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9Patch
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Re: The case for more aircraft production cuts/playing chicken

Thu Sep 10, 2020 7:14 pm

lightsaber wrote:
I merged the playing chicken with production with the prior thread (same link).

Sorry, I didn't realize we already had a 'chicken' topic going. :D
 
TObound
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Re: The case for more aircraft production cuts/playing chicken

Thu Sep 10, 2020 8:52 pm

Waterbomber2 wrote:
Flash forward to 2027.

Virus long gone, record traffic numbers.
Backlogs in the thousands but limited output means years to fulfill orders.
Airbus and Boeing challenged by new manufacturers offering new, disruptive technologies into the 2030's.
A & B: "back during Covid, we had government backing, if only we had invested and kept building them, we would have sold them all by now and would have had cash to invest in the next big thing."



Not happening.

It will take years just to get traffic back to 2019 levels. In the meantime, the market has to absorb all the white tails piling up and a massive inventory of low cycle used aircraft. There's also the bit about governments investing in rail substantially as part of recovery plans. The traffic may come back, but the record backlogs won't be there.
 
JayinKitsap
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Re: The case for more aircraft production cuts/playing chicken

Fri Sep 11, 2020 7:18 am

Production has been cut pretty far, in particular the MAX line has been idle all year. I agree that balance between production and demand needs to occur, but do we know that balance yet. Six months from now the OEM's will have some better information to adjust production. Both Boeing and Airbus will be probably building around 300 units each, any more will swell the whitetail population.

The biggest competition to ordering new will be a recent used plane well maintained coming from an airline that is BK. There is probably 5 years worth of excess planes on the market right now, it will be years before the civil market has its next good year.
 
Sokes
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Re: The case for more aircraft production cuts/playing chicken

Sun Sep 13, 2020 4:06 am

JayinKitsap wrote:
...
I agree that balance between production and demand needs to occur, but do we know that balance yet. Six months from now the OEM's will have some better information to adjust production.
...
There is probably 5 years worth of excess planes on the market right now, it will be years before the civil market has its next good year.

I believe your two statements contradict each other?
After half year virus restrictions there is five years excess?

I remember not long ago people here were excited when output was increased. Now all is doom and gloom?

I'm not normally for cash for clunkers or similar government intervention. Shortly before the virus Merkel more or less killed wind turbine demand in Germany. Good, Germany wasn't competitive in blade manufacturing any more and the labor was needed in other industries. So some parts of the value chain remained in Germany, other parts went abroad. I don't belong to the people who want to save industries which aren't competitive any longer.
"Embrace the change", as Taoism says.

But this is different. Which industry is supposed to use the sacked labour?

I agree with Waterbomber. Let's just continue manufacturing. There are still inefficient models that can be replaced. B787, A350 and A320 can be produced with three months usual demand as inventory in normal times. In this situation even six months makes sense.

If people have to be sacked in a year, so be it. By that time other businesses may be able to absorb those laborers.
I understand that argument is less true for countries with trade deficit. But that's a different discussion.

"As of July 2019, 692 Boeing 737 Classic aircraft were in commercial service. This includes 297 -300s, 261 -400s, and 134 -500s.[17]"
https://en.wikipedia.org/wiki/Boeing_737_Classic

The switch to renewables requires Combined Cycle Gas Turbines (CCGT) with hot water (95 degrees Celsius or so) storage as backup.
To help engine manufacturers public (socialist) investment in district heating would be good.
Why can't the world be a little bit more autistic?
 
Sokes
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Re: The case for more aircraft production cuts/playing chicken

Sun Sep 13, 2020 4:46 am

This may be a good time to introduce tax on aviation fuel.
Each government gives it's airlines money equivalent of the last three years fuel bill. That money is non-refundable, a subsidy. In exchange 80% fuel tax is imposed.
I believe even green parties would agree.
It's also not arbitrary or unfair to competition if countries could agree on it.
Future finance in innovation will increase.
Why can't the world be a little bit more autistic?
 
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par13del
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Re: The case for more aircraft production cuts/playing chicken

Sun Sep 13, 2020 5:59 pm

Sokes wrote:
This may be a good time to introduce tax on aviation fuel.
Each government gives it's airlines money equivalent of the last three years fuel bill. That money is non-refundable, a subsidy. In exchange 80% fuel tax is imposed.
I believe even green parties would agree.
It's also not arbitrary or unfair to competition if countries could agree on it.
Future finance in innovation will increase.

So to be clear, just like the current employee retention schemes in place, you want to continue to pay thousands of workers to stay home doing nothing?
Money is money, but the optics would be better if the airlines furloughed the workers and let the state take care of them using the tax money they already collected for that purpose over the last decades, why is a new tax need to pay obligation that a previous tax was put in place to pay such obligations?
No country is allowing aviation in any numbers since pax are not travelling, so if the experts are correct that pax levels are years off from returning to any decent numbers, how much money will this tax collect?
Is this just another way of introducing the EU tax scheme which failed a couple years ago?
 
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lightsaber
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Re: The case for more aircraft production cuts/playing chicken

Sun Sep 13, 2020 8:26 pm

par13del wrote:
Sokes wrote:
This may be a good time to introduce tax on aviation fuel.
Each government gives it's airlines money equivalent of the last three years fuel bill. That money is non-refundable, a subsidy. In exchange 80% fuel tax is imposed.
I believe even green parties would agree.
It's also not arbitrary or unfair to competition if countries could agree on it.
Future finance in innovation will increase.

So to be clear, just like the current employee retention schemes in place, you want to continue to pay thousands of workers to stay home doing nothing?
Money is money, but the optics would be better if the airlines furloughed the workers and let the state take care of them using the tax money they already collected for that purpose over the last decades, why is a new tax need to pay obligation that a previous tax was put in place to pay such obligations?
No country is allowing aviation in any numbers since pax are not travelling, so if the experts are correct that pax levels are years off from returning to any decent numbers, how much money will this tax collect?
Is this just another way of introducing the EU tax scheme which failed a couple years ago?

An 80% fuel tax is a great way to ensure there is no recovery in aviation.

Fuel is always a high expense. I can guarantee quite a few countries would not impose this tax, putting those countries that do in a poor position to compete.

There are other threads complaining the new generation of aircraft have too many problems. As fuel is a high expense of aviation, there isn't a bunch of off the shelf technology ready to implement. There are a bunch of ideas ready to implement in the future

Short term "ready technology". This can be put into new engines for a few hundred million dollars, or as part of a more extensive PiP for older engines.
1. Pratt's variable fan nozzle, improves takeoff and climb thrust with a small cruise fuel efficiency gain.
2. GE's variable turbine inlet guide vane cooling. On LEAP and GE9X, it could be retrofitted to the GEnX
3. Pratt 3.5:1 gearbox. Ready for when Pratt gets onto a widebody.
4. Both Boeing and Airbus can do some underside laminar flow (I believe this is why the 777x has folding wingtips as far higher aspect ratio wings are an enabling feature for this technology).
5. CFRP wings (some have it, most don't). The cold cure MS-21 wings will dramatically bring down the costs of CFRP wings.
6. More electrical subsystems. Saves a little fuel, saves a lot of maintenance.
7. unstable center of gravity (the 777 has been flying with meta stable, UAS systems have proven the unstable). However, this would probably be a stretch of the 1st version of a new aircraft.
8. More titanium. 3D printing has turned the aerospace world upside down to make some parts now cheaper to make out of titanium than out of aluminum.


Technology coming out in the GE9x (777x engine): These are not cheap technologies to develop
1. CMC turbine inlet guide vanes (CMCs are not ready for rotating blades until the strength is improved which is actually achieving a higher density).
2. More advanced cooling, for example, a 2nd high turbine, turbine clearance control valve.
3. Faster high spool (Mach # is the important criteria). This improves high turbine and high compressor efficiency, it requires developing seals with much higher seal velocities (a problem in the PW1100G), bearings, and being much more precise on shaft dynamics.
4. The GE9x is the first full electrical subsystem engine (far more than the GEnX). More work to do on the airframe.
5. Folding wingtips. This allows a greater wingspan with the minor improvement in efficiency that provides on its own. I look at that wing and I see a partial underside laminar flow wing. That will save a nice amount of fuel burn.
6. 3D printed engine parts.
https://3dprintingindustry.com/news/boe ... ht-167793/

Future technology we're waiting for:
1. CMC turbine blades (by this, I mean the rotating turbine blades). The 2nd stage of the high turbine might be possible in 5 years, it might not. The first stage of the high turbine is at least 15 years in the future.
2. Variable pitch fan blades. This was part of a RR demonstrator, but Pratt has tried in the past too. This is tough to work out all the failure modes.
3. Blended Wing Body. (BWB). I believe the evacuation issue has been solved. However, this is one heck of a risk and could bankrupt either Boeing or Airbus, so the risk will keep this technology on the shelf. The vertical stabilizer is literally a drag.
4. GFRP. A stronger fiber than CFRP. More work needs to be done to determine all the failure modes (great stuff on satellites and military where more risk is acceptable).
5. Properly aggressive folding wingtips. Real estate is expensive, in particular at established airports. To get the next generation wings with up to a 7% reduction in fuel burn thanks to underside laminar flow, a huge wingspan is required.
6. Organic structures (mostly airframe). This can save a lot of weight, but costs a huge amount in engineering design hours and planning repairs, I expect this technology is 20+ years away.

