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Airbus A350 faces further challenges but business case remains sound

In releasing its 2011 third-quarter pre-tax profit of €1.1 billion, European plane-maker Airbus parent European Aeronautics, Defence & Space Co. NV (EADS) announced the Airbus A350-900 XWB’s entry into service (EIS) has been delayed by up to six months. The start of final assembly of the first A350-900 was deferred to the first half of 2012 and its first flight is now scheduled for early 2013 from the airframer’s previous targets of end-2011 and 2012, respectively. Entry into service (EIS) of the baseline variant in the mid-sized A350 XWB aircraft family, meanwhile, slipped to the first half of 2014 from late-2013.

Airbus’ head of the A350 programme Didier Evrard attributed the delay to the late arrival of the centre fuselage panels at its final assembly line in Toulouse, which are produced by Spirit AeroSystems in its Saint Nazaire, France factory.

“The centre fuselage panels will arrive by the end of the month, the spread between [the first arriving items] and this has been wider than planned,” Evrard said, further pointing out that the centre fuselage is the most complex part of the aircraft and therefore requires the longest lead time in the pre-final assembly process. “This is not only about suppliers,” he said, “but it is also about complexity”. Spirit AeroSystems is currently contracted to produce the A350’s front wing spars in addition to the centre fuselage panels.

Evrard also added that Airbus faced further issues with other suppliers, especially with tier 2 ones. While Airbus has put into place “joint improvement plans” with several of its tier 2 suppliers, there remain several issues with the readiness and detailed part manufacturing of these suppliers. “We needed to reach an acceptable level of travelled work,” he said. “We need to control this, otherwise we would not be able to control the lead time and efficiency”. Travelled work refers to out-of-sequence tasks that are not completed as originally planned, which Aspire Aviation’s sources at the European plane-maker have since downplayed these problems, claiming that the amount of out-of-sequence work is manageable, and the completion rate on most parts is “satisfactory”.

Airbus has already adjusted the project management of the aircraft programme in an effort to streamline the supply chain in December 2010, which also aimed to improve the organisational structure and decision-making process within the programme. This process, which was supposed to eliminate many of the supplier-related delays suffered by Airbus on its A380 as well as its transatlantic rival Boeing on its 787 Dreamliner, is understood to have failed to pay as many dividends that Airbus hoped for. Airbus currently outsources roughly 50% of the work on the A350, ostensibly to share financial risk.

During EADS’s 9-month earnings call, EADS chief financial officer (CFO) Hans Peter Ring stated Europe’s largest aerospace group has “seen some activities on the supply of key components being later than expected,” and that Airbus was facing a “shortage of parts” on the A350. Ring attributed the delays to financial difficulties currently faced by key suppliers. “All suppliers are in big difficulties. It is difficult for medium-sized companies to get access to funding,” he said, adding concerns about Europe’s macroeconomic environment meant Airbus had to remain “very vigilant throughout the supply chain” in order to avoid further delays. Ring refused to single out any individual supplier, saying, “I would not pinpoint this to specific suppliers – the whole system is under pressure. Airbus has deployed teams to help suppliers where necessary”.

In illustrating EADS’s risk mitigation strategy on the A350, Ring mentioned the company’s acquisition of a majority stake in German A350 tubings supplier PFW Aerospace, which saved PFW from bankruptcy and a production line shutdown, thereby preventing related delays to the A350 production.

Image Courtesy of Airbus

Further delays likely as Airbus grapples with weight reduction, new technologies
Having been delayed by more than one year, the A350 is likely to face further delays, which Aspire Aviation believes will ultimately total 2 years from its original mid-2013 entry into service (EIS) target, if not more. A 16th November research note by New York-based Bernstein Research to its clients states that, “the A350 situation at Airbus looks increasingly challenging, particularly after Emirates elected to order delivery of 777s spread over 2015-20. Based on our airline discussions in Dubai, we believe that A350 delays could extend beyond the current schedule, with the need for substantial weight reduction”.

