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ANALYSIS: Delta Posts Second Quarter Profit of $801 million

By Vinay Bhaskara  / Published July 23, 2014

Delta 767 SEA JDL-1Delta Air Lines reported a second quarter profit of $801 million, or $0.94 cents per diluted share, up 16.9% year-over-year (YOY) from $685 million in the second quarter of 2013. The superb financial performance was driven by strong mainline growth in the domestic and Trans-Atlantic operating regions, as well as reduced fuel costs thanks to the substitution of more fuel efficient mainline Boeing 717s for regional jets (fuel efficiency per available seat mile [ASM] increased 1.2%) and lower fuel prices.

Operating revenues leapt up 9.4% YOY to $10.62 billion, led by consolidated passenger revenues, which rose 9.1% YOY to $9.2 billion on a 3.8% YOY increase in yields to 17.37 cents. The improvements in yields helped drive a 5.4% YOY increase in passenger revenue per available seat-mile (PRASM), once again positioning Delta amongst industry leaders in PRASM growth after two to three quarters of (relative pullback). Delta delivered the impressive figures despite a 3.2% YOY increase in ASMS, though traffic as measured in revenue passenger miles (RPMs) increased 5.0% YOY.

The 3.2% increase in capacity represents an interesting up-shift in capacity growth on the part of Delta after years of impassioned rhetoric on the virtues of aggressive capacity discipline. Part of the increase certainly arises from fleet effects. As Chief Financial Officer Paul Jacobson noted on the carrier’s quarterly earnings call, Delta’s domestic capacity grew 3% despite 4% fewer departures, largely because of Delta’s introduction of the 717. However, because the capacity increase occurs due to up-gauges, the operating cost per seat is better and trip costs (based on a reduction in frequencies) are similar, which means that the capacity increases are margin-expansive.

Delta 767 CDG-SEA-2Broken down by segment, mainline domestic passenger revenues rose 15.7% YOY to $4.49 billion on a 10.2% increase in unit revenues and a 7.4% YOY increase in yields. Latin America revenues jumped 22.6% to $604 million on a massive YOY capacity expansion of 23.5%. The capacity growth did put pressure on fares, driving a minor 0.7% reduction in unit revenues on a 0.4% drop in yields. Trans-Atlantic flying recovered after several quarters of revenue and unit revenue declining, with revenue rising 5.5% YOY to $1.66 billion on a corresponding 7.2% increase in unit revenue and a 5.6% rise in yields. Pacific flying continues to struggle thanks to increases in competitive capacity and the general slowdown of economies in the region, with revenues falling 2.6% YOY to $819 million on a 3.2% reduction in unit revenues and a 1.9% drop in yields. Regional domestic revenues fell 0.8% to $1.68 billion, though yields still edged up 0.2% over 2013. Cargo revenues fell 1% YOY to $230 million.

After several quarters of successive devaluation, the value of the Japanese yen has stabilized after several quarters thanks to a shift in focus to fiscal matters in the economic plan of Japanese premier Shinzo Abe. Delta is the US carrier most exposed to fluctuations in the yen on an absolute basis thanks to its hub at Tokyo Narita, and despite the stabilization, net of hedges, the currency effect still cost Delta $10 million.

Asian operations as a whole are likely to struggle financially thanks to the steady spool up of operations in Seattle. However, despite a 30% increase in capacity, international unit revenues ticked upwards by 2% and domestic unit revenues grew 6% YOY on a 25% increase in capacity. As with any YOY comparisons, the basis of comparison is important, and for the moment, Seattle (by Delta standards) remains a low-revenue hub. Conversely, high fare hubs at New York and Atlanta continued to drive profitability, with double digit unit revenue increases in both markets, buoyed particularly by trans-continental operations in New York.

Delta’s equity investments, a small-scale facsimile of Etihad’s famed “equity alliance,” also paid dividends with Heathrow revenue rising 24% and unit revenues growing 5% thanks to the partnership with Virgin Atlantic. In Latin America, partnerships with Gol and Aeromexico deliver feed equivalent to one fourth of Delta’s traffic on routes to Brazil and Mexico respectively, and helped drive $36 million in incremental revenues in the quarter. Venezuela offsets some of the improvement in Latin America, with $190 million in trapped revenues and a RASM hit of 3-4 percentage points in coming quarters.

 Image Credit: Lonnie Craven / Miami-Dade Aviation Department


Image Credit: Lonnie Craven / Miami-Dade Aviation Department

Operating expenses rose just 2.8% in the second quarter to $9.04 billion. Rising labor costs (up 6% YOY to $2.04 billion) were offset by a 6.2% decrease in fuel costs to $2.43 billion (down from$2.59 billion in Q2 2013), which reflected a 3% drop in fuel prices per gallon to $2.93. Overall cost-line performance was mixed; maintenance and landing fee expenses declined while depreciation and sales expenses increased. Profit sharing expenses skyrocketed 188.1% YOY to $340 million. Consequently, consolidated operating costs per ASM (CASM) fell less than 0.1% YOY to 14.63 cents, while CASM excluding fuel remained flat YOY.

After several quarters of operational losses (even as it remained margin positive thanks to the reduction in crack spread), Delta’s controversial Trainer refinery recorded an operating profit of $13 million and is projected to break-even in the third quarter. And Delta CEO Richard Anderson noted on the earnings call that Delta continues to make incremental improvements on an operating basis with changes in oil supply.

“The important thing for our strategy is to continue to lower the overall input costs for the plant through domestic crudes,” stated Mr. Anderson, “[Thus]… we can help to create that cushion in a low distillate crack environment where we can make a little bit money at the refinery while also enjoying the full benefits lower crack spreads at the airline.”

Third quarter operating margin came in at a sizzling 14.9% on a near doubling of operating profit to $1.58 billion. And third quarter operating margin (leveraging Delta’s strength in the Atlantic) is expected to jump even higher to 15-17%. Free cash flow came in at $1.54 billion, cementing Delta’s market leadership in the metric thanks to a conservative capital allocation strategy and a deferred tax asset.

Once again, Delta has delivered market-leading financial results. Moreover, Delta is in a unique position that allows it to maintain that level of financial performance. Its hubs in New York, Los Angeles, and Seattle are all in a nascent developmental stage, which means that a clear pathway to PRASM and profit growth exists.

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Contact the author at Vinay.Bhaskara@Airchive.com
Jeremy Dwyer-Lindgren contributed to this report.

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Hawaiian Holdings Posts Second Quarter Results

By Vinay Bhaskara & Jeremy Dwyer-Lindgren / Published July 23, 2014

Photo courtesy jplphoto

Photo courtesy jplphoto

Hawaiian Holdings, parent company to Hawaiian Airlines, announced a second quarter net profit of $27.37 million, or $0.43 cents per diluted share on Tuesday. The results represent a 58% year-over-year (YOY) increase from Q2 2013’s $11.31 million dollar profit.

Operating revenues grew 7.8% over 2013 to $575 million. Passenger revenues rose 5.3% YOY to $506.8 million on a 5.7% YOY climb in yield to 14.94 cents; which drove a 4.1% YOY rise in passenger revenues per air seat mile (PRASM) to 11.90 cents. The remainder came from other operating revenues, which jumped 31.4% YOY to $68.92 million. Cargo revenues played a major role in the growth of non-passenger revenues, growing 24% YOY to $19 million.