This tax creates an issue that airlines would have no money to buy aircraft, therefore, the airframers and engine makers would have no money to develop. Since aviation is such a low fraction of carbon, it would do far more to tax large TVs to cut carbon (I'm serious). However, there is a proven tech for low carbon power generation only France embraced...

Considering a BWB with the latest engines might save 20% in fuel at extreme risk of failure to the innovating companies, an 80% fuel tax would be a non-starter. Long haul air travel tends to have 40% of cost the fuel (or more).

How about we learn to grow our fuel or something else less drastic that guarantees every plane in production has a 5+ year period of zero demand. That proposal would be worse than Smoot-Hawley (the act of Congress that made a recession the Great Depression when combined with certain other silly policies).

Lightsaber



Lightsaber
I cannot wait to get vaccinated to live again! Warning: I simulated that it takes 50%+ vaccinated to protect the vaccinated and 75%+ vaccinated to protect the vac-hesitant.
 
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Re: Airbus and Boeing playing chicken with production rates?

Sun Sep 13, 2020 8:45 pm

2175301 wrote:
lightsaber wrote:
Excluding the 747, CRJ, and A380, we are on track to probably see another 2 or 3 commercial aircraft lines halt production.Lightsaber


Overall great post above from which I extracted the quoted statement: You left the 767 off of your list. Its production line is humming along at pre-covid levels and will continue. I believe that the 767 and 747 lines are an advantage for Boeing at this time.

Have a great day,

I left the 767 line off the list as it tends to distract and we have other threads on a possible re-engine. I think it might just be possible to PiP prior engines just enough to get around the 2028 carbon emissions limit, but that quickly goes off topic, but they'll still make the tankers for years to come.

The 747 is one of my favorites, but as fuselage production is already done and aircraft are leaving the factory at a loss, I do not see how that is an advantage to Boeing. If an airline wants a high capacity plane, talk to Boeing about a 779 or 777xF. However, because of the 'game of chicken' of producing too many airframes for too long, I want to be more optimistic on the 777x than I am. It is a great aircraft. The amount of technology thrown in to make it efficient is pretty extreme (see my last post, where I ignored the 'internal stretch' the lower height ribs allow for a better 10 across seating).

If you read my above post, you might think I am sad the NMA is shelved. IMHO, there is a tremendous market for a new modern small widebody. There is absolutely nothing out there well optimized for the 3,500nm to 5,500nm range. Oh, The A321xLR will own the lower end of that market because it is there, but we quickly go off topic pointing out in no way is the wing (too low of cruise altitude in all stages of cruise in the high density low altitude air), nor engines optimized for the missions it will perform; it will be easy to design a new aircraft to take the long missions away. That is fine, the A321xLRs then just revert to normal A321 duty and there will be a long enough period of time to amortize the added costs Airbus charges for the A321xLR, so make no mistake, a win for Airbus. But a win with a finite shelf life that was just enough to spoil the NMA's business case.

I posted links above, it will get really interesting in about 18 months. I pick that time frame is that is how long I believe it will take to bring the leasing companies to the point they do not want to finance new aircraft as new deliveries will be bringing down the price of their portfolio too much. We have an aircraft production and finance system built on low interest rates with low risk. What happens when risk (in this case too many early lease returns) are realized on a big scale?

I would love to know how many aircraft have already been returned. I can list this airline and that airline, but for many airlines, they are just returning at lease expiration while trying to not take on new aircraft. Since we missed the busy season (Northern Hemisphere summer) and quarantine laws look to be already spoiling the busy India/US&EU winter and Australian "Christmas" rushes, this is a bleak year for aviation.

IMHO, it must be reduced for next year just due to people's missed income and how cruise lines and hotels will have to react to survive (in a word, mothballed; until rates return).

Lightsaber
I cannot wait to get vaccinated to live again! Warning: I simulated that it takes 50%+ vaccinated to protect the vaccinated and 75%+ vaccinated to protect the vac-hesitant.
 
smartplane
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Re: Airbus and Boeing playing chicken with production rates?

Sun Sep 13, 2020 9:04 pm

lightsaber wrote:
....it will get really interesting in about 18 months. I pick that time frame is that is how long I believe it will take to bring the leasing companies to the point they do not want to finance new aircraft as new deliveries will be bringing down the price of their portfolio too much. We have an aircraft production and finance system built on low interest rates with low risk. What happens when risk (in this case too many early lease returns) are realized on a big scale.

Leasing companies have already reached those conclusions. They are still working on strategies and implementation.

Watch the OEM's cast the big lease players aside, bringing finance completely in-house. They might as well do so, as they often package buybacks for lessors to manage new and used values.

Boeing has the larger direct exposure now through BCC, but Airbus won't be far behind with buybacks and strategic alliances.
 
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Re: Airbus and Boeing playing chicken with production rates?

Sun Sep 13, 2020 10:05 pm

smartplane wrote:
lightsaber wrote:
....it will get really interesting in about 18 months. I pick that time frame is that is how long I believe it will take to bring the leasing companies to the point they do not want to finance new aircraft as new deliveries will be bringing down the price of their portfolio too much. We have an aircraft production and finance system built on low interest rates with low risk. What happens when risk (in this case too many early lease returns) are realized on a big scale.

Leasing companies have already reached those conclusions. They are still working on strategies and implementation.

Watch the OEM's cast the big lease players aside, bringing finance completely in-house. They might as well do so, as they often package buybacks for lessors to manage new and used values.

Boeing has the larger direct exposure now through BCC, but Airbus won't be far behind with buybacks and strategic alliances.


What I am discussing is still a ways out. With the US and EU central banks pumping money into the economy, the leasing companies still want new business today. However, at some point it will be too much.

Neither Boeing nor Airbus have the cash to cast the big lease companies assidde. They are running into cash flow issues which hampers their ability to finance aircraft for customers. This will be a very interesting financial situation.

Either way, Airbus and Boeing will have to cut production (ok, Boeing mostly not ramping up MAX as much and ramping down 787, Airbus has to rationalize their production, both narrowbody and widebody production is far too high).

I still think at least 3 production lines will have to stop in addition to the 3 lines we know are stopping (747, CRJ, and A380).

Lightsaber
I cannot wait to get vaccinated to live again! Warning: I simulated that it takes 50%+ vaccinated to protect the vaccinated and 75%+ vaccinated to protect the vac-hesitant.
 
Sokes
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Re: The case for more aircraft production cuts/playing chicken

Mon Sep 14, 2020 3:34 am

par13del wrote:
Is this just another way of introducing the EU tax scheme which failed a couple years ago?

Yes.
With the difference that airlines get money for survival beforehand.
Why can't the world be a little bit more autistic?
 
JayinKitsap
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Re: The case for more aircraft production cuts/playing chicken

Mon Sep 14, 2020 5:49 am

Sokes wrote:
JayinKitsap wrote:
...
I agree that balance between production and demand needs to occur, but do we know that balance yet. Six months from now the OEM's will have some better information to adjust production.
...
There is probably 5 years worth of excess planes on the market right now, it will be years before the civil market has its next good year.

I believe your two statements contradict each other?
After half year virus restrictions there is five years excess?


There is a huge glut of planes right now, if planes have a 25 year useful life about 4% need to be retired and replaced each year to keep the same system capacity, which is the 100% point. Currently, only passengers are at only about 33%, how many months will it take to get to 80% recovered. At the 4% replacement rate to stay even that amounts to 5 years of future needed planes already in service.

We are 6 months into COVID, the market has certainly bottomed out, but is now bouncing around with little signs of direction. For the OEM's it is desirable to not reduce rates too far, see what the market can support in 6 months then adjust to fit (probably down by a good bit). It will be tricky as the airlines are balancing the contract obligations with the ability to finance the required deliveries.

The backlogs must be revisited - what planes go into production on schedule, what planes are getting deferred and to when, what swaps are happening (321 to 320 say or visa versa), and which planes are getting cancelled. Similar is happening in the leasing market. It will be at least 6 more months before these schedules get settled and production rates can properly be determined. Over production might be OK, short term it means some stored planes, but a year from now production needs to be balanced with takeup.

As you noted, there are a lot of old planes that will go to the desert early, and most of the 737 classics, the last of the MD produced planes, the 747, and the A340 all may soon be just a memory.
 