Aspire Aviation’s various sources at the European airframer have reiterated that while the A350-900 is modestly overweight in Airbus’ design software, design changes have enabled parts arriving in Toulouse’s final assembly line (FAL) to be only slightly overweight. However, slight weight problems on each individual part can easily add up to tonnes of overweight on an aircraft as large as the A350, which helps explain Bernstein’s statement. The research firm now expects the first delivery of the A350-900 to take place in mid-2015, more than a year later than Airbus’ current projection.

Even more important for the A350-900 is risk management, to which Airbus attributes a significant chunk of the A350’s 6-month delay. “The foundations of the programme are robust and a lot of risks have been mitigated, sometimes at the expense of more time spent – wing root joint, stringers damage tolerance, electrical systems installation – but always for the maturity of the programme,” EADS stated in June. Industry analyst Scott Hamilton of Leeham Co. stated that it is prudent for Airbus to build additional margins totalling as many as 6 months in the A350-900′s schedule, which Aspire Aviation concurs, given the unprecedented amount of new technologies featured on the Airbus A350.

The A350 has been called a “hybrid” project by Airbus comprising 52% lightweight carbon fibre materials, which are being found on its fuselage panels, joints, fasteners and keel beam, while maintaining the aluminum frame typical of current generation aircraft. Even though Boeing has already proven such technologies on the 787, composites manufacturing remains challenging, contributing to part of the significant delays to the 787 Dreamliner and potentially the A350 XWB.

Airbus has elected to use composites only on the A350′s wings. The new wing, which has a surface area of 443 square meters featuring a sweep angle of 31 degrees, enables the A350’s typical cruise speed to Mach 0.85. A new high-lift system has been adopted for the trailing edge of the wing, utilising an advanced dropped-hingeflap, enabling the gap between the trailing edge and the flaps to be closed using the spoiler, in addition to the differential flap setting (DFS) and variable camber (VC) which redistribute critical loads inward and help reduce weight.

Airbus has also incorporated numerous technologies from its larger A380 superjumbo aircraft on the A350, including its nose configuration adopted from the A380 with a 6 panels cockpit glazing and a forward mounted nose landing gear bay. Additionally, the aircraft’s integrated modular avionics were first developed for the A380, although the A350’s examples manage up to 40 in-flight functions whereas the ones on the A380 only control 23.

However, perhaps the most relevant new technology is the all new Rolls-Royce Trent XWB engine currently under testing by the British engine maker. Rolls-Royce recently stated that a minor design change to the initial Trent XWB engine may push the first flight of the engine back by a few weeks. In September, the manufacturer completed the required 150 hours endurance test for the Trent XWB, as well as a bird strike test during which four 1.1 kg birds were ingested by the engine. During the endurance test, Rolls-Royce discovered damage on the “rotating air seal that separates the [intermediate pressure] turbine (IPT) from the back of the [low-pressure] turbine.” However, Chris Cholerton, Rolls-Royce’s director of the Trent XWB programme downplayed the issue, noting that RR has already manufactured an updated design. “We may elect to change that prior to flight, because we can, it is simple to do,” Cholerton said. “We can do it here in Toulouse. We can still be flying the testbed over a year ahead of first flight. We want to test the final production standard of part, that is a good thing to do for our maturity objectives.”

The first Rolls-Royce Trent XWB powerplant, which is rated at 84,000 lbs. of thrust, is considered as an evolution of both the Trent 1000, which is one of two engines powering the Boeing 787 Dreamliner, and the Trent 900 powering the Airbus A380. Given the engine issues on the modifications A and B of the Trent 900 on Rolls-powered A380s, as well as the 2%-4% specific fuel consumption (SFC) shortfall on the Trent 1000, it would be beneficial for Rolls-Royce to take more time to test the engine and ensure the SFC meet its original specifications at service entry (“Challenges remain as Boeing 787 becomes reality“, 3rd Oct, 11).

