Arran Aerospace On Airbus, Boeing (Part Two)

It is with great pleasure to bring the second segment of a two-part Q&A special where FleetBuzz Editorial.com speaks exclusively to Doug McVitie, Managing Director at Arran Aerospace.

Part one can be found by clicking here.

1. Late last year, Bloomberg reported that costs on the A350XWB had ballooned to over $20bn – given the success Airbus has had with the A320 and A330 families, would you agree that state aid is no longer required to assist development, especially since Airbus borrowed heavily for the A380 too? What are your opinions/views on state aid to Airbus and how that could affect the potential ruling from the WTO?

Leaving aside Bloomberg’s predilection for estimates over accuracy, it’s clear to the industry that non-competitive state aid to Airbus is just another anachronism – it’s political vote-buying, no more, no less. The rationale for financial assistance to Airbus through the first decade or even two, say to the mid-‘90s and the establishment of the A320 in short-haul markets, is solid but thereafter, if Airbus hadn’t learned how to build aircraft after 20 years, why should European taxpayers continue, without any choice, to compensate for the fat, dumb and happy attitude of successive revolving-door Airbus managements?

Unfortunately the WTO is a paper tiger, its ‘ruling’ will be only a recommendation and quite simply, nobody at Airbus really cares. Direct government financial support to and underwriting of Airbus for the A380, A350 and A400M has reached such staggering proportions that the WTO can do nothing. What’s Airbus going to do? Pay back $50bn+ from sales? Better stop ‘selling’ at massive discounts, then, and get ready for a 250-year production run…

Image courtesy of Airbus

2. While the A380 soldiers on without another model in its line-up, there are rumours that deliveries for 2009 will not be met and that the prospect of a freighter remain bleak – what would you say (or do) to revive its fortunes?

The A380 has no fortunes. It’s a completely ridiculous aircraft for today’s markets, as evidenced by the fact neither of the first two operators is using more than about 57% of the certified capacity in the early versions. In 10 years’ time if IATA’s global demand forecasts of 4%+ pa traffic growth bear out and airlines are able to fill 600-650 seats, the A380 might start to make a little sense but new versions won’t save the program.

Breakeven is already out of reach and probably the break-up of Airbus and protective nationalisation of the French widebody element would be the only positive indicators on the horizon to resolve the A380’s systemic ‘misfortunes’.

3. The recent IAM strike at Boeing has hampered deliveries for the remainder of this year – would you advocate the company ramp up production in 2009 as a means to clearing the backlog it misses for 2008?

No. Boeing must stick to its longer-term ramp-up plan, perhaps try to squeeze in a couple of extra aircraft here and there but otherwise, let the second-hand and leasing markets take the short-term strain and allow airlines to adjust their capacity to the lower demand that’s increasingly evident due to global financial uncertainty.

4. The 777F, already in flight testing may just be delivered on target by year end or very early in January 2009. However, we know that first flight of the 787 slipped each day that the strike went on for – do you think we’ll see early on in 2009 Boeing announcing a fourth major delay, pushing back delivery from Q3, 2009 to Q1 in 2010 or beyond?

Possibly, although my understanding is Boeing already has its post-strike revival timetable nailed down, and that timetable still includes a first 787 flight in December. If it flies this year, next year’s deliveries could well be met but it all depends on the next few weeks.

5. Outsourcing has been a contentious issue between the IAM, SPEEA and Boeing – whatever new airplane Boeing decides to build next, do you think Boeing will heed the words of former 787 Manager, Mike Bair, and bring back more assembly work to Everett rather than farm it out to key subcontractors? Perhaps Boeing may even consider more vertical integration as it has done by acquiring Vought’s stake in Global Aeronautica – is that a better long term strategy to employ?

Outsourcing is here to stay and the 787’s production model will be the blueprint for all new future Boeing designs, after ironing out the problems of course. But Boeing almost certainly will bring back in-house some previously outsourced work in order to streamline the process. The principle will remain the same, however – global outsourcing, international revenue- and risk-sharing and horizontal integration. The IAM knows this. Boeing will adjust the percentages of in-house/outsourced supply but the concept is inviolable.

6. Production on the 747-8F recently commenced too, and again was at the mercy of the strike – given the low production rate of the 747 (around 1 a month), do you think the company can still achieve service entry by late next year to Cargolux?

747-8F service-entry is a priority at Boeing so I’d imagine there will be an increase in the number of engineers put on this program to try to ensure it gets out the door on time once the first half-dozen or so 787s are in the air.

Image copyright/owned by FleetBuzz Editorial.com

7. The 747-8I still has a handful of VIP orders aside from Lufthansa. Where do you see orders coming from and do you think that only a widespread global fleet disposal of 747-400’s will perhaps encourage customers to sign up for the 747-8I?

The natural customer-base for the 747-8I is of course the top tiers of the existing 747-400 market and as such, with the earliest -400s now almost 20 years old, the replacement cycle will develop from there. Once again, though, Boeing isn’t overly concerned about the low market penetration to date of the 747-8i. Right-sizing your aircraft for prevalent near-term launch markets is of paramount importance on a program, so Boeing is looking at the current market disarray and expecting growth and orders to follow only when conditions improve. This isn’t an A380 situation, where the orders well is already all-but dry.

8. On the narrowbody replacements (A320/737), both Airbus and Boeing are pushing back their estimated service entry to the latter part of next decade. Do you think the GTF concept from Pratt & Whitney and CFM’s LEAP-X will come good on all issues surrounding maintenance costs and fuel efficiency to drive development of new A320/737 replacements?

At this early stage it’s hard to say whether the GTF or CFM approach will prevail, if indeed either does. I’m sceptical about them both, though for different reasons. There’s no magic formula in the GTF and I feel it will fall short as it’s already nowhere near a show-stopper. 99% of the people I’ve talked with on the GTF believe strongly in the engine, but 100% of them work for Pratt & Whitney. I have a feeling the GTF might struggle to get out of the regional-jet class.

CFM’s proposal is in such early stages it too poses many questions, but on a balance of intangibles at the moment, I’d say CFM might just be on the right lines here. Long way to go, though.

Thanks go to Doug McVitive and Arran Aerospace for kindly arranging this Q&A session and we look forward to convening again soon.

Comments are both welcomed and encouraged. To contact Doug privately, in the first instance, please email me here.

It is with regret that not all private questions will be answered, however FleetBuzz Editorial.com would like readers to suggest/recommend any topics for evaluation that Doug may not be able answer and we can discuss them on the site in the near future.

Thank you.

7 comments November 3rd, 2008