Sokes
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Re: The case for more aircraft production cuts/playing chicken

Mon Sep 14, 2020 5:59 am

lightsaber wrote:
An 80% fuel tax is a great way to ensure there is no recovery in aviation.
...
Fuel is always a high expense. I can guarantee quite a few countries would not impose this tax, putting those countries that do in a poor position to compete.
...

This tax creates an issue that airlines would have no money to buy aircraft, therefore, the airframers and engine makers would have no money to develop.
...
How about we learn to grow our fuel or something else less drastic that guarantees every plane in production has a 5+ year period of zero demand. That proposal would be worse than Smoot-Hawley (the act of Congress that made a recession the Great Depression when combined with certain other silly policies).
Lightsaber

1) Germans have to pay high taxes for petrol. It's known that the Energiewende causes electricity prices for consumers to be among the highest in the world. Even though Germans do drive cars and use electricity.

A friend of mine sometimes takes weekend holiday flights. Some demand is of doubtful value with high CO2 footprint. But I doubt he will stop flying if ticket prices go up 25%. With tax on fuel his flights will at least do good to society.

2) When forests were dying in 1980s Germany because of acid rain society demanded that coal power plants add smoke cleaning technologies. Industry warned Germany may loose competitiveness. Instead environmental technology became a German export hit.
One can make laws that international flights have to buy fuel at departures.
Yes, Emirates may profit. But countries can make bilateral treaties concerning number of flights taking fuel tax into account.

3) On the opposite. I said airlines get subsidy equivalent to three years fuel bill. There would be a high motivation to retire less efficient models.

4) To achieve 80% renewable energy (not only electricity) penetration may be half the effort than 100%.
Take a small village with housing density too low for district heating. Each house can have a huge hot water tank and solar collectors. Here again 80% (60%?) demand cover is reasonable to achieve. But a biomass heating for a few days in February will still be necessary.
It's not only planes that will have energy demand for biomass.

I disagree with the comparison with the Great Depression.
Is there historic evidence that high oil prices lead to reduced ticket demand?
The answer is obviously yes, but how elastic is the demand curve?
2006-2014 had mostly high oil prices. I believe demand for new planes was o. k. in that time.

https://en.wikipedia.org/wiki/Price_of_oil

I believe a fuel tax will not have a dramatic effect on demand. Instead it will lead to more money being available for replacements.
Didn't airlines try to replace less efficient models when oil price was high?

It's difficult what to attribute to low interest and what to oil price.
I can't know for sure, I believe nor can you.

You spoke of the innovations of B777X.
It was launched in 2013, a year of high oil prices.
Oil peaked 1980. As a consequence we got CFM56 in 1984. The geared turbofan was committed to at another oil price spike.
How much innovation for narrowbody engines in the decades of low oil prices in between?

I may be wrong about the 80% or the three years fuel bill subsidy, though. These are guesstimates.
Why can't the world be a little bit more autistic?
 
JayinKitsap
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Re: The case for more aircraft production cuts/playing chicken

Mon Sep 14, 2020 6:18 am

There have been many examples where increasing taxes slows or kills the industry, reducing taxes can help industries recover faster. Reduced production volumes has increased total cost, so giving tax breaks of say 5% of costs changes the break even point on many flights, starting recovery. Adding 5% would cause a contraction.

Aviation is only a part of the whole economy, changing tax rates in the system can mean the difference between decline and recover. We need recovery right now.

___

Impressive list of improvements, say 5 years out during a recovery the NMA-B could return to the scene, picking up all of the new cockpit changes for a new generation, really long wings hinged to still fit C for narrow bodies and D for widebodies. So far, on the 779 the outer wingtip has no control surfaces nor fuel, moving the hinge inboard may require control surfaces making things more complicated.

COVID has drastically changed the market, a new clean sheet in the part of the market without competition may be better than building planes where there is a glut. It seems that this glut is the worst in the largest widebodies.






lightsaber wrote:
An 80% fuel tax is a great way to ensure there is no recovery in aviation.

Fuel is always a high expense. I can guarantee quite a few countries would not impose this tax, putting those countries that do in a poor position to compete.

There are other threads complaining the new generation of aircraft have too many problems. As fuel is a high expense of aviation, there isn't a bunch of off the shelf technology ready to implement. There are a bunch of ideas ready to implement in the future

Short term "ready technology". This can be put into new engines for a few hundred million dollars, or as part of a more extensive PiP for older engines.
1. Pratt's variable fan nozzle, improves takeoff and climb thrust with a small cruise fuel efficiency gain.
2. GE's variable turbine inlet guide vane cooling. On LEAP and GE9X, it could be retrofitted to the GEnX
3. Pratt 3.5:1 gearbox. Ready for when Pratt gets onto a widebody.
4. Both Boeing and Airbus can do some underside laminar flow (I believe this is why the 777x has folding wingtips as far higher aspect ratio wings are an enabling feature for this technology).
5. CFRP wings (some have it, most don't). The cold cure MS-21 wings will dramatically bring down the costs of CFRP wings.
6. More electrical subsystems. Saves a little fuel, saves a lot of maintenance.
7. unstable center of gravity (the 777 has been flying with meta stable, UAS systems have proven the unstable). However, this would probably be a stretch of the 1st version of a new aircraft.
8. More titanium. 3D printing has turned the aerospace world upside down to make some parts now cheaper to make out of titanium than out of aluminum.


Technology coming out in the GE9x (777x engine): These are not cheap technologies to develop
1. CMC turbine inlet guide vanes (CMCs are not ready for rotating blades until the strength is improved which is actually achieving a higher density).
2. More advanced cooling, for example, a 2nd high turbine, turbine clearance control valve.
3. Faster high spool (Mach # is the important criteria). This improves high turbine and high compressor efficiency, it requires developing seals with much higher seal velocities (a problem in the PW1100G), bearings, and being much more precise on shaft dynamics.
4. The GE9x is the first full electrical subsystem engine (far more than the GEnX). More work to do on the airframe.
5. Folding wingtips. This allows a greater wingspan with the minor improvement in efficiency that provides on its own. I look at that wing and I see a partial underside laminar flow wing. That will save a nice amount of fuel burn.
6. 3D printed engine parts.
https://3dprintingindustry.com/news/boe ... ht-167793/

Future technology we're waiting for:
1. CMC turbine blades (by this, I mean the rotating turbine blades). The 2nd stage of the high turbine might be possible in 5 years, it might not. The first stage of the high turbine is at least 15 years in the future.
2. Variable pitch fan blades. This was part of a RR demonstrator, but Pratt has tried in the past too. This is tough to work out all the failure modes.
3. Blended Wing Body. (BWB). I believe the evacuation issue has been solved. However, this is one heck of a risk and could bankrupt either Boeing or Airbus, so the risk will keep this technology on the shelf. The vertical stabilizer is literally a drag.
4. GFRP. A stronger fiber than CFRP. More work needs to be done to determine all the failure modes (great stuff on satellites and military where more risk is acceptable).
5. Properly aggressive folding wingtips. Real estate is expensive, in particular at established airports. To get the next generation wings with up to a 7% reduction in fuel burn thanks to underside laminar flow, a huge wingspan is required.
6. Organic structures (mostly airframe). This can save a lot of weight, but costs a huge amount in engineering design hours and planning repairs, I expect this technology is 20+ years away.

This tax creates an issue that airlines would have no money to buy aircraft, therefore, the airframers and engine makers would have no money to develop. Since aviation is such a low fraction of carbon, it would do far more to tax large TVs to cut carbon (I'm serious). However, there is a proven tech for low carbon power generation only France embraced...

Considering a BWB with the latest engines might save 20% in fuel at extreme risk of failure to the innovating companies, an 80% fuel tax would be a non-starter. Long haul air travel tends to have 40% of cost the fuel (or more).

How about we learn to grow our fuel or something else less drastic that guarantees every plane in production has a 5+ year period of zero demand. That proposal would be worse than Smoot-Hawley (the act of Congress that made a recession the Great Depression when combined with certain other silly policies).

Lightsaber



Lightsaber
 
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Re: The case for more aircraft production cuts/playing chicken

Mon Sep 14, 2020 12:14 pm

JayinKitsap wrote:
There have been many examples where increasing taxes slows or kills the industry, reducing taxes can help industries recover faster. Reduced production volumes has increased total cost, so giving tax breaks of say 5% of costs changes the break even point on many flights, starting recovery. Adding 5% would cause a contraction.

Aviation is only a part of the whole economy, changing tax rates in the system can mean the difference between decline and recover. We need recovery right now.

___

Impressive list of improvements, say 5 years out during a recovery the NMA-B could return to the scene, picking up all of the new cockpit changes for a new generation, really long wings hinged to still fit C for narrow bodies and D for widebodies. So far, on the 779 the outer wingtip has no control surfaces nor fuel, moving the hinge inboard may require control surfaces making things more complicated.

COVID has drastically changed the market, a new clean sheet in the part of the market without competition may be better than building planes where there is a glut. It seems that this glut is the worst in the largest widebodies.






lightsaber wrote:
An 80% fuel tax is a great way to ensure there is no recovery in aviation.