Rolls-Royce stated that the specific fuel consumption (SFC) tests for the Trent XWB were tracking ahead of expectations for early build engines, and that the company expects the Trent XWB will be the “world’s most efficient civil turbofan”.

While the majority of airline customers have remained relatively mute over the latest delays, chief executives at the rapidly growing Middle Eastern carriers have struck out at Airbus over them, primarily because the delays will limit their growth. Emirates chief executive Tim Clark told Aviation Week that “they [Airbus] told us this would never happen again and everything is under control”. Clark and other airline executives are especially concerned as Airbus has already announced a year’s worth of delays before final assembly of the A350 even starts, whereas the 787’s troubles began after rollout. At this November’s Dubai Air Show, Emirates announced an order for 50 Boeing 777-300ERs with 20 options, a move many industry analysts see as a hedge against further A350 delays.

Ironically, Emirates Airline chief executive Tim Clark’s statements almost seem moderate when compared to the acerbic remarks made by Qatar Airways chief executive Akbar Al-Baker. Al Baker used the negotiations over a separate Qatar Airways order for Airbus A320neos and A380s to voice his displeasure over the A350 delays. In a statement to the media before reaching a deal with Airbus and placing firm orders for 50 A320neos and 5 additional A380s, Al Baker said, “as far as Airbus is concerned, we have reached an impasse. We thought we would conclude our agreement and make a very large announcement today. Unfortunately I feel that Airbus is still learning how to make airplanes”.

A350-1000 faces own troubles
Clark and Al-Baker may have been particularly vituperative towards Airbus given their displeasure over the largest A350 variant in the aircraft family, the A350-1000. Speaking to media at the Dubai Air Show, Clark said regarding the A350-1000, “we want the original specification I do not remember that we wanted something new and I really wonder why they [Airbus] did not ask”.

Emirates and Qatar Airways feel that the redesigned A350-1000 launched by Airbus in June at the Paris Air Show in June with a two-year delay in entry into service (EIS) to 2017 is not the aircraft that they originally signed up for, and that the operating economics on these new aircraft may have been compromised by the increased weight, which has not fully been offset by the increases in range and maximum take-off weight (MTOW).

In June, Airbus announced a two-year delay to the A350-1000’s EIS to help facilitate numerous design changes to the largest A350 variant. As part of these modifications, the engine thrust on the modified Trent XWB powering the A350-1000 will be increased to 97,000 lbs. from 93,000 lbs. The additional thrust will enable the A350-1000 to carry 350 passengers fly 400 nautical miles (nm) farther, or another 4.5 tonnes of payload, prompting an increase in maximum take-off weight (MTOW) of the aircraft from 298 tonnes to 308 tonnes. The aircraft will retain the same fuselage size as before, as well as almost 100% hardware commonality with the A350-900, but the wing will be “optimised, not new,” implying that Airbus will utilise a scale-up of the A350-900’s wing with few modifications.

Airbus is optimistic that the more powerful Rolls-Royce Trent XWB engines on the A350-1000 will not affect the aircraft’s fuel burn performance, claiming there is “no specific fuel consumption impact”. The upgraded Trent XWB engine will feature the same 118-inch fan blades as the smaller XWB, but will spin 6% faster and feature altered internal aerodynamics and a 3-4% larger core with a scaled up annulus will draw a larger airflow through the same intake. Additional efficiency tools include a dual microstructure technique implemented in turbine manufacture that enables the properties of the engine discs to vary in line with the different temperatures at the engine’s hub as compared to the engine’s rim.

These engine modifications will add roughly 2.4 tonnes to the aircraft’s empty weight. Additionally, Aspire Aviation has learned from its sources at Airbus that the Airbus A350-1000 is around 5 tonnes overweight in Airbus’ design software. The combination of these two factors could represent a significant fuel burn penalty, which Aspire Aviation estimates at around 3%-5%, for the A350-1000. However, given that Airbus will have at least 5 years worth of time before the A350-1000’s revised entry into service (EIS), Aspire Aviation thinks Airbus should be able to implement weight reductions to recover a large portion of these added 7.5 tonnes.

