Aviation Industry Makes Good Showing at Paris 2017

by Ray Jaworowski, Senior Aerospace Analyst, Forecast International.

A Boeing 737 MAX in Malindo Air Livery
Photo Courtesy The Boeing Company

The 2017 International Paris Air Show produced a fairly impressive number of sales announcements, though the pace was down a bit from recent Paris shows.  Orders and other commitments for commercial airliners (including regional jets and turboprops) announced at the show totaled just over 1,000 aircraft.  In terms of sales, this put the 2017 show somewhat behind the 2015 Paris show and well behind the 2013 Paris show, but ahead of the 2016 Farnborough show. Continue reading

Sanctions Impact Russia’s Irkut; MC‑21 Soldiers On

by Richard Pettibone, Forecast International

With Russia continuing its aggression in Ukraine, the world has responded with sanctions. As a result, the country’s aviation industry has been stymied in its efforts to grow beyond its usual customer base.

As these sanctions and counter sanctions continue, the opportunity to gain sales with Western operators has dimmed considerably. For an industry that was just beginning to emerge from the post-Soviet doldrums, this is an unwelcome development to say the least.IRKUT_Logo.svgBefore these developments, Irkut led the reformation of Russia’s aerospace realignment efforts. The firm pursued a more Western consolidation strategy. It started at the bottom, where the most expensive overcapacity is, rather than from the top. This proved successful, and Irkut was one of the first aviation firms in Russia to become somewhat privatized.

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Setouchi’s Quest Aircraft Buy Could Lead to New Models

by Douglas Royce, Forecast International

Japan’s Setouchi Holdings is buying Quest Aircraft, the maker of the Kodiak single-engine turboprop.  The new deal will provide an influx of capital to Quest to allow it to explore adding another aircraft to its product line.

Kodiak 10-seat utility aircraft

Kodiak 10-seat utility aircraft

The Kodiak competes primarily against Cessna’s Caravan and Pilatus’ PC-6.   Quest has never publicly indicated what kind of new aircraft it might add in the future, and it’s hard to find an unoccupied niche in the General Aviation segment these days.  A twin-engine model is one possibility, allowing it to steal customers away from the popular Beechcraft King Air family, but developing an all-new aircraft is a long, expensive, and financially risky process.

It’s possible the company could be looking at reviving an out-of-production aircraft and updating it with new engines and avionics.  Viking Aircraft took this route with its Twin Otter 400 program.  The Twin Otter is a specialized bush plane that offers a combination of short takeoff and landing (STOL) capability and payload that no modern production aircraft can match.   Viking has delivered more than 50 new-build Twin Otters since restarting production of the aircraft. It spent far less to certificate the new version of an old design than it would have spent developing an all-new aircraft.

Bombardier Hires Outside CEO, Announces New Financing Plan

By Raymond Jaworowski, Forecast International

Former UTC executive Alain Bellemare has been named the new president and chief executive officer of Bombardier Inc.  Bellemare has also become a member of the company’s Board of Directors.  Laurent Beaudoin retired as chairman of the board after more than 50 years at the helm of the corporation, though he remains on the board with the title of chairman emeritus.  His son, Pierre Beaudoin, has stepped aside as president and CEO and has become executive chairman.

Former UTC Propulsion & Aerospace Systems Exec Alain Bellemare Now Leads Bombardier

Former UTC Propulsion and Aerospace Systems Executive Alain Bellemare Now Leads Bombardier

Bellemare is the first person outside the Beaudoin family to serve as Bombardier president and CEO since former railways executive Paul Tellier left those positions in 2004.  Members of the Beaudoin and Bombardier families own the majority of Bombardier’s Class A shares, thus effectively controlling the company.

At UTC, Bellemare had been president of Pratt & Whitney Canada, president of Hamilton Sundstrand, and, most recently, president and CEO of UTC Propulsion and Aerospace Systems.  Since stepping down from the latter position this past January, he has served as a consultant to UTC.

Bombardier CSeries faces continued cost overruns

Bombardier CSeries faces continued cost overruns

Bellemare takes over day-to-day command at Bombardier during a time of uncertainty for the Canadian company, especially in the firm’s aerospace business.  In perhaps its most highly publicized program, Bombardier is developing the CSeries, an all-new family of 108-160 passenger jetliners.  By spanning such a wide seating/capacity range, the CSeries is being positioned by Bombardier to compete in essentially two different markets.  The CSeries provides Bombardier with a needed counterweight to regional jets from its Brazilian rival Embraer, and it also enables Bombardier (for the first time) to encroach upon the lower end of the narrowbody market currently dominated by Airbus and Boeing.