Capacity as measured in available seat miles (ASMs) increased just 1.2% YOY, due to route cancellations across the Pacific and the back-loading of a domestic expansion into June. ASM growth for the second quarter will likely be a percentage point or two higher, but the broader trend remains.

Broken down by region, PRASM for routes to the mainland United States rose 4% YOY with said routes generating 50% of Hawaiian’s passenger revenue in the quarter (roughly $252 million) despite a four percentage point decrease in load factor. Hawaiian expects industry capacity in the third and fourth quarter to grow by 9%, and that adverse tailwind will likely affect PRASM figures downwards in the second half of the year. PRASM on inter-island routes, which Hawaiian predictably refers to as “Neighbor Island routes,” grew 8.3% YOY, though this figure was skewed upwards by the Ohana turboprop operation. Inter-island operations represented 24% of Hawaiian’s passenger revenue ($122 million), with international operations making up the remaining 26% ($132 million).

RELATED: Hawaiian Posts First Quarter 2014 Loss

International operations continued to weigh down Hawaiian’s revenue numbers, with PRASM falling 1.6% YOY. However, as Hawaiian CEO Mark Dunkerley noted in the carrier’s quarterly results conference call, the “results continue a trend of sequential improvements driven in part by lapping of the period last year where the strengthening U.S. dollar undermined the value of our foreign currency sales.” In particular, the value of the Japanese yen has stabilized as Premier Shinzo Abe moves into a phase of his Abenomics reform plan not centered around massive monetary stimulus.

After several consecutive quarters worth of growth into the Pacific, Hawaiian has retrenched by canceling services to Fukuoka, Manila, Taipei, and Tokyo Narita, as well as reducing frequencies to several other destinations. These aircraft have been redeployed to stronger markets like South Korea and in particular the West Coast of the United States, with 35 new frequencies added in the second quarter, including 28 to Kona, Maui, and Lihu’e.

After years of becoming increasingly superseded by Alaska Airlines on services to secondary Hawaiian airports, Hawaiian has begun to fight back in the market segment, in particular adding services from Los Angeles and Oakland to Kona and Lihu’e in June. Commensurately, overall PRASM growth performance, at 4.1% was strongly improved, though that figure was certainly skewed by the launch of Ohana by Hawaiian, which operates on routes that are so short that PRASM over $0.50 is not uncommon.

Operating expenses conversely, rose 5.6% YOY to $524.2 million. Fuel cost increased modestly, rising 2.9% on a 2.3% increase in per-gallon prices and the aforementioned 1.2% rise in ASMs. While fuel costs are not low per-se, they have been exceedingly stable over the past year-and-a-half by the standards of the market. This is an enormous boon to airlines, even if it’s not as visible on financial statements, because it allows them to make decisions with relatively precise information (frequently leading to crisper and more decisive action).

RELATED: Hawaiian Posts 2013 Profit

Labor expenses, rose sharply, jumping 8.8% YOY to $112.5 million in the quarter, while maintenance expenses rose 10.1% to $58.4 million. Landing fees and non-aircraft rental expenses grew 10.3% YOY to $21.7 million, while depreciation and amortization expenses rose to $23.8 million. The various cost-line increases drove up the carrier’s cost per ASM (CASM) to 12.30 cents, a 4.4% increase YOY. Excluding fuel, CASM rose roughly in line with expenses overall; 5.8% to 8.21 cents.

The airline ended the quarter with $564 million in cash and short term investments, as well as available borrowing capacity of $69.4 million under a Revolving Credit Facility. Outstanding debt and capital lease obligations totaled $1.07 billion. As compared to the end of the first quarter of 2014, Hawaiian’s cash position at the end of the second quarter was $85 million higher, while debt and capital lease obligations were $131 million higher, tied to secured loan agreements to help finance the purchase of two further Airbus A330-200 aircraft.

Capital expenditures for the quarter totaled $165 million, but after delivery of the remainder of Hawaiian’s A330-200 order over the next year, that number should decline sharply. This will allow a recovery in Hawaiian’s mediocre free cash flow numbers.

On an operating basis, Hawaiian recorded an operating profit of $51.6 million, which translates to a 9.0% operating margin, up from 7.0% a year prior. Pre-tax return on invested capital (ROIC) totaled 13.5%, while post-tax ROIC came in at 8.1%. Despite middling net profit figures, Hawaiian tends to deliver above average ROIC performance, likely because the compensation of Mr. Dunkerley and other executives is tied to that metric.

RELATED: Hawaiian Air Cancels A350-800, Coverts to A330-800neo; Analysis

Hawaiian’s revenue performance was promising and the profit improvement was driven largely by that element of its operations. Expenses rose in the quarter, but a large element of that was increased investment and headcount due to the Ohana operation. As Ohana spools up, revenue figures should get an added boost. A slowdown in growth (even the uptake of the A330-800neo and A321neo are only expected to drive “single-digit” capacity increases annually) will allow Hawaiian to crystallize Pacific operations and solidify dominance over inter-island service.

More importantly, the carrier is entering a new strategic phase, one that doesn’t completely eradicate the growth ethos we outlined in our analysis of the carrier’s first quarter results but more accurately, tones it down. “What we are recognizing is that we’re going into a new period,” opined Mr. Dunkerley on the call, noting that Hawaiian is entering, “a period that feels very different from the period that we’re [Hawaiian are] exiting this year.”

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Contact the author at Vinay.Bhaskara@Airchive.com

 

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Carriers Avoid Tel Aviv Airport After Reports of Rocket Activity

By Luis Linares / Published July 22, 2014

Photo  Nicolás Lope de Barrios - Creative CommonsCarriers around the world have been suspending or diverting service to Tel Aviv’s Ben Gurion International Airport on Tuesday following a Gaza-based rocket launch that landed within a mile of the busy airfield.

Delta Airlines announced it would suspend its flights indefinitely from New York’s JFK International Airport first, following a diversion of company flight 468 to Paris. The pilots of the Boeing 747-400 made the decision following reports of rocket activity in the area. United Airlines, which flies 777-200 service from Newark, and US Airways, which flies A330-200 service from Philadelphia, soon followed suit, though each plan to resume flights on Wednesday.

Not that either would have much choice for much longer. One hour after Delta’s decision, the Federal Aviation Administration (FAA) prohibited all U.S. airlines from flying to Tel Aviv for 24 hours, effective 12:15 P.M. Eastern Time today.

Since then the area, according to flightradar24.com, several foreign carriers have diverted their flights bound for Israel after the FAA’s directive. The European Aviation Safety Agency (EASA) has since urged European carriers not to fly to Tel Aviv.

Before the EASA’s warning, Lufthansa and its subsidiaries cancelled all flights to Ben Gurion for 36 hours, while British Airways and Air France-KLM said they would cancel their flights until further notice. The EASA plans to issue a bulletin on Wednesday that will “strongly recommend” airlines avoid Ben Gurion Airport.