In spite of all its troubles, the A350-1000 is nevertheless likely to be a highly efficient up-scale of the A350-900, with fuel burn per seat between 15%-25% better than the Boeing 777-300ER.

Though Qatar Airways and Emirates have been vociferous about the performance shortfalls, as the additional 15 seats and larger cargo space of the 777-300ER can outweigh the better fuel efficiency of the A350-1000 XWB, especially given the around US$ 25 million list price differential between the two aircraft.

Furthermore, Boeing is very likely to strengthen its market leadership in the 350-400 seats segment by launching a revamped 777-8/9X, a move already under consideration by the Chicago-based aircraft manufacturer. However, Boeing does have a buffer period and more leverage while deciding whether to go forward with the major 777 upgrade, as industry analysts mostly agree the A350-1000′s entry into service (EIS) could easily slip into 2018-2019, and possibly even early 2020. Aspire Aviation reported in December that Boeing is eyeing a provisional date of launch for the 777-8X/-9X in 2013 with a 2019 entry into service (EIS) with the -8X and -9X being the revamped versions of the ultra long-range 777-200LR and the popular 777-300ER variants, respectively.

A new 777X would likely feature a revamped version of the GE90-115B1 engine that currently powers the Boeing 777-300ER. Boeing is targeting a 10% specific fuel consumption (SFC) improvement for the new engine versus the already fuel-efficient GE90-115B1 which burns 0.25 pounds of fuel per pound of thrust delivered per hour (lb/lbt/hr), which would negate a large chunk of the fuel burn advantage currently possessed by the Rolls-Royce Trent XWB engines.

From a payload perspective, the A350-1000 currently has a maximum take-off weight (MTOW) of 308 tonnes whereas the 777-300ER has an MTOW of 351.55 tonnes. A 777-9X which is slated to replace the 777-300ER would likely see a modest MTOW reduction to around 342 tonnes while retaining a similar range to that of the 777-300ER primarily owing to the weight saving brought by the new composite wings. The 777-9X would also likely be scaled upwards to around 390 seats through “internal stretching” of the cabin.

When coupled with a 10% fuel burn reduction from the engines, the additional seats would push the fuel burn per seat reductions to 10-15% versus the 777-300ER (“New Boeing 777X likely to be a highly efficient derivative”, 14th Sep, 11). Additionally, increased usage of composites, and/or aluminum-lithium (Al-Li) technologies would provide both weight reductions and improved maintenance costs. That said, the cash operating costs (COC) of a 777-9X could easily be 20-25% less than the Boeing 777-300ER’s, which if Boeing were to maintain the 8.1% advantage in list prices for the 777-300ER versus the A350-1000, would in fact give the 777-9X an advantage in direct operating costs (DOC , DOC = COC + capital cost).

Aspire Aviation thinks that Alcoa’s 3rd-generation aluminium-lithium (Al-Li) technology, which the world’s largest aluminium producer says offers a 12% better fuel efficiency with 10% weight saving and a 6% reduction in skin friction drag, as a very attractive option for an application on the 777X, given the existing production system of aluminium materials is well understood and it carries substantially less risk as well as costing substantially less than upscaling the autoclaves composite production system adopted by the Boeing 787 Dreamliner programme.

Delays will not affect business case of A350-900
Despite the short-term troubles for the baseline A350-900 variant, much as with the 787, its longer-term prospects remain sound. Delays are always pricey for original equipment manufacturers (OEMs), and Airbus could still be forced to push the A350-900 further back.