However, the ambitious CSeries project has been hit by cost overruns and is surrounded by rumors of impending schedule delay.  Meanwhile, Bombardier is developing two new business jet models, the Global 7000 and Global 8000, that are intended to compete with Gulfstream’s groundbreaking (and already in service) G650 ultra-long-range executive jet.

Learjet 85 program "paused"

Learjet 85 program pause contributes to Bombardier’s $1.2 billion 2014 loss

This past January, Bombardier announced a “pause” in development of another new business jet, the all-composite Learjet 85 mid-size jet, due to weak demand.  Also in January, Bombardier signed an agreement to sell its Military Aviation Training business to CAE.  The transaction, which is expected to close later this year, includes responsibility for the NATO Flying Training in Canada (NFTC) program that trains military pilots for Canada and various other countries.

At the same time that it announced the management shake-up, Bombardier also announced a new financing plan in a bid to strengthen the company’s balance sheet.  Bombardier said that, depending on market conditions, it will issue approximately $600 million in new equity, and access capital markets for up to $1.5 billion in new long-term debt capital.  To complement this plan, the company said that it will explore various initiatives to reduce debt, such as “certain business activities’ potential participation in industry consolidation.”  This could involve the sale of certain of the company’s assets.

Bombardier also said that its free cash flow would be more appropriately applied to bolstering its financial structure and investing in its core programs and businesses.  In line with this commitment, the company suspended the declaration of dividends on its Class A and Class B shares.

Boeing Holds Delivery Title Again in 2014 While Defense Declines

By Richard Pettibone, Forecast International

The 2014 tallies are now in, and Boeing has held onto its lead in deliveries with 723 aircraft completed, compared to Airbus’ 629. However, for the third year in a row, Airbus sold more aircraft, garnering 1,456 net orders compared to 1,432 for Boeing. But if you are a Boeing fan, you can crow that the value of Boeing’s orders, estimated at $233 billion at list prices, is much higher than Airbus’ sales, which were valued at $175 billion.

Boeing Tops Airbus in 2015

Boeing Tops Airbus in 2014

For 2014, Boeing reported record sales of $90.8 billion, up 5 percent from sales of $86.6 billion in 2013. Net income for the year was $5.4 billion, up 19 percent from $4.6 billion in 2013.

The continued growth in commercial aviation remains fueled by cheap money. Many airlines are taking advantage of the low-cost financing still available around the world to replace older models with newer, more fuel-efficient aircraft. As a result, Boeing’s backlog continues to grow – rising to $487 billion in 2014 from $423 billion at the end of 2013. The key for the company now is to continue its studied increases in production rates to meet customer demand.

While commercial aviation continues its wild ride, defense is preparing for interesting times. Early in 2013, a bitterly divided Congress allowed sequestration to take effect, initiating some $500 billion in across-the-board budget cuts. With the mandated draconian cuts now eliminated in the near term, the company’s defense operations can breathe a bit easier, as the downturn will not be as drastic as once anticipated.

But that doesn’t make the cuts any easier.

Boeing’s defense business, which accounts for around 40 percent of its top line, has suffered of late due to the government’s defense budget cuts. In response, the company has begun consolidating its defense operations. In a major shift, Boeing has decided to move its defense services and support work out of the high-cost Seattle area to the lower cost regions of St. Louis and Oklahoma City. With many of Boeing’s defense programs such as the C-17, F-15 and F/A-18 winding down, the move was necessary.

C-17 Globemaster

C-17 Globemaster Production Winding Down

Current defense programs will not be able to make up the lost revenue. The KC-46 tanker has razor-thin margins and is being impacted by cost overruns that Boeing must bear. Meanwhile, the P-8A maritime patrol aircraft has seen its fiscal 2015 procurement cut as the Navy delays the procurement of six aircraft.

Like many other defense contractors, Boeing is looking abroad for more sales. Roughly 30 percent of Boeing’s defense sales are international, up from 7 percent five years ago. But competition will be fierce as every other defense contractor around the world executes the same play.

Despite the difficulties, Boeing remains in a strong position thanks to a robust backlog and the fact that even with reduced spending, defense remains a solid – albeit shrinking – market.