Israel’s Transportation Ministry is asking carriers to reconsider their decision, claiming the airport is safe for take-offs and landings. In a statement, the ministry said that the airport is “safe and completely guarded and there is no reason whatsoever that companies would stop their flights and hand terror a prize.”

The FAA says it will continue to monitor the situation and provide an update to U.S. carriers before the 24-hour ban expires.

Fighting between Israel and Palestinian militants began on July 8. Palestinian militant organization Hamas has launched over 2,000 rockets since hostilities began. Israel relies on the “Iron Dome” missile intercept system to protect itself from these attacks.  Ben Gurion Airport is located 50 miles from Gaza.

The incident comes at a sensitive time for the worldwide aviation community. Only days ago a Malaysian Airlines Boeing 777-200ER was shot down in Ukrainian airspace, killing all 298 souls on board.

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Contact the author at luis_f_linares@hotmail.com.
Photo by  Nicolás Lope de Barrios – Creative Commons

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Hawaiian Air Cancels A350-800, Converts to A330-800neo; Analysis

By Jeremy Dwyer-Lindgren & Vinay Bhaskara / Published July 22, 2014

HAWAIIAN AIRLINES LOGOHawaiian Airlines will acquire six A330-800neo jets in a memorandum of understanding announced on Tuesday. The jets will replace the carrier’s current order for six A350-800 XWB aircraft.

The deal sets Hawaiian as the launch customer for the -800neo, and includes options for up to six additional airplanes. If all options are exercised the deal is worth $2.9 billion at list prices ($242mil per -800). The jets will begin delivery in 2019.

“The A330-800neo’s fuel efficiency, additional range and commonality with our existing A330 fleet makes the A330-800neo an elegant solution to our need for growth aircraft toward the end of this decade,” said Mark Dunkerley, Hawaiian Airlines president and chief executive officer in a prepared statement.

The airline already operates a fleet of eighteen A330-200s, which will retain commonality with the coming neos.

Hawaiian’s deal is yet another nail in a coffin already sealed tight for Airbus’ A350-800. Hawaiian had been one of only a handful of carrier’s holding out for the jet, which has become increasing unpopular with carriers. It was widely expected that the airline would flip to the A330neo after the jet was announced last week at the Farnborough air show. Today’s announcement reduces the A350′s commitments to a mere 28.

While several customers for the A350-800 do remain, it is widely expected that they will either convert orders to the A330neo or up-gauge to the A350-900. Hawaiian was the one carrier that, at least publicly, was almost intractable in maintaining that it would take delivery of the A350-800 as ordered. While some viewed this position as an obstacle to Airbus killing off the expensive and (relatively) inefficient A350-800, it is now clear that the statements made by CEO Mark Dunkerly and other Hawaiian executives were mainly aimed at creating leverage to win a better deal for the A330neo from Airbus.

The substitution of the A330-800neo for the A350-800 is also a tacit admission on the part of Hawaiian that its strategy of aggressive expansion into markets around the Pacific has limitations. The airline has aggressively expanded into markets like Brisbane, Fukuoka, and Taipei over the past 3-4 years, and while some of these markets have been successful, they have also generated steady downwards pressure on Hawaiian’s revenue figures because they are low yield. Hawaiian has already begun to retrench to its core strength of flights between the US mainland and Hawaii, and some of the pressures on its passenger revenue growth have begun to recede. Thus the A350-800, which was billed as an avenue to long haul growth for Hawaiian, has become almost secondary to the airline’s more muted strategic outlook.

Indeed amongst the 20 largest Asian destinations by origin and destination (O&D) from Hawaii, only Singapore and Bangkok (as well as the pipe dream of European service to London) are beyond the capabilities of the A330-800neo. And as an added bonus, Hong Kong, which cannot be effectively served by the A330-200, lies well within the A330-800neo’s capabilities, thanks to a 400-nautical mile increase in range.

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Contact the authors at Jeremy.Lindgren@Airchive.com and Vinay.Bhaskara@Airchive.com

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Farnborough 2014 Takeaways and Order Tally

By Jeremy Dwyer-Lindgren & Vinay Bhaskara / Published July 21, 2014*

With the 2014 Farnborough air show now formally wrapped up, our team talks takeaways and the final order tally in our show wrap-up.

ALC Chairman and CEO Steven F. Udvar-Házy speaks at the A330neo launch at Farnborough.

ALC Chairman and CEO Steven F. Udvar-Házy speaks at the A330neo launch at Farnborough.

Lessors dominate headlines: The majority of the order-action from this show came not from airlines, but from leasing companies. Indeed, the likes of AerCap, ALC, Avolon, BOC, CIT Aviation, and SMBC were busy throughout the week. In particular ALC, Avolon, and CIT Aviation bought from the big two, including competing products.

As to why lessors assumed most of the action, two related reasons. First, all of the present generation of in-demand aircraft (737 MAX, A320neo, A330neo, A350, 787, 777X) are all sold out at least until 2019, and in many cases past 2021. There’s no need for an airline with replacement (or growth) needs to commit capital to aircraft purchases that far out when it could be de-leveraging, or investing in other product factors as well. We still expect lots of fleet replacement action in North America, Europe, and particularly China but not quite yet. Second, at any given moment in the airline industry, there exists a balance of power between leasing and buying aircraft. Buying aircraft tends to be more attractive (from a cost perspective), when the cost of capital is low and access to capital is high. Leasing in other conditions. Given the slowdown in economic growth in many emerging markets and tightening access to capital, the balance of power is shifting towards lessors.

RELATED: Find all of our Farnborough 2014 content and stories here!

Bombardier Commercial Airplanes president Mike Arcamone certainly had reason to toast the show.

Bombardier Commercial Airplanes president Mike Arcamone certainly had reason to toast the show.

Bombardier surprises: The French-Canadian manufacturer surprised with 76 total orders and purchase commitments for the show, far outdoing its normally lackluster showings at such events. The majority, 71, came from the company’s Cseries jet, which has recently been battling its share of demons in flight testing. The orders, though none of them firm, bolster support for the airplane and mutes critics that have been too quick to write the project off.

Of particular note, aside from the surprisingly high number, were the orders from China. Bombardier has been working on building inroads to China for some time now, and it appears to be paying off a bit. That, plus the company has been providing support to COMAC for its projects, leading to rumors that the two could wind up in a more substantial tie-up down the road.

Still, that places it in fifth for order count, behind competitors ATR and Embraer (plus Airbus and Boeing). Plus the Q400 turboprop didn’t do so hot, only tallying up eight orders despite the company now having three distinct varieties of the turboprop (regular, high density, cargo combi). It’s CRJ-900, which the company says provides a better value proposition against the re-engined Embraer E-Jet E2s, failed to book any orders, though an undisclosed order for 24 CRJ-900s was revealed before the show (full disclosure, Bombardier flew the two-strong Airchive Farnborough team to and from the show on the jet).

Still not enough: Orders for the A330ceo and 777 classic are likely to make Airbus and Boeing, respectively, rather happy. But while encouraging, the orders don’t bring either program anywhere close to closing expected production gaps between the current and coming generation types. Boeing’s 777 classic orders, for example, don’t even amount to two months worth of work. It needs to fill about three years. Lots of work still to go here. Despite a good show, locking in 130 commitments and options, Embraer is in a similar position between the E-Jet and the new E2, facing a one-year gap.