However, the Airbus A350-900 occupies a unique niche as a replacement aircraft for current generation widebodies, it is probably the only true replacement for the Boeing 777-200ER, which is the second most popular 777 variant of which 428 examples have been sold through October 2011, only behind the 777-300ER’s stellar sales performance of which 545 examples have been sold by the end of October.

Whereas Boeing has pitched both the 787-9 and the potential 787-10X as 777-200ER replacements, the 787-9 is considerably smaller than an A350-900, and the 787-10X’s proposed payload/range capabilities are insufficient to truly replace the 777-200ER, which in fact serves well as an A330-300 replacement with a range of 6,800 nautical miles (nm) while offering a 20% fuel burn saving over an A330-300. Therefore carriers will likely be forced to choose between the 777-200ER and the A350-900 XWB for replacement and growth, absent a revamped 777X that is designed as a true 777-200ER replacement. A few carriers, such as Japan’s All Nippon Airways (ANA) have elected to remain operators of the Boeing 777-200ER with additional orders for a few more examples. But the vast majority of airlines have ordered the A350-900, and with good reason. As the economic analysis below shows, the Airbus A350-900 enjoys a significant advantage operationally versus the 777-200ER.

Aspire Aviation has performed an economic analysis on the Airbus A350-900 versus the Boeing 777-200ER on a route of 5,500 nautical miles, which is within the typical operating envelope of the Boeing 777-200ER, with zero wind speed. This analysis makes numerous assumptions, most of which are actually favourable to the 777-200ER, and thus illustrates the A350-900’s significant advantage over the Boeing 777-200ER. A full list of assumptions is listed below.

Aircraft

A350-900

777-200ER

Distance Travelled (nm)

5,500

5,500

Cruise Speed

Mach 0.85

Mach 0.84

Flight Time (hrs.)

11.46

11.61

Engine

Rolls Royce Trent XWB

GE90-94B

Thrust (lbs.)

84,000

93,700

MTOW (lbs.)

591,000

656,000

OEW (with seats, etc.- lbs.)

300,000

330,000

MZFW (lbs.)

423,000

440,000

Payload (lbs)

123,000

110,000

Take off ZFW

MZFW

MZFW

Based on these assumptions, the following relationships between the Airbus A350-900 and Boeing 777-200ER are presented on an operating cost basis. Figures are given on a per seat basis and configurations used are 234 seats (8/42/184) for the A350-900, and 250 seats (10/45/195) for the 777-200ER, which are equivalent in terms of passenger density per unit of floor area.

Aircraft

A350-900

777-200ER

Fuel

Baseline

+22.8%

Maintenance

Baseline

+18%

Crew

Baseline

Baseline

Navigation

Baseline

Baseline

Finance

+7.9%

Baseline

Overall

Baseline

+10.6%

Fuel Burn
For this mission, the Airbus A350-900 is around 24% more fuel efficient than the 777-200ER, mainly because the A350’s advantage in fuel burn during cruise is lessened due to the shorter stage length. During climb and descent, the A350 burns a similar amount of fuel to the 777-200ER. On longer missions that is 6,000 nautical miles (nm) and beyond, the fuel burn saving will likely be closer to 25-28%, matching Airbus’ figures.

Maintenance
The A350 was assumed to have maintenance costs roughly 20% better than those of the Boeing 777-200ER, reflecting highly increased usage of composite and alloy technologies, as well as other maintenance reductions on the A350.

Navigation and Crew
The navigation and crew costs were estimated to be the same or similar as both the A350-900 XWB and the 777-200ER would be in any country such as India)where navigation fees at airports are measured by aircraft type, not specific weight. Given that the A350-900 would serve as a direct replacement for the 777-200ER, crew costs would likely be similar for both types.

Finance Charges
The Airbus A350-900 is priced at roughly US$22 million higher than the 777-200ER. Monthly lease rates for airlines with good credit are typically on the range of 0.8% of the aircraft’s purchase price, and both aircraft were assumed to have annual utilisation rates of 4,750 hours, which are in-line with the standard utilisation on medium to long-haul routes by world airlines. (Note: the 4,750 annual flight hours figure was used for the maintenance calculation as well). Discount for the aircraft was assumed to be 35%.