Fuel is always a high expense. I can guarantee quite a few countries would not impose this tax, putting those countries that do in a poor position to compete.

There are other threads complaining the new generation of aircraft have too many problems. As fuel is a high expense of aviation, there isn't a bunch of off the shelf technology ready to implement. There are a bunch of ideas ready to implement in the future

Short term "ready technology". This can be put into new engines for a few hundred million dollars, or as part of a more extensive PiP for older engines.
1. Pratt's variable fan nozzle, improves takeoff and climb thrust with a small cruise fuel efficiency gain.
2. GE's variable turbine inlet guide vane cooling. On LEAP and GE9X, it could be retrofitted to the GEnX
3. Pratt 3.5:1 gearbox. Ready for when Pratt gets onto a widebody.
4. Both Boeing and Airbus can do some underside laminar flow (I believe this is why the 777x has folding wingtips as far higher aspect ratio wings are an enabling feature for this technology).
5. CFRP wings (some have it, most don't). The cold cure MS-21 wings will dramatically bring down the costs of CFRP wings.
6. More electrical subsystems. Saves a little fuel, saves a lot of maintenance.
7. unstable center of gravity (the 777 has been flying with meta stable, UAS systems have proven the unstable). However, this would probably be a stretch of the 1st version of a new aircraft.
8. More titanium. 3D printing has turned the aerospace world upside down to make some parts now cheaper to make out of titanium than out of aluminum.


Technology coming out in the GE9x (777x engine): These are not cheap technologies to develop
1. CMC turbine inlet guide vanes (CMCs are not ready for rotating blades until the strength is improved which is actually achieving a higher density).
2. More advanced cooling, for example, a 2nd high turbine, turbine clearance control valve.
3. Faster high spool (Mach # is the important criteria). This improves high turbine and high compressor efficiency, it requires developing seals with much higher seal velocities (a problem in the PW1100G), bearings, and being much more precise on shaft dynamics.
4. The GE9x is the first full electrical subsystem engine (far more than the GEnX). More work to do on the airframe.
5. Folding wingtips. This allows a greater wingspan with the minor improvement in efficiency that provides on its own. I look at that wing and I see a partial underside laminar flow wing. That will save a nice amount of fuel burn.
6. 3D printed engine parts.
https://3dprintingindustry.com/news/boe ... ht-167793/

Future technology we're waiting for:
1. CMC turbine blades (by this, I mean the rotating turbine blades). The 2nd stage of the high turbine might be possible in 5 years, it might not. The first stage of the high turbine is at least 15 years in the future.
2. Variable pitch fan blades. This was part of a RR demonstrator, but Pratt has tried in the past too. This is tough to work out all the failure modes.
3. Blended Wing Body. (BWB). I believe the evacuation issue has been solved. However, this is one heck of a risk and could bankrupt either Boeing or Airbus, so the risk will keep this technology on the shelf. The vertical stabilizer is literally a drag.
4. GFRP. A stronger fiber than CFRP. More work needs to be done to determine all the failure modes (great stuff on satellites and military where more risk is acceptable).
5. Properly aggressive folding wingtips. Real estate is expensive, in particular at established airports. To get the next generation wings with up to a 7% reduction in fuel burn thanks to underside laminar flow, a huge wingspan is required.
6. Organic structures (mostly airframe). This can save a lot of weight, but costs a huge amount in engineering design hours and planning repairs, I expect this technology is 20+ years away.

This tax creates an issue that airlines would have no money to buy aircraft, therefore, the airframers and engine makers would have no money to develop. Since aviation is such a low fraction of carbon, it would do far more to tax large TVs to cut carbon (I'm serious). However, there is a proven tech for low carbon power generation only France embraced...

Considering a BWB with the latest engines might save 20% in fuel at extreme risk of failure to the innovating companies, an 80% fuel tax would be a non-starter. Long haul air travel tends to have 40% of cost the fuel (or more).

How about we learn to grow our fuel or something else less drastic that guarantees every plane in production has a 5+ year period of zero demand. That proposal would be worse than Smoot-Hawley (the act of Congress that made a recession the Great Depression when combined with certain other silly policies).

Lightsaber



Lightsaber

The glut is in larger widebodies. A clean sheet 7 or 8 across has an opportunity.

But first, getting through the next 5 years. Airlines accepting aircraft are running out of cash. This is not a stable situation.

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Re: Airbus and Boeing playing chicken with production rates?

Mon Sep 14, 2020 1:50 pm

lightsaber wrote:
............................. Neither Boeing nor Airbus have the cash to cast the big lease companies assidde. They are running into cash flow issues which hampers their ability to finance aircraft for customers. This will be a very interesting financial situation.

Either way, Airbus and Boeing will have to cut production (ok, Boeing mostly not ramping up MAX as much and ramping down 787, Airbus has to rationalize their production, both narrowbody and widebody production is far too high).

I still think at least 3 production lines will have to stop in addition to the 3 lines we know are stopping (747, CRJ, and A380).

Lightsaber


What 3 production lines? I assume you are talking just Boeing and Airbus and permanent closure of the lines?

The only obvious one is the A330? I can't imagine either Boeing or Airbus closing any other lines. The 777 and A220 programs both have challenges, but most of the money has already been spent and the long term prospects of both lines are very good.
 
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Re: Airbus and Boeing playing chicken with production rates?

Mon Sep 14, 2020 3:02 pm

Jetport wrote:
lightsaber wrote:
............................. Neither Boeing nor Airbus have the cash to cast the big lease companies assidde. They are running into cash flow issues which hampers their ability to finance aircraft for customers. This will be a very interesting financial situation.

Either way, Airbus and Boeing will have to cut production (ok, Boeing mostly not ramping up MAX as much and ramping down 787, Airbus has to rationalize their production, both narrowbody and widebody production is far too high).

I still think at least 3 production lines will have to stop in addition to the 3 lines we know are stopping (747, CRJ, and A380).

Lightsaber


What 3 production lines? I assume you are talking just Boeing and Airbus and permanent closure of the lines?

The only obvious one is the A330? I can't imagine either Boeing or Airbus closing any other lines. The 777 and A220 programs both have challenges, but most of the money has already been spent and the long term prospects of both lines are very good.

I look at the market and see more over-supply than can be sustained.

I'm referring to more than Boeing and Airbus. Current production lines:
Airbus:
A380 (scheduled to close)
A350 (healthy backlog, needs a cost reduction)
A330, on life support
A320 (healthy backlog, but airlines cannot afford to accept at current rates). Too complex of structure.
A220: good future

Boeing:
747 (scheduled to close)
777, has freighters to survive
787, (healthy backlog, will downsize to one line)
767, freighters and tanker
737: will restart, has P-8 helping

Other:
Embraer E1/E2, no RJ demand
MRJ, not certified, no RJ demand
CRJ, (scheduled to close)
Q400 restart not healthy, no regional demand
ATR, good backlog, but no Regional demand

ARJ-21, government supported
C919, not certified, government supported
MA60/600/700 despite the comedy of errors, government support keeps line running

There are just more production lines producing more types of aircraft than the market wants and can sustain.

I listed 18 commercial aircraft in production or soon to be in production. With only 15 scheduled to be producing in 2 years, that leaves 3 to close in my opinion. Picking the 3 is a very A vs. B vs. China vs. E vs. Japan excercise.

I'm not betting against factory freighters (767, 777). I'm not betting against the A320 or MAX (too strategic) or A350 or 787 (too much backlog, future potential. That leaves 9 products competing for scraps of sales vs. the huge used availability and sales from the six lines I'm not betting against.

I honestly don't know. There just isn't enough money to keep 15 airframes in production on 19 production lines.

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Re: The case for more aircraft production cuts/playing chicken

Mon Sep 14, 2020 3:27 pm

lightsaber wrote:
I'm not betting against factory freighters (767, 777). I'm not betting against the A320 or MAX (too strategic) or A350 or 787 (too much backlog, future potential. That leaves 9 products competing for scraps of sales vs. the huge used availability and sales from the six lines I'm not betting against.

I honestly don't know. There just isn't enough money to keep 15 airframes in production on 19 production lines.

Lightsaber


I agree, something has to give but it feels like the chaff has been cut already from the big boys.

The A330NEO feels like it’s on life support but then the life support system it has is to a certain degree the same as the 767 in that it’s freighters (admittedly not as many) and tankers (again probably not as many). How cheaply can the line tick over and is it suitable for low scale like the 767... I don’t know the answer to that but my sense is that it’s position is rather precarious.

Fred


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Re: The case for more aircraft production cuts/playing chicken

Mon Sep 14, 2020 3:40 pm

At first, I was shocked to hear of how much the cut was going to be for the A320 programme, and it feels strange to think it will be cut further.

It's hard to visualise the production rates going forward when that itself is only a small cog in a very large machine.
 
