to come out of the annual ISTAT conference in San Diego last week.
The “797,” as the MOM-sector aircraft was unofficially dubbed, brought enthusiastic reaction.
The MAX 10, not so much.
If Boeing builds MAX 10, will customers come?
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Introduction
March 7, 2017, © Leeham Co.: If Boeing builds the 737-10, which appears increasingly likely, will customers come?
This is always the multi-billion-dollar question for any aircraft and engine manufacturer.
For Boeing, launching the 737-10 is a low-risk, and in the eyes of many, futile effort to stem the bleeding of market share between the MAX 9 and its rival, the Airbus A321neo.
- “That’s the most absurd thing I’ve ever heard. What is he, flying downhill?” Airbus’ John Leahy reacting to claims by Boeing’s Randy Tinseth that the 737-10 has more range than the A321neo.
Depending on who’s counting and how the numbers are calculated, the A321 sales outpace the MAX 9 by a factor of four or five to one. LNC calculated last year that the ratio is more likely 3:1, identical to the market share split between the predecessor airplanes, the 737-900ER and the A321ceo.
Pontifications: Boeing 737-9 roll-out–Nothing Special in the Air
By Scott Hamilton
March 6, 2017, © Leeham Co.: Boeing rolls out its 737-9 MAX tomorrow.
Last week, I received a call from one of the network/cable news organizations asking, What’s special about this airplane?
The answer is: Nothing.
CSeries trans-Atlantic capability
By Bjorn Fehrm
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Introduction
February 23, 2017, © Leeham Co.: We previously described how new generation engines make the Boeing 737 MAX 8 a trans-Atlantic aircraft. The MAX 8 is smaller than the Airbus A321LR, but not the smallest single-aisle with trans-Atlantic capability. This distinction goes to the Bombardier CSeries.
We wrote about the CS100 capability to cross the Atlantic from London City Airport last year. After the article, we received new and improved data from Bombardier. The CS100 can now fly directly to US East Coast on the difficult westward leg with a business cabin of 42 seats. The updated article is here.
When we look at the improved capabilities of the CS300 (announced at Farnborough Air show last summer), this aircraft can also cross the Atlantic with a full cabin of 130 passengers.
Bombardier arranged so we could discuss this deeper with the VP CSeries program, Rob Dewar.
Summary:
- We use our aircraft performance model to compare the CS300’s suitability for long-haul to the Airbus and Boeing competition.
- The aircraft have similar range and seat mile costs. The smaller aircraft have lower trip costs.
- With Rob Dewar, we explored the potential for additional capability for the CS300.
Boeing-Bombardier complaint could affect competition in coming Delta neo-MAX RFP
Commentary
May 1, 2017, © Leeham Co.: Boeing’s complaint against Bombardier’s CSeries transaction with Delta Air Lines, and a request for millions of dollars in antidumping and penalties might be coming at a bad time.
Was the Boeing 787 program marked by “launch customer pricing” or “dumping”? This may depend on program or unit accounting. Boeing photo.
“Boeing requests that the Department initiate an antidumping investigation and impose antidumping duties on Aircraft from Canada in an amount sufficient to offset unfair pricing above.”
If Boeing is successful in its request of the US government and International Trade Commission to impose duties before the first CS100 is delivered to Delta next year, the cost of the airplane will balloon from the $19.6m Boeing calculates (and which BBD denies) to at least $33m.
It’s unclear from the complaint who would pay this penalty—Bombardier, maintaining the price to Delta, or would Delta have to pay the reset price?
Regardless, this kerfuffle can’t be welcome news to Delta, which already has a ruffled relationship with Boeing due to its opposition to the ExIm Bank and orders for Airbus aircraft.
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Posted on May 1, 2017 by Scott Hamilton
Airbus, Boeing, Bombardier, CFM, CSeries, Delta Air Lines, Embraer, Leeham News and Comment, Pratt & Whitney
737 MAX, 737-10, 737-900ER, 787, 7M7, A320ceo, A320NEO, A321ceo, Airbus, Boeing, Bombardier, CFM, CS100, CSeries, Embraer, LEAP, Pratt & Whitney