Overall
While the figure of 10.6% better operating costs per seat for the A350-900 seems low, that figure is between US $15,000 – US $20,000 for typical flights in this range, which is a significant amount. And at longer ranges, the low fuel burn of the A350-900 would make that differential even bigger. Finance charges are perhaps the greatest equaliser, depending on the discounts offered, the 777-200ER could potentially become cheaper on a direct operating cost (DOC) basis, though it would likely require discounts of closer to 70% in order to achieve this rather than a typical discount rate of 35% by Boeing assumed in this analysis.

Revenue Generation
From a revenue perspective, at identical passenger density configurations, the 777-200ER has two more first class seats, three more business class seats, and eleven more economy class seats. For typical 3-class 777-200ER flights in the US such as those operated by United Airlines and American Airlines (AA), one-way fares in these classes usually trend towards the ratio of 6:3:1. Thus the 777-200ER would have a maximum earning potential of 8.9% more passenger revenue, assuming static yields for the remaining 15 seats. At the typical 80% load factor for long-haul flights, that figure would be around 7.2%. On the cargo side, the A350-900 can carry 8.6% more cargo, which at typical belly load factor of 60%, would translate into a 5.2% revenue advantage from cargo for the A350-900. All in all, the 777-200ER would enjoy between a 6-8% maximum revenue advantage over the A350-900, or 4-7% at typical loads. This revenue advantage cannot outweigh the more than 10% operating cost advantage held by the A350-900.

Conclusion
As with the 787, the negative effects of A350 delays will eventually be outweighed by the superior operating economics offered by the aircraft. Airbus has been painstaking in its attempt to ensure that the A350-900, with all of its new technologies, is mature before it enters into service and it is unquestionably better to have any potential safety issues discovered and fixed before delivery than after the aircraft type entered operation. In the short to medium term, however, these delays will provide a moderate boost to the A350′s competitors such as the Boeing 777-300ER and 787-9 Dreamliner, similar to the boost seen in A330 sales precipitated by perennial delays to the 787. Notwithstanding this, the A350 should regain its edge over its competitors in the long-term, which is subject to change owing to Boeing’s potential response.

‪For the A350-1000, only time will tell what its true sales potential is. While the aircraft is likely to be a highly efficient stretched variant, a lot will depend on Boeing’s response to the A350-1000. In the interim, if Boeing were to introduce a further Performance Improvement Package (PIP) for the 777-300ER which will improve its fuel burn by 4% (“777 PIP further negates A350-1000′s business case“, 1st Mar, 10), which, combined with a 777-9X with a 2019 service entry, would likely squeeze A350-1000 sales. Though several carriers who have purchased the A350-800s and A350-900s have options to convert their orders to the larger A350-1000 variant, and any further design improvements may prove to be attractive to them.

‪All in all, the Airbus A350-900’s long-term prospects remain sound despite the latest 6-month delay in its entry into service (EIS) date. The A350 is an innovative product that builds on a leap in engine technologies to deliver superior fuel burn and maintenance improvements, both of which will ensure its place in airlines’ fleets for decades to come.

19 Comments

  1. keesje December 1, 2011 Reply

    I think the base for assuming there will be delays is particular weak. Lets not forget the A380 was pretty much on schedule first flight and type certificate.

    For the A350-1000, it seems everybody is making noise except Airbus. I think there is a good chance the -1000 will be for the A350, what the -300 versions were for the 777, A340 and 767. I expect many -900s to be converted into -1000, like what is happening with th 787-8 and -9.

    The engines are evolutionairy derivatives of the 900 and -1000. The latter was above target at EIS, but the -900 was not and today is better then promised. Hopefully / likely RR has learned a lot. They say they are very happy with the Trent XWB sofar.