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Re: The case for more aircraft production cuts/playing chicken

Mon Sep 14, 2020 3:50 pm

Not sure what ATR's backlog is and order prospects, they will probably stay into production.

I really like the Q400 but with Flybe going BK there are a lot of available used models, it is likely 1 of the 3 to go.

MRJ is likely stalled for a few years, or a few decades.
 
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Re: The case for more aircraft production cuts/playing chicken

Mon Sep 14, 2020 6:34 pm

flipdewaf wrote:
I agree, something has to give but it feels like the chaff has been cut already from the big boys.

As we Americans say, when there is no more fat to cut away, you have to cut off meat. This refers to layoffs when a company must cull employees who they want to keep or stop selling products that have a future, but not near term.

With this downturn, I just see no way cutting from 22 production lines to 19 is enough of a cut. Below I note 2 more production lines I forgot about.

Now I advocate an A320 further production cut and a small ramp up in MAX production.

I also advocate a further reduction in A350 and 787 production.

The 777 will have to drop to a very low rate if passenger planes (to keep vendors alive) and freighters.

The 767 won't notice a thing (no passenger production).

So this begs what next? Delta, TAP, Azul, and AirAsia are all trying to conserve cash. That hurts the A330NEO. RwanAir cancelled their A330NEO leases (as well as MAX leases):
https://www.ch-aviation.com/portal/news/95190

Although Starlux's order is great news.

The A220 will hurt, but I see it pulling through.

The one's most in danger:

1. Embraer's E-jets were hurting for backlog before Covid19. This line is in danger.

2. The Q400 is in deep danger.

3. The MRJ money pit is also in danger. However, if certified, Mitsubishi could wait to start production.

4/5/6. None of the Chinese projects make any financial sense. The ARJ-21 and MA-60/600/700 have been vwry poor performers on dispatch reliability. The C919 has issues. Aviation requires bottom up feedback that seems to be missing. If China subsidizes these airframes, I believe there will be a trade war much larger than before.

7. I forgot the Su100 (superjet). I think this is the end.


I think ATR will trudge through.

I also forgot to mention the MS-21. So airframe #17 and production line #21. It might still go forward. I do not know.

This recession is about to get bad.

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Re: The case for more aircraft production cuts/playing chicken

Mon Sep 14, 2020 8:56 pm

Another way to look at things though - is a reduction in existing lines. Both the A320 and B737 are assembled at multiple "sub" lines. I see about half of each "sub" lines being mothballed or closed at this time. A320 production is scattered all over the place.... That makes it much more difficult to find a solution. Some of those places are going to have to be closed.

I believe that Russia will subsidize the Su Superjet and keep it in production.

Have a great day,
 
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Re: The case for more aircraft production cuts/playing chicken

Mon Sep 14, 2020 9:45 pm

Airbus is admitting they were too optimistic on recovery and more layoffs are likely:

“I owe it to you to be transparent: it’s unlikely that voluntary departures will be enough,” Faury wrote in the letter distributed on Friday evening.
...
“Unfortunately, the recovery in airline traffic over the summer period has not been at the level the industry was counting on,” Faury wrote.

“We must now prepare for a crisis that will probably be even deeper and longer than the previous scenarios suggested”.

Ref: https://www.reuters.com/article/us-airb ... SKBN26522J

Sad that it is coming to this. The "adjustments" in production seem to be likely.
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Re: The case for more aircraft production cuts/playing chicken

Mon Sep 14, 2020 11:43 pm

lightsaber wrote:
Now I advocate an A320 further production cut and a small ramp up in MAX production


Let's use the articles you posted to try to quantify these and the other models a little better.

The 2nd Aviation Week article you linked to forecasts a little over 1300 deliveries for 2021, mixed at 71% narrowbodies, 16% widebodies, 7% regional jets, and 6% turboprops.

Here's roughly how I see that breaking down. The first line for each bullet is the model numbers I'm assuming fit in the Aviation Week forecast category, and roughly what rate Aviation Week has forecast deliveries for 2021 on average (we should assume the year will be back-loaded). The second line is what I know or estimate of the planned or recent production rates, followed by the percent of Aviation Week's forecast for the segment.

  • 737 + A320 + CSeries (C919 and MC-21, neither of which are certified yet): 77 per month
    - Planned: 31 + 40 + 6? = 77 per month - 100%
  • 787 + 777/777X + 767 + 747 + A350 +A330NEO + A380: 17 per month
    - Planned: 6 + 2.5 + 3 + 0.5 + 6 + 2 + 0.5 = 20.5 - 120%
  • ERJ + MRJ + AJR21 + SSJ: 8 per month
    - Planned: 5? + 0 + 1 + 1? = 7 - 88%
  • ATR72 + ?: 7 per month
    - Planned: ? - ? %

A few specific comments, which parallel yours:
737 and A320 - I think they'll continue to build and park. Maybe they'll end up parking 5-10 or so a month next year, but then keep the production rates low even as demand rises again in order to clear that backlog.

787 and A350 - We've talked already about widebody pain, it looks like they will need to continue the discussions of a further rate cut, or more parked frames. I suspect they will park frames

777 - At the targeted rates, they have 2 years of production for the legacy version, mostly freighters. Combined with a low rate of 777X's to accumulate and park until certification, I don't think there will be any new surprises here:

747 and A380 - the former are freighters and will get delivered. The remaining A380's are a small enough part of the picture that if any of them get cancelled, it doesn't change the big picture much.

Regionals and turboprops - This segment looks like it will consist of Embraer and ATR, for all intents and purposes. I will watch hopefully to see who else survives.

My overall take:
The key strategy right now is not trying to cut production as low as the demand. That would kill the supply chain and eviscerate their skilled workforces. They'll park planes because they have the cash to keep their suppliers alive and their workforces diminished but intact, and building up excess near term inventory is the most sensible way to utilize that money. They may continue to park planes through much of 2021.

2022 and a couple additional years will be used to deliver those backlogs. Passenger volumes might not yet be at 2019 levels, but hopefully close enough that airlines are retiring old frames at a pace roughly matching deliveries.
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 1:02 am

iamlucky13 wrote:
lightsaber wrote:
Now I advocate an A320 further production cut and a small ramp up in MAX production


Let's use the articles you posted to try to quantify these and the other models a little better.

The 2nd Aviation Week article you linked to forecasts a little over 1300 deliveries for 2021, mixed at 71% narrowbodies, 16% widebodies, 7% regional jets, and 6% turboprops.

Here's roughly how I see that breaking down. The first line for each bullet is the model numbers I'm

assuming fit in the Aviation Week forecast category, and roughly what rate Aviation Week has forecast deliveries for 2021 on average (we should assume the year will be back-loaded). The second line is what I know or estimate of the planned or recent production rates, followed by the percent of Aviation Week's forecast for the segment.

  • 737 + A320 + CSeries (C919 and MC-21, neither of which are certified yet): 77 per month
    - Planned: 31 + 40 + 6? = 77 per month - 100%
  • 787 + 777/777X + 767 + 747 + A350 +A330NEO + A380: 17 per month
    - Planned: 6 + 2.5 + 3 + 0.5 + 6 + 2 + 0.5 = 20.5 - 120%
  • ERJ + MRJ + AJR21 + SSJ: 8 per month
    - Planned: 5? + 0 + 1 + 1? = 7 - 88%
  • ATR72 + ?: 7 per month
    - Planned: ? - ? %

A few specific comments, which parallel yours:
737 and A320 - I think they'll continue to build and park. Maybe they'll end up parking 5-10 or so a month next year, but then keep the production rates low even as demand rises again in order to clear that backlog.

787 and A350 - We've talked already about widebody pain, it looks like they will need to continue the discussions of a further rate cut, or more parked frames. I suspect they will park frames

777 - At the targeted rates, they have 2 years of production for the legacy version, mostly freighters. Combined with a low rate of 777X's to accumulate and park until certification, I don't think there will be any new surprises here:

747 and A380 - the former are freighters and will get delivered. The remaining A380's are a small enough part of the picture that if any of them get cancelled, it doesn't change the big picture much.

Regionals and turboprops - This segment looks like it will consist of Embraer and ATR, for all intents and purposes. I will watch hopefully to see who else survives.

My overall take:
The key strategy right now is not trying to cut production as low as the demand. That would kill the supply chain and eviscerate their skilled workforces. They'll park planes because they have the cash to keep their suppliers alive and their workforces diminished but intact, and building up excess near term inventory is the most sensible way to utilize that money. They may continue to park planes through much of 2021.

2022 and a couple additional years will be used to deliver those backlogs. Passenger volumes might not yet be at 2019 levels, but hopefully close enough that airlines are retiring old frames at a pace roughly matching deliveries.

