Arran Aerospace On Airbus, Boeing (Part Two)
November 3rd, 2008
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.
Sphere: Related ContentEntry Filed under: Aeroplane, Aerospace, Air Transport, Air Travel, Airbus, Airbus A350, Airbus A350XWB, Airbus A380, Airbus Orders, Airlines, Airplane, Airplane Order, Airplanes, Airport, Airports, Arran Aerospace, Aviation, Boeing, Boeing 747, Boeing 747-8, Boeing 747-8F, Boeing 747-8I, Boeing 767, Boeing 777, Boeing 777-200LR, Boeing 777-300ER, Boeing 777F, Boeing 787, Boeing 787-3, Boeing 787-8, Boeing 787-9, Boeing Commercial Airplanes, Boeing Orders, Doug McVitie, Dreamliner, IAM, SPEEA
7 Comments Add your own
1. TOGA 'Take off/Go Around" | November 3rd, 2008 at 8:14 am
Very interesting Q&A. Mr McVitie certainly has given very professional, in-depth and accurate answers in many parts.
“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.”
This answer was a bit too anti-A380, but there’s certainly a good point made in the latter part about the capacity situation. The A380 was a technological marvel, but that doesn’t help the fact that the market it’s directed at is just too small…almost too small to have such an airplane/cost. The risks in the 400 seat and larger market are great…not necessarily in terms of trying to fill all the seats 365 days a year, but the insurance issues, logistics and operating costs.
Indeed, the 747-8I hasn’t had much success in terms of total sales…28 firm and 4 commitments to date…but that airplane itself is a success. There’s much anticipation for the airplane, and further, there’s much interest at many airlines for the -8I. It’ll be a big success in orders soon…
In fact, if only it were public just how QF and SIA feel about the -8I…it’s an incredible airplane (just look at the “original comments by Geoff Dixon for example…he was literally over the moon with the airplane), but like the A380, just has such a small market. I predict 100 sales for the -8I, and about 300 for the A380 in total.
2. Ken Taylor | November 3rd, 2008 at 12:41 pm
Me. McVitie has in my opinion hit the nail on the head.
The Airbus Company is on very shaky ground at this point in time with three major projects and a couple of minor ones in dire straights.
The A380 is phenomenally over budget, and as everyone knows not likely to ever make a profit.
It was, and still is the wrong plane at the wrong time, and never will be commercially viable.
The A350XWB is another huge cash sucking machine that is so far from being in design freeze it’s not funny, one of Airbus’ main suppliers in Britain has told them the material originally planned for fuselage construction is not commercially viable and far too difficult to form, and must be changed.
That along with a myriad of other problems will delay this aircraft well into 2016 or later.
The A400M another cash sucking machine. In my opinion Airbus will cancel this project, bite the bullet, and admit they can’t make it work.
Lois Gallois has stated that that if all the the aircraft ordered were actually delivered they wouldn’t even cover the cost of production.
In fact they are so far in the ditch on this project, that every dollar of profit expected from sales has already been spent, and they haven’t even flown a single aircraft.
That’s called throwing good money after bad, but knowing the track record at Airbus it’s not a surprise.
3. bobbelieu | November 4th, 2008 at 1:40 am
No matter how you feel about Airbus, they made a potentially terminal decision in building the A380.
4. DonS | November 4th, 2008 at 2:35 am
Re the comment “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…”
+++
Perhaps Doug might be willing to comment on the following links and comments and the 7 year old spreadsheet I had put together about Airbus subsidies and costs. As a retiree- I had worked for about a year in 2000-2001 in doing research for SPEEA ( Engineering Union at Boeing ) leading to filing a CVD -CounterVailing Duties Petition. We were ready to file and the decisions had been made to submit to the Commerce department — the week of 911 !. Up to that time, Boeing had neither helped nor hindered- but it was obvious they were not supportive or happy . The Byrd amendment would have resulted in the expected 10 to 15 percent duties imposed on Airbus to go to SPEEA. For example, about the years 2000-2001 , the result would have been about 500 to 800 million $$. Unfortunately , after 911, and unknown to us at the time - Boeing ‘ twisted’ more than a few arms - and claimed ( improperly) that such a filing would impact the tanker lease issue. The rest of course is history.