    Placing the 787 and A350 in the same category regarding their development troubles seems premature.

  2. V V December 1, 2011 Reply

    For the first time, Boeing has publicly sated the “break even point” of the 787. The number is what it is. should we consider 1,100 units as a high number or should we consider it reasonable? I do not know.
    I discussed thisin my blog entry http://wp.me/piMZI-27F

  3. Uwe December 1, 2011 Reply

    Looks like the delays from suppliers are fallout from Boeings Dreamliner.
    ( PFW is a big supplier for the 787 already )

    The suppliers ( especially tier 2 ) have been brought to the financial brink
    by Boeing’s mismanagement of the Dreamliner project. Very interesting way
    of doing competition!

    VV:
    1100 is the number for the “accounting block” and not “project break even”.
    project break even will be far beyond that number. 1700? even more?
    All will be very dependent on production^HW delivery ramp up. ( increasing the number
    of partly completed frames on the lawn will not help )
    Wondering when Boeing will put the completed frames in “cold storage” and predominantly
    deliver newbuild “ready to go” planes.

    • Uwe December 1, 2011 Reply

      Apropos: We could see one reason for Airbus having a warchest filled with liquidity.

  4. TC December 2, 2011 Reply

    Looks like a good contest between the Trent XWB 97K with its triple spool and many refinements versus what GE with the option of a larger fan their 100K double spool engine.

  5. V V December 2, 2011 Reply

    Uwe said, “1100 is the number for the “accounting block” and not “project break even”.
    project break even will be far beyond that number. 1700? even more?”

    Well, you can consider the A350 to have roughly the same break even number, whatever the 787′s number is. They took the same level of technological risk and also the same financial risk. That’s the interesting point we need to consider. Similar risks, similar cost, similar development cycle, thus similar break even point. This is true if the A350 is not delayed further. If the A350 is delayed further then there is a possibility that the break even of the A350 will be even bigger especially when you must consider the cost structure (labor and social charges) in Europe.

    • Uwe December 2, 2011 Reply

      Quite the Jesuit in your arguing.

      Not the developement time as such but remedial work against the fubar production situation
      has inflated Boeings cost position beyond all bounds. .. and an initial product calculation that
      just was “not of this world”. Afair Airbus booked 200m ( €/$? whatever) for the announced delay.
      That is in my estimation less than Boeing currently sinks into each Dreamliner just for the transformational work
      required after join.

  6. V V December 3, 2011 Reply

    UWE,

    Boeing knows how much they spent for the 787. Probably they also know how much they will spend for the 787 in the future. Fortunately they will also know how much they are going to make money out of it.

    The only thing I can know is its quarterly earnings. So far, it seems that they have been making positive operating margins.

    The time between launch and the targeted EIS of the A350-900XWB is now already longer than the time between launch and the actual EIS.
    I believe the total salary of those engineers and designer is proportional to the time spent on the program. There is no way the development cost of the A350XWB can be smaller than the development cost of the 787.

    If ever further delays are announced, the case can be even worse.

    • Uwe December 3, 2011 Reply

      “Fortunately they will also know how much they are going to make money out of it.”

      Quite entertaining statement, that.

      IMHO they haven’t the faintest what will happen in.
      Every recent Boeing announcement has fallen too short and flat on its face at that.

      BUT they have the instruments at hand to make it look good in a potemkin way.
      The only problem I see is that the store of overvalued things is expanded on every occasion.
      This thus will go like any bubble : with a bang and some unpleasant smatterings on bystander faces.

  7. V V December 4, 2011 Reply

    UWE,

    Boeing’s quarterly reports have not been catastrophic so far. I have hard time guessing where you have the idea that the 787 is pulling Boeing’s profits.

    Whatever the situation is with the 787, the A350XWB is not going to do better. The first thing to note is the fact that the A350XWB targeted development cycle (from launch to the targeted EIS) is already much longer than the actual 787 development cycle. The second point is that the A350XWB will have to sell with a competitor which is already in service, meaning that the pricing power is not so significant.