You missed that links projection:
. "He predicts that A320neo rates will shrink to 24 aircraft per month in 2021, while A220 output will go from four per month in 2019 to two, new-build A350 aircraft will be down to three, and A330neo production will drop to two. "

I believe you neglected to include the MAX overhang and huge surplus of other aircraft produced in 2020. That chart has a need for 900 aircraft in 2020. We will have 500+ A320NEO, 500+ MAX, a few dozen A220, 30+ A330NEO, 70+ A350, 28 or so 777, about 80 787, plus all the others.

If that analysis is correct, That is over production of 300 to 400 this year that weighs down next year. You are asking Boeing and Airbus to float 20 to 40 billion euro/dollars. That assumes the already delivered and then returned to service MAX were included.

Also, note the cut in production in 2023 per the chart. That should be avoided.

I'm afraid the article's estimate seems about right. Airbus is overproducing and so is Boeing.
Airbus by about 20 per month.

Boeing is overproducing widebodies and has the MAX overhang.

Other airframers are pushing a rope (no demand).

The supply chain must be preserved. But whose?

Lightsaber

ps, I missed Revalation's link
https://www.reuters.com/article/us-airb ... SKBN26522J

Airbus is doing forced layoffs.
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Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 3:46 am

JayinKitsap wrote:
There have been many examples where increasing taxes slows or kills the industry, reducing taxes can help industries recover faster. Reduced production volumes has increased total cost, so giving tax breaks of say 5% of costs changes the break even point on many flights, starting recovery. Adding 5% would cause a contraction.

Aviation is only a part of the whole economy, changing tax rates in the system can mean the difference between decline and recover. We need recovery right now.

How do you know that adding 5% cost would cause a contraction? You don't, you assume.
Trump did strong cuts in tax for companies. As a consequence, are manufacturers rushing back to the US to open new factories?

Airlines need cash now. My proposal gives them lots of cash now in a way even aviation critics can agree. It will make sure less efficient models get retired. Higher proportion of cost for fuel means willingness to spend more on equipment. My intent is to help the value chain, not to destroy it.

My argument is only wrong if the demand curve is quite elastic, which I doubt.
It may also be that 40% fuel tax is a good idea, while 80% fuel tax is a bad idea.

"... for some products, the customer's desire could drop sharply even with a little price increase, and for other products, it could stay almost the same even with a big price increase. Economists use the term elasticity to denote this sensitivity to price increases. More precisely, price elasticity gives the percentage change in quantity demanded when there is a one percent increase in price, holding everything else constant."
https://en.wikipedia.org/wiki/Price_ela ... _of_demand

Anybody has evidence how price elastic the demand curve for flights is?
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Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 4:32 am

Sokes wrote:
JayinKitsap wrote:
There have been many examples where increasing taxes slows or kills the industry, reducing taxes can help industries recover faster. Reduced production volumes has increased total cost, so giving tax breaks of say 5% of costs changes the break even point on many flights, starting recovery. Adding 5% would cause a contraction.

Aviation is only a part of the whole economy, changing tax rates in the system can mean the difference between decline and recover. We need recovery right now.

How do you know that adding 5% cost would cause a contraction? You don't, you assume.
Trump did strong cuts in tax for companies. As a consequence, are manufacturers rushing back to the US to open new factories?

Airlines need cash now. My proposal gives them lots of cash now in a way even aviation critics can agree. It will make sure less efficient models get retired. Higher proportion of cost for fuel means willingness to spend more on equipment. My intent is to help the value chain, not to destroy it.

My argument is only wrong if the demand curve is quite elastic, which I doubt.
It may also be that 40% fuel tax is a good idea, while 80% fuel tax is a bad idea.

"... for some products, the customer's desire could drop sharply even with a little price increase, and for other products, it could stay almost the same even with a big price increase. Economists use the term elasticity to denote this sensitivity to price increases. More precisely, price elasticity gives the percentage change in quantity demanded when there is a one percent increase in price, holding everything else constant."
https://en.wikipedia.org/wiki/Price_ela ... _of_demand

Anybody has evidence how price elastic the demand curve for flights is?


Aviation is, in normal times, an elastic market.
"Significant demand response to airfare changes":

https://www.iata.org/en/iata-repository ... tervistas/

the consensus among most aviation economists has been
that demand for airline services is generally both price and income elastic.


The supply chain is about to be decimated. Unfortunately, there is no avoiding that. There is no R&D money for what you propose.

Another link on US airlines elastic demand:
https://www.forbes.com/sites/benbaldanz ... stead/amp/



Profit dropped over 70% due to a 25% increase in fuel prices and a mere 3% drop in fares. Capacity discipline needs to return. That means bad news for Boeing, Airbus, other airframers, and their sub-vendors.

If fuel prices increase, that means more capacity discipline.

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Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 6:16 am

lightsaber wrote:
iamlucky13 wrote:
lightsaber wrote:
Now I advocate an A320 further production cut and a small ramp up in MAX production


Let's use the articles you posted to try to quantify these and the other models a little better.

The 2nd Aviation Week article you linked to forecasts a little over 1300 deliveries for 2021, mixed at 71% narrowbodies, 16% widebodies, 7% regional jets, and 6% turboprops.

Here's roughly how I see that breaking down. The first line for each bullet is the model numbers I'm assuming fit in the Aviation Week forecast category, and roughly what rate Aviation Week has forecast deliveries for 2021 on average (we should assume the year will be back-loaded). The second line is what I know or estimate of the planned or recent production rates, followed by the percent of Aviation Week's forecast for the segment.

  • 737 + A320 + CSeries (C919 and MC-21, neither of which are certified yet): 77 per month
    - Planned: 31 + 40 + 6? = 77 per month - 100%
  • 787 + 777/777X + 767 + 747 + A350 +A330NEO + A380: 17 per month
    - Planned: 6 + 2.5 + 3 + 0.5 + 6 + 2 + 0.5 = 20.5 - 120%
  • ERJ + MRJ + AJR21 + SSJ: 8 per month
    - Planned: 5? + 0 + 1 + 1? = 7 - 88%
  • ATR72 + ?: 7 per month
    - Planned: ? - ? %

A few specific comments, which parallel yours:
737 and A320 - I think they'll continue to build and park. Maybe they'll end up parking 5-10 or so a month next year, but then keep the production rates low even as demand rises again in order to clear that backlog.

787 and A350 - We've talked already about widebody pain, it looks like they will need to continue the discussions of a further rate cut, or more parked frames. I suspect they will park frames

777 - At the targeted rates, they have 2 years of production for the legacy version, mostly freighters. Combined with a low rate of 777X's to accumulate and park until certification, I don't think there will be any new surprises here:

747 and A380 - the former are freighters and will get delivered. The remaining A380's are a small enough part of the picture that if any of them get cancelled, it doesn't change the big picture much.

Regionals and turboprops - This segment looks like it will consist of Embraer and ATR, for all intents and purposes. I will watch hopefully to see who else survives.

My overall take:
The key strategy right now is not trying to cut production as low as the demand. That would kill the supply chain and eviscerate their skilled workforces. They'll park planes because they have the cash to keep their suppliers alive and their workforces diminished but intact, and building up excess near term inventory is the most sensible way to utilize that money. They may continue to park planes through much of 2021.

2022 and a couple additional years will be used to deliver those backlogs. Passenger volumes might not yet be at 2019 levels, but hopefully close enough that airlines are retiring old frames at a pace roughly matching deliveries.

You missed that links projection:
. "He predicts that A320neo rates will shrink to 24 aircraft per month in 2021, while A220 output will go from four per month in 2019 to two, new-build A350 aircraft will be down to three, and A330neo production will drop to two. "


I saw the 24/month projection, but I based my post above on Aviation Week's projection. The 24/month projection did not come from Aviation Week, but from a firm identified in the article as "Agency Partners." Aviation Week did not forecast a specific A320 production rate, but rather a combined narrowbody delivery rate of approximately 71% of 1300+ deliveries.

These are uncertain times, so it's a not surprise that different analysts are coming up with different forecasts. Aviation Week clearly is aware of the Agency Partners forecast, but still have a differing forecast of their own.

lightsaber wrote:
I believe you neglected to include the MAX overhang and huge surplus of other aircraft produced in 2020. That chart has a need for 900 aircraft in 2020. We will have 500+ A320NEO, 500+ MAX, a few dozen A220, 30+ A330NEO, 70+ A350, 28 or so 777, about 80 787, plus all the others.

If that analysis is correct, That is over production of 300 to 400 this year that weighs down next year. You are asking Boeing and Airbus to float 20 to 40 billion euro/dollars. That assumes the already delivered and then returned to service MAX were included.


I also considered this, and didn't neglect it, but did handwave it rather than try to allocate them in by year. Yes, I'm suggesting that Boeing and Airbus will decide to float billions of dollars of delivery backlogs that might not start to shrink until late 2021, in order to smooth the whole production system out avoid the rehiring challenges, production disruption risks, reduced efficiency of varying the rates too much.