That being said, we are confident that all three manufacturers will manage to fill their respective production gaps. Ultimately, selling an aircraft with higher operating costs is all about lowering capital costs (as Delta so vividly illustrates). For the case of Boeing and Airbus, since the 777 and A330 production lines are fully amortized at this point, each manufacturer can literally sell the aircraft at marginal cost. Even up against fuel efficient 787s and A350s, 60%+ discounts on current generation widebodies is a steal.

Bye-bye A350-800: No real surprise, but the formal launch of the A330neo will eventually kill off the A350-800. No one said it exactly, but it’s going to happen. On the other end, the company strongly hinted at the A350-1100 becoming a reality down the road. Related, the A380neo, which Emirates has been badly pining for, is still on the table too.

FARN1300D4-26VLA Market nears absolute zero: Both Airbus and Boeing have struggled to sell the A380 and 747-8 respectively over the past 18 months. Neither aircraft won an order at the show and Boeing’s 747-8 appears destined to fade into the sunset once an Air Force One replacement order is completed. The A380 lives on for now, though serious orders are unlikely to come without a re-engining (the 777X has the A380 beat on operating costs including capital). But re-engining would be a tough pill to swallow for Airbus, who have already invested billions into a program that won less than 330 orders.

Order tally (includes options and converts to firm):

Airbus, 495:
A330-900neo: 121
A330ceo: 8
A350-900: 4
A321neo: 90
A320neo: 227
A321ceo: 5
A320 family (unassigned): 43

ATR, 130:
ATR 42/72 600: 130

Boeing, 251:
777-9X: 100
777-300ER: 12
777F: 4
787-9: 18
737 MAX: 111
737: 6

Bombardier, 79:
Cseries: 71
Q400: 8

COMAC, 5:
ARJ 21: 5

Embraer, 158:
E175 E2: 100
E195 E2: 50
E190: 2
E175: 6

Mitsubishi, 50:
MRJ90: 50

Sukhoi, 15:
SSJ100: 15

Viking Air, 2:
Twin Otter: 2

Show Total: 1,185

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Contact the author at Jeremy.Lindgren@Airchive.com
Photos by Jeremy Dwyer-Lindgren / Airchive
*Reposted on July 22nd, 2014.

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Airbus A350 Program Head Talks Program Maturity, Stretch A350-1100

By Vinay Bhaskara / Published July 16, 2014

Mr Evrard / JDL LONDON, UK: We recently sat down with Airbus A350 program head Didier Evrard at the Farnborough airshow, talking about everything from the program’s maturity to a possible stretch -1100.

Airchive: With the news that you announced today, of course you know that my first question has to be surrounding the A350-800 so given some of the details surrounding the launch of the 330 neo, and the fact that it appears to have some overlap with the A35-800, why launch two programs that cover the same space?

Didier Evrard: The 330 neo is just launched today, [and] it’s a perfect follow up of the 330 for original applications. The A350 has a different positioning which is long range. The A350 family is a complete family. The priorities of the group are the [A350]-900 and the [A350]-1000 because this is where the market’s priority are. The A330 has its own positioning. If you go back to 2006, the [A]330 was going to be stopped in 2011 [or] 2012. This doesn’t appear to be the case. Continuing to improve this very successful product, it’s just a natural thing, and meanwhile we will continue developing the A350 family. The A350-900 and A350-1000 are our priorities, [but] the A350-800 is still part of the family. So I can’t see any problem or any overlap that is today detrimental to the 350 at all.

Airchive: Would you say that the A350 800’s economics are optimized at longer ranges versus the A330 neo and its medium haul mission?

Didier Evrard: Yes absolutely… This is absolutely the case. The 330 neo is the perfect aircraft for the kind of 5000 nautical mile missions, regional, long regional missions. It is absolutely the right thing to do.

Airchive: Since the Boeing 777X launched last year at Dubai, you know the aircraft has reached an order book that’s roughly twice the size of that of the A350-1000 and in that time and the A350 1000 has won no new orders and lost 20 orders recently from Emirates. So can the A350-1000 compete with the 777-9x on operating costs?

Didier Evrard: The A350-1000 is a derivative of the [A350]-900. It uses [the] all new technologies of the A350 family and it develops further. This technology [improvement] from the A350-900 experience into the A350-1000, this is proof of the airframe, this is proof of the engine and [that] it will reach its economics from [a] C.O.C basis. This is absolutely clear. The 777X is another type of product, which is growing the number of seats, which is a different avenue. We are really concentrating on [staying] within the same very efficient airframe and engine family. We are concentrating on growing the economics on fuel and trip cost, which yields a low risk aircraft.

First it’s [the A350-1000’s] the best technology. Second, it’s built already. Third it enters into service a lot sooner and has no risk. Today we are absolutely on track on the A350-1000 development for entering service in 2017. It’s a very low-risk program, although it is based on brand new technology. So, I think this is absolutely clear that we have the right product and we will obviously continue to improve the family.

Airchive: Does the body of A350-900/1000 offer the potential to stretch? There’s a lot of talk in the market of an A350-1100, which would offer perhaps even better economics than the 777-9X. Is that possible?

Didier Evrard: Yes it is possible. We have already considered stretching the A350-1000 further. Of course, we have to look at what the priorities are. Today our priorities are with the airframe that we’ve defined and frozen design for. Today we are launching the pre-industrial phase. We want to take the best out of it [the A350-1000], which is, of the biggest possible density of seats internally, while keeping the baseline comfort of eighteen inches [seat width]. But we have heard a lot of ideas to putting in additional seats [to the A350-1000] which will further improve [the economics].  That’s the first priority. We will continue to improve the engine and the airframe, that’s second priority. And then later on, we will see if it is appropriate to further stretch the fuselage. And there is the potential for that for sure. There is a growth potential which is built in the design today not limited to the current design set that we have.

Airchive:  Outside of a couple of snags, one to two minor delays, the A350 program has run very smoothly. You’ve met many of the targets you set, development has run quite smoothly, your troubleshooting policy and practices have been very proactive. How would you say you’ve incorporated lessons learned from previous new-build wide buddy programs this decade like the A380 and 787 to enable the A350 program to develop at such a smooth, clean, and rapid pace?

Didier Evrard: Yes, we have learned a lot from the previous programs, particularly from the A380. We’ve defined a very clear process for improvement, which was about program management, customization, which was about stability of the design, focusing on maturity, meeting maturity gates in a straight manner. And sometimes, we had to take hits at the early stage of the program to protect the back end of the program. And it’s clear that since two years, we have had a very stable plan for development, but this did not come just by chance. It came because we had really adhered to these principles. For instance we had a new block of design tools, [and] we had invested massively in these design tools that we shared with our worldwide suppliers. We developed new customization policies and we have built our [development] principles on a very rich platform, which reduces a number of issues that we have to deal with. And this platform is able to accommodate a large variety of layouts for our customers without changing its foundations. So this enables us today to be rather confident at the start of the production… and at the start of the customization… [It’s] not just the number of aircraft, which is great, but also the number of different customers that we are addressing. Plus we have our customer definition center in Hamburg, which helps a lot from that point of view. So it’s about lessons learned, it’s about maturity, not cutting corners, and trying to provide strategy. But it’s also a lot of work – we’ve had a very stable team from the very beginning of the program and a strong management as well as our regime of partners.