Bizjet Recovery Slow But Steady

By Raymond Jaworowski, Forecast International

The business jet market is currently in the early stages of recovery. This recovery got underway in 2013, when annual business jet production registered a slight increase after having declined for four consecutive years from 2009 through 2012.

The recovery appears poised to strengthen in the next few years. Most market indicators are positive. Economic growth is continuing, however sluggishly. Corporate profits are strong. Orders for new business jets are rising, and order backlogs at manufacturers have stabilized. The inventory of used aircraft for sale is declining. Flight activity is increasing.

Cessna Mustang

Cessna Mustang

To some extent, though, the business jet sector continues to be a tale of two markets. Demand is quite strong in the upper tiers of the sector, from the super mid-size class up through the long-range segment. In the medium jet class, the picture is a bit mixed but is nevertheless improving. However, in the lighter categories, demand is still somewhat weak.

The market for lighter jets is largely concentrated in North America, the biggest geographic market for business jets but a heavily saturated market as well. While economic improvement in the U.S. has been slow, corporate profits have been robust, allowing businesses to accumulate large reserves of cash. Uncertainty over economic and political conditions, though, has made many of these businesses hesitant to make large capital acquisitions such as aircraft purchases.

The key to unlocking this latent demand in the North American market is continued economic improvement. This should serve to strengthen business confidence and unlock corporate coffers. Greater transparency concerning government intentions regarding taxation and regulations would further boost business confidence.

 

Gulfstream G650

Gulfstream G650

The business jet market is strong in most other regions of the world, with Europe being a significant exception. But even in Europe, the outlook is improving, as the worst of the region’s recent sovereign debt crisis appears to be over.

Meanwhile, as they have traditionally done, business jet manufacturers used the recent market downturn (and the immediate aftermath) to launch several new models. Each of the Big Five established players has at least one new model in design and development.

The recovery in the business jet market is likely to be gradual and measured in its pace: a solid, if unspectacular, recovery. We do not expect the 2008 production level of 1,314 business jets to be reached in any year of the 2014-2023 forecast period.

Dassault Falcon 8X

Dassault Falcon 8X

Forecast International projects that a total of 9,634 business jets will be produced in the 20-year period from 2014 through 2023. The value of this production is estimated at $255 billion in constant 2014 U.S. dollars.

Production is forecast to total 719 units in 2014, and to steadily increase to 1,136 units by 2020. A two-year cyclical downturn in production is anticipated for the 2021-2022 timeframe, before build rates rebound in 2023.

During the forecast period, the top three manufacturers in unit production are projected to be Cessna, Bombardier, and Embraer. Cessna is forecast to produce 2,363 business jets, representing 24.5 percent of the market.

Bombardier Challenger 650

Bombardier Challenger 650

Bombardier is expected to build 2,075 business jets during the forecast period, for a market share of 21.5 percent. Embraer is third, with production of 1,732 aircraft and a share of 18 percent.

Fourth, fifth, and sixth places are taken by Gulfstream, Dassault, and Honda, respectively.

When the market is calculated in terms of monetary value, the manufacturers of the larger, high-value business jet types rise to the top of the rankings. In production value, Gulfstream takes the top spot with $74.7 billion worth of production, a share of 29.3 percent. In second place is Bombardier, with $69.7 billion worth of production and a 27.3 percent share. Dassault is third with a 17.4 percent market share on production worth $44.5 billion. Cessna, Embraer, and Boeing take the next three spots.

Airbus’ Much Anticipated A320neo Makes Maiden Flight

by Douglas Royce, Forecast International

The first Airbus A320neo test aircraft made its first flight on September 25. Airbus began assembly of the aircraft, MSN6101, in March and rolled it out of the factory in July.

Forecast International projects that Airbus will deliver 5,472 A320 family aircraft from 2014 through 2023. This total includes both the current A320ceo family and the new re-engined NEO models.

A320neo maiden flight

A320neo maiden flight

The A320 family competes against the Boeing 737 family in the market for single-aisle airliners. Currently, the Boeing 737-700 and 737-900ER outsell the A319 and A321 in the lower and higher seat ranges, respectively, while the A320 outsells the 737-800 in the most popular middle range.

The firm order backlog for Airbus’ A320 family totaled 4,298 aircraft at the end of 2013, up nearly 25 percent over its backlog at the end of the prior year. Aside from strong demand for the current model, the market’s response to the launch of re-engined NEO models has been beyond even Airbus’ expectations. Orders continue to pile up.