I also think they'll re-evaluate their rates at the time of the 2nd half earnings reports. I don't assume any of this is final. I just don't think they'll slash narrowbody rates by 60% for example, unless they expect short term (2-3 years) demand will stay lower than that.

lightsaber wrote:
Also, note the cut in production in 2023 per the chart. That should be avoided.


The chart is deliveries, not production. I don't know what drives that dip in their expectations. Regardless, a small dip in 2023 should be less painful than combining that dip with the more acute pain already being felt and planned to continue in 2021.

lightsaber wrote:
I'm afraid the article's estimate seems about right. Airbus is overproducing and so is Boeing.
Airbus by about 20 per month.


I agree that they are over-producing. The basic point is that I think it is at least partly strategic. I don't deny there are risks that the hole may be deeper than they have conceded so far, and frankly, if the Aviation Week forecast is met, I will breath a sigh of relief that it wasn't worse.

lightsaber wrote:
ps, I missed Revalation's link
https://www.reuters.com/article/us-airb ... SKBN26522J

Airbus is doing forced layoffs.


No surprise there. They already said in June they expect to eliminate 15,000 positions. That article seems to about further communication related to that original estimate. I suspect it won't be the last of the layoffs, but hopefully any future rounds won't be as large.

My entire premise above, by the way, is partially biased against being willing to believe as many of the people I know in aerospace will be laid off as would be dictated by a 60% production rate cut.
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 7:36 am

lightsaber wrote:
Aviation is, in normal times, an elastic market.
"Significant demand response to airfare changes":

https://www.iata.org/en/iata-repository ... tervistas/

the consensus among most aviation economists has been
that demand for airline services is generally both price and income elastic.


The supply chain is about to be decimated. Unfortunately, there is no avoiding that. There is no R&D money for what you propose.
Lightsaber


Thank you for the IATA link. It confirms what I thought.
p.vi:
"This report has revealed that there are different price elasticities associated with different uses.
When consumers are choosing between airlines on a route, or even between destinations for
holidays, conference locations, etc., there is a degree of price elasticity for airline seats. However,
if all competitors on a route, or if a wide range of routes all experience the same proportionate price
increase, the demand for airline services becomes less elastic. As a price increase is extended to
ever larger groups of competing airlines or competing destinations, then the overall demand for air
travel is revealed to be somewhat inelastic.

The implications of this are as follows:
ƒ For an airline on a given route, increasing price is likely to result in a more than proportionate
decrease in air travel. Lower fares will greatly stimulate traffic and raise revenues.
(i.e., airline specific fare changes are price elastic).
ƒ If all airlines on a given route increase fares by the same amount (e.g., due to the imposition of
passenger based airport fees that are passed on to the consumer), then the decrease in traffic
will be less than the former case.
ƒ If all airlines on a wide set of routes increase fares by roughly similar amounts (e.g., due to the
imposition of new market-wide taxes or to the working through of higher fuel or security costs)
then the decrease in traffic may be less or much less than proportional to the increase in fares.
(i.e., general increases in airline fares across a broad range of markets appear to be price
inelastic.)"

So if Lufthansa increases the price and Emirates doesn't, Lufthansa looses business. From this lobby groups conclude that fuel tax is harmful for aviation.

Also interesting p.3:
"Time period considered: elasticity tends to be greater over the long run because consumers
have more time to adjust their behaviour. For example, short-term demand for gasoline is very
inelastic (approximately -0.2)4 as consumers have little choice but to continue consuming in
order that they can travel to work, school etc., although they can cut down on some leisure or
discretionary trips or use other modes. The long-term elasticity is higher (about -0.7 – still
inelastic) as consumers can purchase smaller cars, move nearer to work and other behavioural
changes in order to reduce consumption."

That also is not surprising.
I don't dispute that on 400 km distance some people will switch to cars.
80% fuel tax may lead to 20% higher ticket prices which may lead to I guess 5-10% less demand. My argument is that retiring fuel inefficient planes will more than compensate for the decrease in ticket demand.
Higher fuel price justifies higher maintenance expenditure for fuel efficient engines, which also helps the value chain.

lightsaber wrote:
Another link on US airlines elastic demand:
https://www.forbes.com/sites/benbaldanz ... stead/amp/



Profit dropped over 70% due to a 25% increase in fuel prices and a mere 3% drop in fares. Capacity discipline needs to return. That means bad news for Boeing, Airbus, other airframers, and their sub-vendors.

If fuel prices increase, that means more capacity discipline.

Lightsaber

Your link doesn't work for me.
There has to be something wrong if airlines drop fares at a time when fuel prices increase.
I therefore doubt the drop in profit should be attributed to increased fuel price.
Why can't the world be a little bit more autistic?
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 11:41 am

Sokes wrote:
lightsaber wrote:
Aviation is, in normal times, an elastic market.
"Significant demand response to airfare changes":

https://www.iata.org/en/iata-repository ... tervistas/

the consensus among most aviation economists has been
that demand for airline services is generally both price and income elastic.


The supply chain is about to be decimated. Unfortunately, there is no avoiding that. There is no R&D money for what you propose.
Lightsaber


Thank you for the IATA link. It confirms what I thought.
p.vi:
"This report has revealed that there are different price elasticities associated with different uses.
When consumers are choosing between airlines on a route, or even between destinations for
holidays, conference locations, etc., there is a degree of price elasticity for airline seats. However,
if all competitors on a route, or if a wide range of routes all experience the same proportionate price
increase, the demand for airline services becomes less elastic. As a price increase is extended to
ever larger groups of competing airlines or competing destinations, then the overall demand for air
travel is revealed to be somewhat inelastic.

The implications of this are as follows:
ƒ For an airline on a given route, increasing price is likely to result in a more than proportionate
decrease in air travel. Lower fares will greatly stimulate traffic and raise revenues.
(i.e., airline specific fare changes are price elastic).
ƒ If all airlines on a given route increase fares by the same amount (e.g., due to the imposition of
passenger based airport fees that are passed on to the consumer), then the decrease in traffic
will be less than the former case.
ƒ If all airlines on a wide set of routes increase fares by roughly similar amounts (e.g., due to the
imposition of new market-wide taxes or to the working through of higher fuel or security costs)
then the decrease in traffic may be less or much less than proportional to the increase in fares.
(i.e., general increases in airline fares across a broad range of markets appear to be price
inelastic.)"

So if Lufthansa increases the price and Emirates doesn't, Lufthansa looses business. From this lobby groups conclude that fuel tax is harmful for aviation.

Also interesting p.3:
"Time period considered: elasticity tends to be greater over the long run because consumers
have more time to adjust their behaviour. For example, short-term demand for gasoline is very
inelastic (approximately -0.2)4 as consumers have little choice but to continue consuming in
order that they can travel to work, school etc., although they can cut down on some leisure or
discretionary trips or use other modes. The long-term elasticity is higher (about -0.7 – still
inelastic) as consumers can purchase smaller cars, move nearer to work and other behavioural
changes in order to reduce consumption."

That also is not surprising.
I don't dispute that on 400 km distance some people will switch to cars.
80% fuel tax may lead to 20% higher ticket prices which may lead to I guess 5-10% less demand. My argument is that retiring fuel inefficient planes will more than compensate for the decrease in ticket demand.
Higher fuel price justifies higher maintenance expenditure for fuel efficient engines, which also helps the value chain.

lightsaber wrote:
Another link on US airlines elastic demand:
https://www.forbes.com/sites/benbaldanz ... stead/amp/



Profit dropped over 70% due to a 25% increase in fuel prices and a mere 3% drop in fares. Capacity discipline needs to return. That means bad news for Boeing, Airbus, other airframers, and their sub-vendors.

If fuel prices increase, that means more capacity discipline.

Lightsaber

Your link doesn't work for me.
There has to be something wrong if airlines drop fares at a time when fuel prices increase.
I therefore doubt the drop in profit should be attributed to increased fuel price.

In an industry that grew over 8% and had good revenue, it shows how sensitive it is to fuel prices.

For new airframes/engines, we typically aim to capture a quarter to a third of the fuel savings (that pays the billions in R&D). Put another way, about one year of a great year, 2017, of all the airline profits pays for the development on a new aircraft and new engines.

https://www.usatoday.com/story/travel/f ... 586619002/

Fuel is 20% to 40% of the cost of flying. So a 25% fuel cost is a 5% to 10% cost increase. Combined with a trivial price decrease, we're looking at an 8% decrease (5%+3%) causing a 70% profit decrease. So your 80% fuel tax is a 16% to 32% cost increase.

The industry never has a 16% profit margin. It will collapse with the taxes you propose. That means aircraft demand is postponed (due to over-supply). What you propose would end the commercial vendors.

Lightsaber
ps
link works for me.
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Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 11:50 am

iamlucky13 wrote:
My entire premise above, by the way, is partially biased against being willing to believe as many of the people I know in aerospace will be laid off as would be dictated by a 60% production rate cut.

I work in that industry. I do not want the layoffs. Boeing and Airbus are running through cash too quickly and airlines are worse off.