Airchive: So as the A350-900 approaches entry into service, what kind of steps have you taken with launch customer Qatar Airways to ensure that the dispatch reliability of the A350-900 will come in at a strong level from the beginning? Because your competitor, with their most program launch, had some difficulties with that. So what sort of steps have you taken to ease that process?

Didier Evrard: So again, we’ve put a lot of focus on aircraft maturity and program maturity. But what we’ve added on top is what I would call a maturity accelerator, which is our “Airline 1” concept. What is “Airline 1”? “Airline 1” is a concept by which our flight test fleet functions as an operator almost. So we have installed with the flight test team, a team which really handles the operations, upgrades the aircraft, maintains the aircraft, and on that tests the aircraft. When necessary, they find fixes – like if they were an operator. And by doing that, we accelerate the last part of the maturity curve, which should normally lead us to a good level of reliability at the time of entry into service. Since the beginning we have always had, almost at the beginning, we have airlines inserted in our teams to help us discussing in the priorities. [We had] 5 to 6 airlines working with us. And now the next element is for Qatar Airways themselves. We have been preparing hand to hand with them, from training to service. They can get all the support that is going to be needed at the start of operations, that we anticipate based on what we know. We want as few weaknesses at the beginning of operations [as possible], so we anticipate the challenges and provide this additional support to avoid impacting the operations.

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Contact the author at Vinay.Bhaskara@Airchive.com
Jeremy Dwyer-Lindgren contributed to this report.

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US Airways Express (Republic) Jet Veers Into Grass at MCI Airport

By Jack Harty / Published July 16, 2014

KANSAS CITY, Mo. - Early this morning, a Republic Airways Embraer E170 in US Airways Express colors veered into the grass at Kansas City International Airport. There were no passengers on-board the aircraft as it was performing a taxi test.

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Photo courtesy of KMBC

The aircraft did cause a US Airways flight to Washington Reagan to cancel as the aircraft was scheduled to operate the flight later in the day.

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Contact the author at Jack.Harty@airchive.com.

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Farnborough Today: Wednesday July 16

By Jeremy Dwyer-Lindgren / Published July 16, 2014

FARN Wed-26LONDON, UK: The business end of the 2014 Farnborough airshow has largely wrapped up by the end of Wednesday.

The first half of the day remained quite busy, especially with Boeing’s blockbuster order for up to 100 777Xs. But after that it wound down awfully fast, with the show grounds almost half empty by the time the last flying display – Boeing’s 787-9 – landed around 4:45pm local time.

We’re pretty sure today is the end of the action for most of the orders, with the exception of Airbus. We think there’s a good chance the manufacturer will go out with a bang tomorrow morning and announce another A330neo order. We could be wrong, but we think there’s a good chance.

On the whole this was Airbus’ show, something we doubt will change in the remaining two days The airframer launched the A330neo and booked a total of up to 398 commitments so far. Boeing trailed in second place with 253, though the two’s totals in terms of valuation are likely much closer than orders totals would make it seem.

This concludes our on-location coverage, though we’ll be flying back home with Bombardier on its CRJ900, so make sure to stay tuned for more photos. Also, while we’re leaving, we’re certainly not done with show coverage. Look for more stories through the rest of this week and into early next week.

We hope you enjoyed, and thanks for reading!

Farnborough Today in Photos:


Airbus, 4:
4 A350-900, Air Mauritius / MOU

ATR, up to 12:

6+6 ATR 72-600, Myanma Airways / firm + options

Boeing, up to 160:
50+50 777-9X, Qatar Airways / firmed + purchase commitments
4+4 777F, Qatar Airways / firm + options
50 737 MAX 8, Hainan / MOU
2 787-9, MG Aviation / firm
2 737-700C, Air Algerie / firm

Bombardier, up to 20:
2 Q400NG, Nok Air / firm
5 Cseries, UFO / commitments
7+6 Cseries UFO / firm + options

No other orders.

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Contact the author at Jeremy.Lindgren@Airchive.com
Photos by author

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Air Algerie Set as Airline Launch Customer for Boeing 737-700C

By Airchive.com Staff / Published July 16, 2014

air-algerie-737-800-and-700c-courtesy-boeingFARNBOROUGH, UK: Air Algerie agreed to buy two Boeing 737-700 Convertibles on Wednesday in Farnborough. The $152 million list price order positions the African carrier to be the airline launch customer for the unusual 737 sub-type.

“The 737-700C will provide our fleet with flexibility, and enhances our ability to carry cargo on important routes,” said Mohamed Salah Boultif, chief executive officer of Air Algerie.

The 737-700 convertible, or 737C for short, is a sub-type of the existing 737-700 aircraft that can easily alternate between passenger and cargo configurations. According to Boeing, the airplane features strengthened wings, a cargo-loading door on the main deck, and a built-in cargo handling system on the floor that enables the jet to carry 40,000 pounds of cargo.

Should the carrier need to utilize the passenger configuration, the airplane can seat up to 140.

The airline currently operates a fleet of 46 airplanes, including 22 Boeing 737 -600s and -800s. It also maintains three 767-300s.

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Contact the editor at Jeremy.Lindgren@Airchive.com
Graphic courtesy Boeing.

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Air Mauritius Orders Six A350, Talks Turnaround

By Jeremy Dwyer-Lindgren / Published July 16, 2014

FARN AirMaur-1FARNBOROUGH, UK: Air Mauritius will acquire six Airbus A350-900 aircraft in a bid to modernize its fleet.

The order is split between a memorandum of understanding with Airbus for four of the jets, while the other two will be leased from AerCap for twelve years. It will begin operating its leased aircraft in 2017, and will begin receiving its direct-order jets in 2019.

“It a very important [milestone] in the history of this airline,” said an emotional Air Mauritius Chairman Dass Thomas. Mr. Thomas would know. Having started as a ticket agent with the airline some years ago, Mr. Thomas rose through the ranks to oversee the airline in 2012. Perhaps unfortunately for Mr. Thomas that was the same year the airline was forced to revamp its business model after currency problems and rising oil prices nearly crippled it.

The subsequent two-year plan to keep the airline afloat appear to be working, according to company executives (second from left in photo). It posted an annual profit in the year-ending in March of $10.8 million US. It also boosted its SkyTrax passenger experience rating from three to four stars, a product of a fresh focus of the inflight experience.

But the carrier continues to face challenges going forward. Until the A350s enter its fleet several years from now it will continue to utilize its aging fleet of Airbus A340s. Pressure from Emirates, which sends two A380 super jumbos to the island nation per day, is also placing a pinch on the carrier.

Thus the carrier is also planning to replace its short-haul fleet, a process still in progress. Executives stated they were targeting a decision in the fourth quarter of 2014. Of the six Airbus A340s in its long-haul fleet, three will be returned to their lessor, while the other half will be sold off down the road.