A caution when reading my analysis - which was to support the actual petition numbers to be submitted.
We were aware that a normal discount of 20 to 25 percent for most buyers was virtually an industry standard- but without access to import docs- we had no way of establishing that except by using public information- thus my analysis - which first might appear as a DUHHHHH- was not really done in ignorance of the normal discounts. As sales manager for Airbus, I’m sure Doug migh have a few grins. How did I get the ‘ list price ” data. A simple phone call to the paris office in mid 2001 provided that.
++
http://home.att.net/~dshuper/ABOUTCVD.html
http://home.att.net/~dshuper/CVDPOSIT.html
http://home.att.net/~justfacts/cvd19jul04pw.xls
The L&PA Committee has made the following observations which lead to our belief that Airbus, through a variety of methods, is effectively selling their products below cost. Raw material, engines, avionics, landing gear, and similar parts cost the same for Boeing and Airbus. Assembly techniques, automation, certification, process controls, and computer-aided design techniques are essentially the same, and have no inherent cost differences. Additionally, labor costs are higher for EU countries, with differences from 15% higher in 1995 to about 5% in 1998. Finally, the EADS annual report shows that for the year 2000, Airbus’ share of EADS net consolidated profit was zero.
We then compared the published selling prices of Boeing and Airbus commercial airplanes from 1998 - 2000, omitting figures for the Boeing 747. For 1999, the average cost of all airplanes sold by Boeing was $59 million per plane, whereas the average cost for Airbus was $46.4 million per plane. We then compared two comparable models of aircraft, the A320 and the 737-800. Figures reflected an average 737-800 costing (conservatively) about 10% more than the A320. Therefore, how can Airbus, with equal material and subassembly costs, higher labor costs and arguably lower productivity, and admittedly zero profits, still undercut Boeing prices by at least 10 percent? Our determination is that Airbus is selling most, if not all aircraft models into the U.S. at 10 25% below cost. Note: this does not include special lease, financial, or maintenance agreements, which even further harm our workers.
Don
5. Ken Taylor | November 4th, 2008 at 1:21 pm
This just in:
Airbus to suspend production of the A400M
http://news.airwise.com/story/view/1225791238.html
6. keesje | November 4th, 2008 at 10:58 pm
“This isn’t an A380 situation, where the orders well is already all-but dry.”
The A380 has beaten the Boeing 747-8i all over the place. Most international long haul carriers have already selected it. Airlines like ANA, CX are close and there has been a steady stream of orders for the last 6 yrs, check the overvieuws..
Denial is childish IMO.
Is the 787 over budget, how much. Nobody asks, nobody wants to know..
On this page you can see the 787 wing technology being developped and tested in 1995-2000, by NASA. WTO stuff if you ask me.
http://oea.larc.nasa.gov/PAIS/Concept2Reality/composites.html
7. DonS | November 5th, 2008 at 1:03 am
re Mr keesje “On this page you can see the 787 wing technology being developped and tested in 1995-2000, by NASA. WTO stuff if you ask me.”
++ Uhhh - NASA research does not come under WTO since Airbust is also free to use it or to pay minimal license fees for access - and has–
case in point the NASA winglets used by airbust
As to what is covered under WTO - dig up a copy of the 1992 GATT agreement for large commercial aircraft LCA. keeping in mind that LCA was never really defined. Large ** probably** means > 10 passengers, but I would hate to argue that 9 would not be , etc
Leave a Comment
Some HTML allowed:
<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>
Trackback this post | Subscribe to the comments via RSS Feed