Airbus will introduce the A320neo first. It was originally scheduled to enter service in 2016, but Airbus said in April 2011 that high customer demand had led it to move the targeted entry-into-service date to October 2015. Introduction of the A319neo and A321neo models will follow at six-month intervals.

Boeing has responded to the threat posed by the NEO models by launching its own re-engining program for the 737, and demand for the new 737 MAX family has also been very strong.

Bell 525 to Fill Super Medium Niche

by Douglas Royce, Forecast International

P1060400 (Small)

Bell Helicopter launched the all-new Model 525 Relentless at Heli-Expo in February 2012.  The twin-engine design will be the largest helicopter in Bell’s commercial product line when it is certified. It will be capable of carrying 16 passengers in a standard configuration, and Bell has promised a high-capacity configuration seating 20 passengers.  The 525 is targeted at the oil and gas, search-and-rescue, and VIP/corporate transport markets.

P1060401 (Small) P1060398 (Small)

Bell is targeting a maximum takeoff weight of 19,300 pounds (8,750 kg). Bell calls the 525 a “super medium” helicopter, placing it in the gap between the AgustaWestland AW139 and Eurocopter EC 175 at the top end of the light helicopter market and heavy commercial models like the Eurocopter EC 225 or Sikorsky S-92.  This is the same market space targeted by the AgustaWestland AW189.

Two 1,800-shp GE CT7-2F1 engines equipped with Full Authority Digital Engine Controls (FADEC) will power a five-bladed, fully articulated main rotor. A new Garmin G5000H integrated avionics suite will give pilots a high level of situational awareness even in poor weather, according to Bell.

The manufacturer plans to achieve certification in 2015, but schedules announced at launch of an all-new aircraft program are rarely met.  It is likely that deliveries will begin in 2016.

New Product Development Re-shaping Large Jetliner Market

By Raymond Jaworowski, Forecast International

On the eve of the 2014 Farnborough Air Show, Forecast International notes that Airbus and Boeing are playing point-counterpoint on a colossal scale in terms of new product development.  Currently in development, the Airbus A320neo and the Boeing 737 MAX, with respective orders numbering in the hundreds, are re-engined versions of the two companies’ current and very popular narrowbody airliner families.

In the market’s widebody segment, Airbus and Boeing have engaged in a series of moves and countermoves.  The Boeing 787’s introduction led to Airbus responding with the A350 which, in turn, has led to Boeing launching the new 777X series.  The advent of these new aircraft is transforming the large airliner market.

In its new study “The Market for Large Commercial Jet Transports,” Forecast International projects that a total of 15,716 large commercial airliners will be produced from 2014 through 2023.  The Connecticut-based market research firm estimates the value of this production at $2.38 trillion in constant 2014 U.S. dollars.

During the 10-year forecast period, the A320neo, 737 MAX, 787, A350 and 777X will account for nearly 65 percent of new production. The A320neo and 737 MAX alone will account for some 43 percent of unit production during that time.

Forecast International predicts that annual production of large airliners will rise each year from 2014 through 2020, with production increasing from 1,379 aircraft in 2014 to 1,730 in 2020.  The company expects output to decline somewhat during a minor, economically driven cyclical downturn in the 2021-2022 period before it resumes an upward track in 2023.

According to the Forecast International projections, Airbus and Boeing will account for more than 95 percent of the large airliners that are forecast to be produced during the 2014-2023 timeframe.  This level of dominance indicates that the market will essentially remain a duopoly during this period.  However, the Airbus/Boeing rivalry is unusually competitive for a duopoly, with both companies spending substantial resources on new product development.  Simultaneously, they severely discount prices on existing products in order to accumulate sales.

Forecast International senior aerospace analyst Raymond Jaworowski said, “The fiercely competitive nature of the Airbus/Boeing rivalry arises from the relatively limited size of the customer base, efforts by the two manufacturers to increase profit margins, and the desire of both companies to continually increase aircraft production rates.”

Airbus and Boeing continually raise production rates in order to improve production efficiencies, reduce wait times for customers, and stave off new competitors in the marketplace.  These new competitors are appearing in the narrowbody segment of the large jetliner market, and include such aircraft as the Bombardier CS300, the COMAC C919, and the Irkut MC-21. However, their introduction will have little impact on Airbus’ and Boeing’s overall market share through the 2014-2023 forecast period.

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