Wednesday’s order is so far the only A350 order of the show. Airbus’ COO John Leahy brushed off concerns that demand was waning, stating that the “biggest problem for A350 is lack of production slots, not lack of demand.”
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Contact the author at Jeremy.Lindgren@Airchive.com
Photo by author, graphic courtesy Airbus.

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Bombardier Celebrates 500 Commitments for CSeries, Q400

By Jeremy Dwyer-Lindgren / Published July 16, 2014

FARN Bomb Arcamone-1FARNBOROUGH, UK: Bombardier celebrated two major milestones on Wednesday as both its CSeries and Q400 aircraft passed 500 commitments.

The milestones were passed with a series of small order announcements, delivered by Bombardier’s President of Commercial aircraft Mike Arcamone.

First up was an order for two Q400 Next-Gen turboprops from Thai low-cost carrier Nok Air. The two airplanes were converted from existing options the carrier purchased in November, 2013. Nok Air still has two remaining options, and six aircraft on order. The deal, worth $66 million US, pushes the commitments for the Q400 to 501. Bombardier sold one airplane, to Alaska Air Group, on Tuesday, taking the total to 499.

Second was a set of two CSeries orders totaling up to 18 commitments. Thirteen CS300 jets were purchased for $553 million at list prices from an undisclosed existing carrier, split between seven firm and six options. The remaining five were signed for by an undisclosed African carrier, the CSeries first from the continent. Bombardier did not specify whether the letter of intent included solely -100s, -300s, or a mix of both. The deal is worth $365 million at list prices. The deal put the current commitment level for the jet at 513 frames.

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Contact the author at Jeremy.Lindgren@Airchive.com
Photos by author.

 

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ALC Orders 7 ATR 72-600; Udvar-Hazy Encourages 90+Seat ATR

By Jeremy Dwyer-Lindgren / Published July 16, 2014

FARN Tues-7FARNBOROUGH, UK: Air Lease Corporation (ALC) signed an order for seven ATR 72-600 turboprops on Tuesday that was previously marked on the books as undisclosed. The order extends ALC’s current backlog with the French plane maker to 28 aircraft, keeping a trickle of top up orders going each year since 2010.

ALC chairman and CEO Steven Udvar-Házy said at the briefing that not all of the aircraft have been placed yet, though he said placement announcements would be soon forthcoming.

Whether those placements could include carriers in North America, a region in which ATR has struggled mightily to maintain market share, was unclear. Mr. Udvar-Házy said he saw opportunities for the aircraft to gain a foothold, particularly on shorter flights in the north and south-eastern regions, where ATR’s products perform well. He declined to comment on whether or not ALC was in talks with any such carriers, citing his position on the board of Skywest.

ATR executives acknowledge that North America, which once hosted a fairly large fleet, has turned into a weak spot. “Despite our efforts it’s a market that’s taken some time to come back for us,” admits ATR’s global head of sales John Moore with a heavy tone . ATR executives, Mr. Moore included, cite the 1980s “jet-mania” craze in the US, in which carriers ditched turboprops for regional jets (RJs), as a major factor. Pilot scope clauses, which have set capacity limits (generally 50 or lower) on regional jets in order to protect mainline passenger airline pilot jobs, have also been problematic, thanks to ATR’s fifty-plus-seat airplanes.

Yet those same Rjs that pushed ATR out of North America could provide the company with an opportunity to sneak back in. While the jet-craze had its fun, it’s a decision that carriers “are now paying the price” for, says Guillaume Gasparri, ATR’s Americas sales head. “They know that it’s nonsense to operate a jet of fifty seats on a 200-250 miles route.” So far, though the answer has been to ditch those aging and inefficient RJs for bigger, more efficient jets such as Embraer’s E-Jets or Bombardier’s CRJs. Thus Mr. Moore says it could take some time before carriers turn away from jets and back toward turboprops: “the first priority for [US carriers] is to get into the larger jets, and then to the extent that they can still have room within their scope clauses I think that they will also add turboprops to optimize and [place the planes] on the shorter routes and shorter segments.”

Mr. Moore also sees opportunities to position ATR products to take advantage of upgauging on both ends of his product line. On the lower end, Moore says the 50-seat ATR 42 provides an opportunity for carriers to replace the US’s aging fleet of 25-40 seat Saab 340s, CRJ100/200, and Bombardier Dash 8-200/300s. “The -42 is the only 50-seat aircraft in production, and it’s a pretty economical aircraft,” says Moore. “We’re not going to be able to replace all of them […] but certainly some portion of those markets I think are opportunities.”

Perhaps most intriguing is the idea of expanding the ATR product line beyond 90 seats, a possibility that has been rumored for some time but has yet to come to fruition. Such an airplane wcould give ATR a virtual lock on high capacity turboprops. It’s nearest competitor, Bombardier, has not decided to swing for an enlarged Q400 so far, though buzz abounds that a higher capacity Q400X-type project could be in the works. Even if Bombardier does go ahead with such a project, ATR’s products aren’t exactly in direct competition, with the Q400 operating longer routes than the ATR 42/72.

Mr. Udvar-Házy made it clear during the press conference that he saw an opportunity for ATR to exploit in a 90+ seat airplane: “Look at the price of oil and the efficiency of turboprops, there’s certainly a niche in the market that needs to be developed.” And Mr. Moore agrees, stating in an interview that “we believe there’s a market for the aircraft.” He adds that such a plane could be especially popular in North America, saying that “there’s a number of routes where I’m sure a larger capacity aircraft could be of interest to them.”

The matter is currently before the company’s shareholders, says Moore, which is where the rubber fails to meet the road. Airbus owns a 50% stake in ATR, and has not been shy in stating it does not wish to devote resources to its regional affiliate to chase down a project it doesn’t believe has true market potential. It also doesn’t help that ATR’s last clean sheet airplane came nearly thirty years ago. Consequently the firm would need to draw on the engineering resources of its own shareholder. And its fair to say those engineers are currently rather occupied with Airbus’ A350 and A320/330neo projects.

Mr. Moore says the company’s new CEO, Patrick de Castelbajac, “feels that we need to stabilize and secure our current business so we can convince [our shareholders] that we can develop a new program.” Mr. Moore said there was no timeframe on when a decision would be made. Mr. de Castelbajac, it should be noted, is a former Airbus executive.

Still, ATR has enjoyed a healthy measure of success. Total frames ordered exceed 1,500, and Mr. Udvar-Házy noted that the airplanes he ordered on Tuesday would be build frames 1,100 and beyond. “I don’t think people understand or realize that ATR has been by far the most successful turboprop commercial airplane ever built. It is the only one that has sold and delivered more than 1000 units. We think the ATR 42/72 family has a long way to go,” said Udvar-Házy.

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Contact the author at Jeremy.Lindgren@Airchive.com

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Meet the Embraer E2. Our Photo Tour

By Jeremy Dwyer-Lindgren / Published July 15, 2014 / Photos by author

LONDON, UK: While Embraer had its official E2 demo cabin launch earlier this week at Farnborough (something we missed thanks to the A330neo launch), we had a chance to get to know it a little better today. For the moment, we’ll stick to a photo tour with a few high level thoughts, though a bigger piece on the airplane will be coming later this week.