    The A350XWB bubble is exactly the same as the 787 bubble. Whichever bubble you see popping it would hurt the owner of the bubble.

    Uwe, I really do not understand your rationale.

    For me, the situation is quite clear. One has just gotten out of the bad dream, the other has just started the nightmare.

    • Uwe December 7, 2011 Reply

      I see that you are working for your money ;-)

      quarterly reports:
      with ~$20B booked in inventory those may look good.
      Only problem is that significant parts of the “inventory” value
      contracts to zero on delivery. i.e. frames booked for all their worth
      in extra work done ($2..400m per ) will create a measly average of $75m
      when delivered. With that kind of bookkeeping quarterly reports are no problem at all.

  8. TC December 7, 2011 Reply

    What is the additional cost of the 787-9 program? It looks like they went with the same wing as the -8 to save some money. What is the added cost for the A350-800 and A350-1000 program? The -1000 has a modified wing, triple axle gear. Is the engine a more expensive modification than for the 787-9? Let me guess at the numbers, -9 – 1billion, -800 – 1 billion, -1000 – 2 billion. Got to put numbers on the derivative programs, whatever they are.

  9. V V December 8, 2011 Reply

    UWE,

    Inventory will be transformed into income. In reality, I am amazed that with so many inventories Boeing Commercial Airplanes still have a good free cash flow and operating margins.

    For sure, I will follow Boeing quarterly reports every single quarter from now on. It will be quite interesting.

  10. djax December 9, 2011 Reply

    What does this analysis imply about developing a 777-7X (?) variant to replace the 777-200ER? If the proposed Boeing “X” line of upgrades to the 777-200LR & 777-300ER (i.e. 777-8X & 777-9X respectively) can keep those aircraft competitive with planned 350-XWB offerings why can’t the 777-200ER be upgraded as well?

    If a 777-7X is built, would the articles conclusion, “That the case for the 350-900 is sound” change?

  11. V V December 11, 2011 Reply

    DJAX,

    Don’t you think that the hypothetical 787-10 is part of the A350-900XWB’s issues? Although the still hypothetical 787-10 has not A350-900XWB’s range, the economics of the first is simply unbeatable for routes up to slightly above 6,000 nm.

    • Author
      Vinay Bhaskara December 12, 2011 Reply

      I feel like Boeing is targeting as much the A330-300 with the 787-10 as the A350-900XWB: as you mentioned; very good economics and similar payload/range

      I don’t think Boeing necessarily needs a 777-7X to compete; it’s a lot of extra cash for an extra 10-15% market share in that segment; they have 787-9 and 777-8X as bookends to the 777-200ER/350-900XWB market: they can skim a little off the top and bottom, while still developing their own markets for those two aircraft.

  12. V V December 12, 2011 Reply

    I do not think Boeing needs to target the A330-300. It is an aircraft which will be 20 years old in 2014. A product starts and it has an end. The A330 is no different. Boeing does not need to target the A330, it is already in the course to its honorable death with the help of the AS350-800XWB, A350-900XWB and the 787-9 plus the hypothetical 787-10.

    The same applies to the 777-300ER. One day or another it has to be replaced. Not because the A350-1000XWB “kills” it, but simply it becomes an old product in 2020. I discussed about this in my blog entry here: http://wp.me/piMZI-H2 and the follow-up here: http://wp.me/piMZI-Iz

    The A350XWB’s life won’t be easy. Its business case was very sound without the delays. Today, I can’t say that its business case is still sound. The hurdles ahead are not necessarily technical or industrial. It is about the market and the fierce competition.

    It is simply incredible how Airbus has given Boeing all the chance to dominate the widebody-long-haul segment during the next fifteen years. Was it intentional or was it a bad judgment of the situation? I do not know.

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