First, the staggered first class cabin was impressive. Granted it’s up to each carrier how to organize its cabin, and frequently what a manufacturer recommends isn’t what a carrier actually does, but it highlights a surprisingly premium configuration for what amounts to a regional jet. As the airplane continues to extend its range this could have increasing utility.

Second, the economy cabin doesn’t disappoint either. Taking a more honest bent, the carrier loads in a number of pitches, ranging from 36″ down to 29″. It is outfitted with slim-line seats, and a multitude of IFE options ranging for hard-wired in seat to iPad self-install. Windows are larger, some 30%, also a nice touch.

Again, we’ll have a bigger feature on it later this week, but we wanted to make sure our faithful readers saw the photos. Enjoy!

E2-1 E2-8
E2-4 E2-2
E2-9 E2-13 E2-14 E2-10 E2-17 E2-16
E2-12 E2-15 E2-7 E2-5

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Contact the author at Jeremy.Lindgren@Airchive.com

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Farnborough Today: Tuesday, July 15

By Jeremy Dwyer-Lindgren / Published July 15, 2014

A330neoAirAsiaX-1-2LONDON, UK: Day two wrapped up in Farnborough as clouds gave way to sun and even more spending. Nearly $35 billion was dispensed of, paling in comparison to last year’s Dubai but still a pretty respectable number.

Airbus stole the show, booking a total of 239 orders today alone (yesterday was 155). Predictably narrow-body orders led the charge, though the vast majority came from one giant order from leasing firm SMBC.

Boeing finally secured some 777 classic orders, something sure to help them out as it faces down a production gap between classic and 777X. But while the orders certainly help, it represents only a small fraction of the two year gap. At present the twelve it got only fill one and one half months at current production rates.

In other order news, Avolon, a leasing group, signed up for 15 A330neo aircraft in a deal worth $4.1 billion. The company also placed an order for Boeing’s 787-9 yesterday; six to be exact. During yesterday’s press conference Avolon’s CEO remarked that the A330neo and 789 were set to go head to head and praised the 787-9 as a “category killer.” If it’s such a category killer, why buy its competition?

Mitsubishi’s Regional Jet has been having a surprisingly good show thus far, booking up to ten more orders today. Air Mandalay, a Myanmar-based carrier, placed six firm orders for the MRJ90, with options for up to four more. That’s on top of yesterday’s curious order from Easter Air Lines for up to 40 MRJ90s. The MRJ is a somewhat forgotten project, particularly in the US where Bombardier and Boeing get the most attention. But the airplane is up to 325 commitments, of which 165 are firmed. That includes 50 from American carrier Skywest.

Bombardier’s Q400 aircraft continued its steady trickle of orders. Following Alaska’s order for one airplane this morning, Falcon Aviation Services signed a letter of intent for five of the popular turboprop. The firm isn’t a stranger to Bombardier, having also firmed its order a handful of C Series jets earlier this week. It also already has three Q400 on order, announced earlier this year. Abu Dhabi aviation was identified as a two-plane Q400 customer from a firm order that had previously been anonymous, but part of the backlog. That places Bombardier’s order count for the day up to six airplanes.

A330neoAirAsiaX-1Oh yeah, and in case you missed it, top Airbus executives and the CEO of Air Asia Group exchanged kisses today. Airbus CEO Bregier kissed Air Asia Group CEO Fernandes, unexpectedly. Fernandes announced that their relationship had now forever changed, having “tasted your lips.” Sadly I was taking notes, and thus missed the photo of the show (something I’ll forever regret), but luckily(?) the kissing continued. Airbus COO John Leahy wound up kissing Fernandes, not with nearly as much gusto as Bregier we might add. And finally Fernandes kissed Leahy, while Leahy unsuccessfully protested that he should really direct his affection toward Bregier. So yeah, that happened. Not too often you see top executives of the multi-billion dollar companies smooch each other with joy.

Farnborough Today in Photos:

Airbus, 239:
50 A330-900neo, AirAsiaX / MOU
16 A330-900neo, CIT / MOU
15 A330neo, Avolon / firm
110 A320neo, SMBC / firm
7 A320neo family, BOC / firm
36 A320ceo family, BOC / firm
5 A321neo, CIT / MOU

ATR, 7:
7 ATR 72-600, ALC / firm

Boeing, 42:
6 777-300ER, Intrepid Aviation / firm
6 777-300ER, ALC / firm
10 787-9, CIT / firm
20 737 MAX 8, ALC / firm

Bombardier, 6:
1 Q400, Alaska Air Group / firm
5 Q400, Falcon Aviation Services / LOI

Embraer, 30:
30 E195 E2, Azul / LOI

Mitsubishi, 6:
6 MRJ90, Mandalay / firm

Viking Air, 2:
2 Twin Otter, Air Seychelles / firm

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Boeing Talks New Details on 777X

By Airchive.com Staff / Published July 15, 2014

53c50127985c42a2a0a36f49767f2254-boeing-777x-interior-1000a

Boeing’s interior design of the 777X
Courtesy of Boeing

FARNBOROUGH, UK: Boeing detailed new passenger experience goals for its 777X program Tuesday in Farnborough.

Critics of the jet have pointed to the perceived steps backwards to aluminum fuselages after major advances in paxex in the 787 program. But Scott Fancher, Boeing’s general manager of airplane development, announced that many of the advances wrought from the 787 will be carried  over to the 777.

“We’re going to replicate [the 787 interior] and go beyond [with the 777X cabin]” said Fancher. That means, according to Fancher, next-gen LED lighting, lower cabin noise, higher humidity, 15% larger windows, and a cabin pressurization of 6,000 feet.

Yet how exactly Boeing would accomplish such a feat remains unknown, with Boeing largely dodging related questions. Instead, Fancher says Boeing “understands the structure well. We understand our product well.” ” We know how much design margin [we have]. We figured out a way to embed that capability [lower cabin altitude] in [the 777X] with modest investment.

Certainly interesting developments, but ones that still beg more questions than answers.

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Contact the editor at Jeremy.Lindgren@Airchive.com

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Embraer Bags Azul for $1.8 Billion Order

By Jeremy Dwyer-Lindgren / Published July 15, 2014

E2FARNBOROUGH, UK: Embraer received a firm commitment from Brazilian carrier Azul for 30 E195 E2s at the Farnborough Airshow on Tuesday. The deal is worth $1.8 billion, though after factoring in 20 purchase options, skyrockets to $3.1 billion.

The letter of intent sets up Azul to be the launch customer for its E195-E2, an updated version of the existing E195 jet that the carrier is already fond of. Thus it expects to begin operating the jet in 2019, when the first jet is delivered. The airplane is expected to be configured with 132 seats, 14 more than current generation of E-Jet, and powered by Pratt & Whitney’s popular geared turbofan engines.

Azul is planning to use the jets on domestic routes to replace what will then be an aging fleet of Embraer 190s and 95s.

Embraer launched its E-Jet program back in 2008. It has since gone on to accumulate 280 firm orders, including today. The program also announced several orders that had been previously counted in the order backlog but whose customer was not disclosed.

The order will also go far to helping close a one year gap between current generation E-Jet production and the beginning of the E2 program, expected in 2017.

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Contact the author at Jeremy.Lindgren@Airchive.com

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UPDATED ANALYSIS: Sealed with a Kiss: AirAsiaX Orders 50 A330-900neo

By Jeremy Dwyer-Lindgren & Vinay Bhaskara / Published July 15, 2014
Updated July 16, 2014

A330neoAirAsiaX-1Farnborough, UK: Airbus and AirAsiaX celebrated the first airline order for the A330neo on Tuesday with a kiss on Tuesday. Airbus CEO Fabrice Bregier leaned in for the smooch on the cheek of AirAsia Group CEO Tony Fernandes as Mr. Fernandes announced his order for 50 A33-900neo jets in Farnborough.

The order is worth $13.7 billion at list prices, the largest order thus far for Airbus’ newest jet, launched yesterday at the Farnborough airshow outside London.

“I went to Airbus about 17,365 times and said ‘build the neo,’” said Mr. Fernandes, whose request had been repeatedly been rebuffed by Airbus executives. “But we kept persisting” he said, and wound up helping to convince Airbus to launch the jet. Mr. Fernandes, whose conglomerate of Asian carriers is one of the largest A330 operators in the world, had been seeking the neo for some time.

The deal came together in under two hours, according to Mr. Fernandes, who cut short his vacation in Capri to finalize terms. Thus Mr. Fernandes found himself in Farnborough on Tuesday, where ultimately not one, but three kisses between himself, Bregier and Airbus COO John Leahy sealed the memorandum of understanding.

AirAsia Group is already one of, if not the, largest Airbus customer, having ordered 630 airplanes already. It has 38 current generation A330neo jets on order already, which Fernandes said could be converted to neos in the future.

AirAsia X’s order for the A330neo has been hailed by some as a further validation for the long haul, low cost model, but whether the purchase actually implies that is unclear. While Norwegian Air Shuttle have managed to launch a trans-Atlantic low cost operation using Boeing 787 Dreamliners despite regulatory issues and reliability challenges on the 787, AirAsia X were unsuccessful in operating low cost, long haul services. The budget carrier ended service to its only two true “long haul” destinations of Paris Orly and London Gatwick in spring 2012, and none of its 21 destinations are outside the Asia-Pacific region (in face Mr. Fernandes noted during the press conference that he does not consider his carrier to be long-haul, but mid-haul). AirAsia X do operate to five destinations in Australia, and the air route between Asia and Australia is the one medium haul market where low cost services have enjoyed success over an extended period of time. But AirAsia X also dropped service to Abu Dhabi, Cristchurch, Male, and Tehran, all of which are longer than flights to Australia.

The challenges AirAsia X faces on long haul, low-cost service are familiar; the lack of a true premium cabin, lucrative frequent flyer program, or corporate contracts makes it hard to generate the revenue required to overcome the high costs of operating a wide-body aircraft. The A330-900neo will certainly offer lower costs than AirAsia X’s existing A340-300s or A330-300s, and one might argue that AirAsia X was unable to succeed on long haul routes because it had the wrong airplane. But if AirAsia X is only just receiving the correct airplane for low-cost, long haul service, then the A330neo order is not a validation but rather a second attempt.

Whether or not the airline makes another go at long-haul routes, it will be able to put the A330-900neo to good use on its regional routes within Asia, especially to the Chinese mainland. Indeed many observers have pegged the market for flights between 1,000 and 3,000 nautical miles (1,151 – 3,452 miles) as the core competency of Airbus’ new re-engined aircraft. The present day A330-300 nearly matches the seat-mile economics of rival Boeing’s 787-9, and the A330-900neo should hold an advantage (in both cases including capital costs). While the A330neo order may not portend long haul success, it should crystallize the regional success of AirAsia’s long haul (in name only) arm.

AirAsia X’s order for the A330neo has been hailed as a further validation for the long haul, low cost model, but whether the purchase actually implies that is unclear. While Norwegian Air Shuttle have managed to launch a trans-Atlantic low cost operation using Boeing 787 Dreamliners despite regulatory issues and reliability challenges on the 787, AirAsia X were unsuccessful in operating low cost, long haul services. The budget carrier ended service to its only two true “long haul” destinations of Paris Orly and London Gatwick in spring 2012, and none of its 21 destinations are outside the Asia-Pacific region. AirAsia X do operate to five destinations in Australia, and the air route between Asia and Australia is the one medium haul market where low cost services have enjoyed success over an extended period of time. But AirAsia X also dropped service to Abu Dhabi, Cristchurch, Male, and Tehran, all of which are longer than flights to Australia.

The challenges AirAsia X faces on long haul, low-cost service are familiar; the lack of a true premium cabin, lucrative frequent flyer program, or corporate contracts makes it hard to generate the revenue required to overcome the high costs of operating a wide-body aircraft. The A330-900neo will certainly offer lower costs than AirAsia X’s existing A340-300s or A330-300s, and one might indeed argue that AirAsia X was unable to succeed on long haul routes because it had the wrong airplane. But if AirAsia X is only just receiving the correct airplane for low-cost, long haul service, then the A330neo order is not a validation but rather a second attempt.

Whether or not the airline makes another go at long-haul routes, it will be able to put the A330-900neo to good use on its regional routes within Asia, especially to the Chinese mainland. Indeed many observers have pegged the market for flights between 1,000 and 3,000 nautical miles (1,151 – 3,452 miles) as the core competency of Airbus’ new re-engined aircraft. The present day A330-300 nearly matches the seat-mile economics of rival Boeing’s 787-9, and the A330-900neo should hold an advantage (in both cases including capital costs). While the A330neo order may not portend long haul success, it should crystallize the regional success of AirAsia’s long haul (in name only) arm.

Contact the authors at vinay.bhaskara@airchive.com and jeremy.lindgren@airchive.com

Photo by Jeremy Dwyer-Lindgren

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CIT Aerospace Orders A330neo, A321

By Jeremy Dwyer-Lindgren / Published July 15, 2014

5129fb6472FARNBOROUGH, UK: Leasing firm CIT Aerospace placed an order for twenty Airbus aircraft on Tuesday in Farnborough, in a deal worth $4.7 billion.

The order is split between 15 of Airbus’ freshly launched A330neo, and 5 A321ceo jets. Deliveries will begin in 2017, continuing on through 2020.

Which A330neo version the company would order was not entirely clear. Initially CIT president Jeff Knittel said his firm was ordering -800s, positioning CIT to be the launch customer, then changed to -900s after noting his release (which said -900s).

CIT currently owns and operates several A330s, which according to Knittel provides a natural progression on to the A330neo.

As for placing orders for the A321ceo, rather than the neo, Knittel says “the current demand for the A321ceo is excellent,” adding that CIT could “migrate the customer, if necessary, to the A321neo” down the road. The firm currently maintains orders for fifty A320neo family jets, placed in June 2011.

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Contact the author at Jeremy.Lindgren@Airchive.com

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