Airbus' profits in the good times weren't high enough to ride this magnitude of a drop without my previously quoted production drops.

Boeing's 2q report had $4.3 billion go out when March was a normal (ish) delivery month.

Production needs to drop for Airbus by 20/month.
For Boeing, by a few 787 per month and reign back on MAX production restart to the absolute minimum.

Lightsaber
Ps, for example, AirAsiaX is being sued for not paying Aircraft leases. As the primary A330NEO buyer, they will not be receiving aircraft until the leasors are happier:

https://simpleflying.com/airasia-x-sued ... -payments/
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Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 12:32 pm

Sokes wrote:
I agree with Waterbomber. Let's just continue manufacturing. There are still inefficient models that can be replaced. B787, A350 and A320 can be produced with three months usual demand as inventory in normal times. In this situation even six months makes sense.

If people have to be sacked in a year, so be it. By that time other businesses may be able to absorb those laborers.
I understand that argument is less true for countries with trade deficit. But that's a different discussion.

"As of July 2019, 692 Boeing 737 Classic aircraft were in commercial service. This includes 297 -300s, 261 -400s, and 134 -500s.[17]"
https://en.wikipedia.org/wiki/Boeing_737_Classic.


I don’t think posting the number of 737 classics flying helps your case. If you look at the airfleets data for how many 737 classic airplanes Have gone into storage this year, it’s far fewer as a percentage than A320s or 737NGs since 50-75% of the 737 classics are now freighters. Similarly the number of crime 757s hasn’t dropped as a percentage as much as the A320 either since it’s a freighter. Is it time to ramp up the 737NGBCF and A321P2F lines?
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 1:41 pm

Weatherwatcher1 wrote:
Sokes wrote:
I agree with Waterbomber. Let's just continue manufacturing. There are still inefficient models that can be replaced. B787, A350 and A320 can be produced with three months usual demand as inventory in normal times. In this situation even six months makes sense.

If people have to be sacked in a year, so be it. By that time other businesses may be able to absorb those laborers.
I understand that argument is less true for countries with trade deficit. But that's a different discussion.

"As of July 2019, 692 Boeing 737 Classic aircraft were in commercial service. This includes 297 -300s, 261 -400s, and 134 -500s.[17]"
https://en.wikipedia.org/wiki/Boeing_737_Classic.


I don’t think posting the number of 737 classics flying helps your case. If you look at the airfleets data for how many 737 classic airplanes Have gone into storage this year, it’s far fewer as a percentage than A320s or 737NGs since 50-75% of the 737 classics are now freighters. Similarly the number of crime 757s hasn’t dropped as a percentage as much as the A320 either since it’s a freighter. Is it time to ramp up the 737NGBCF and A321P2F lines?

I'm going to expand (I agree with you Weatherwatcher1):
Freighters, excluding a small subset working express (but still include most express freighters) work so few hours per day, on average, most must be purchased used to make the business case.

Airfreight rates will spike, but almost never long enough to receive a new build freighter. Since conversions take 4 months or less, one can convert.

There are still 737 classic conversions happening. It us a low cost conversion with cheap stock.

Two of the airlines doing much better now are Delta and Allegiant. Since their finance costs are low (bought many used), they aren't suffering paying high lease fees. Allegiant only flys when fares are high. I personally have argued the last 5 years that Allegiant should buy NEOs; they did better financially ignoring me.

New aircraft must fly 8+ hours per day to pay for their high cost the first 7 years. By having MD-80s and MD-90s, Delta was able to cheaply reduce capacity.

If you want a good source of aircraft in service, this link (with about a 4 week lag, sometimes less, sometimes more):
https://www.airfleets.net/exploit/exploitation.htm

Talk about gas hogs, there are still 213 A300s flying.

Since my income is paid by aerospace R&D, bring on new projects! I'm enough of a realist that I'm going to take a position I don't really want for stable income.

As per my prior link, airlines must reduce capacity towards market demand:
https://www.tsa.gov/coronavirus/passenger-throughput

Yesterday 9/14, a whopping 30.3% of last year's demand (729558/2405832=.303).

Meggitt is a good bell weather of aviation vendor health: https://www.investorschronicle.co.uk/sh ... mic-storm/

While a quarter drop doesn't sound bad, since contracts are out 60+ days, the second quarter wasn't yet effected much by the downturn. Half their revenue (and more profit) is the refurbishment of eirn components.

For example, on those 737classics, Meggitt has, among other parts, the turbine clearance control valves. Refurbishing each of those makes as much profit as the revenue to ship one out new! :wideeyed: Meggitt would have to lay off half their mechanics if all the old aircraft are retired. The A350 refurbishment revenue wasn't expected to really get going until 2023 and this virus delayed that by at least six months.

I come from the propulsion side of aerospace. Engines often go out at a loss with refurbishment paying for the development.

I'm well aware of how bad it is. The food bank Raytheon Technologies supports is going to daily service from 3x week as they cannot keep up with increasing demand:
https://www.msn.com/en-us/news/us/foods ... r-BB18yN9Y

Airlines do not have the profits to buy new. Trust me, I enjoy consulting for vendors; they do not want my service at this time. I earn more when new engines are in development; I wish I could agree.

Freight conversions of those old aircraft give passenger airlines some small revenue when they sell the pax plane. If you want to sell more new, don't tax, do a cash for clunkers, but that would hurt the vendors/MRO revenue (there is no free ride).

Lightsaber

PS, when I worked for Pratt in the late 1990s, my boss would at least weekly remind the whole team the JT8D paid our salaries. I forget if it was 1998 or 1999, but we had a team meeting to celebrate some (elderly) engineer's accomplishments on the JT9D; the directors laughed and told us how the engine had *just* broken even and then proceeded to walk us through the engine overhaul shop to point out which engines finally were a profit. Entry into service in 1970, break even in 1999... FWIW, that engine printed money until 9/11. The whole business case was justified in two short years late in its life.

Every commercial engine I had worked on by then was investing for the future (not yet profitable). Those old aircraft pay for new development...
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Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 1:43 pm

lightsaber wrote:
iamlucky13 wrote:
My entire premise above, by the way, is partially biased against being willing to believe as many of the people I know in aerospace will be laid off as would be dictated by a 60% production rate cut.

I work in that industry. I do not want the layoffs. Boeing and Airbus are running through cash too quickly and airlines are worse off.

Airbus' profits in the good times weren't high enough to ride this magnitude of a drop without my previously quoted production drops.

Boeing's 2q report had $4.3 billion go out when March was a normal (ish) delivery month.

Production needs to drop for Airbus by 20/month.
For Boeing, by a few 787 per month and reign back on MAX production restart to the absolute minimum.

Lightsaber
Ps, for example, AirAsiaX is being sued for not paying Aircraft leases. As the primary A330NEO buyer, they will not be receiving aircraft until the leasors are happier:

https://simpleflying.com/airasia-x-sued ... -payments/


As the title suggests, parties are playing chicken and are/were in denial about the lack of demand. Airbus should go to survival mode asap; kill the A330, convert all orders to A350s or an "in the pipeline" A322 (entering development after the XLR is finished or not depending on demand) and lower the production volume even more: 50-60%. Less cash spent now, is more cash in the future to invest.

I can't understand they do not understand that demand is dead for the next 18 months. The only reason that airliners are accepting deliveries are contractual obligations, not because they need it. Shoving your products in your customers throats when they do not want them is never a good long term strategy...
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 2:06 pm

JonesNL wrote:
I can't understand they do not understand that demand is dead for the next 18 months. The only reason that airliners are accepting deliveries are contractual obligations, not because they need it. Shoving your products in your customers throats when they do not want them is never a good long term strategy...

This is an astute observation. Airbus is really hurting their customer base producing aircraft that cannot be needed before 2022.

60% of aircraft are normally built for industry growth and with so many parked, there is no replacement demand.

The prior chart shown was for a readership that produces aircraft. No magazine catering to that audience will have subscribers if they publish to worst case scenario too early. Unfortunately, global lockdown has hit, for the aerospace industry, a worse scenario than my April worst case scenario.

Boeing and Airbus must conserve cash to develop those future products. They need to spend more on automation (e.g., I would make the A350 landing gear linkages out of monolithic printed titanium saving cost and weight as the current fastened together assembly is not the normal elegant Airbus design). Only recently was that tech developed for such large and stressed parts.

Until an aircraft comes out that adds a large new cost advantage, airlines do not need new aircraft (e.g., A321xLR).
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Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 2:31 pm

JonesNL wrote:
I can't understand they do not understand that demand is dead for the next 18 months. The only reason that airliners are accepting deliveries are contractual obligations, not because they need it. Shoving your products in your customers throats when they do not want them is never a good long term strategy...


It's not as if they can terminate the assembly workers (French & German labor contracts) and kill all the elements of the supply chain by taking production to zero.
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 2:38 pm

JonesNL wrote:
lightsaber wrote:
iamlucky13 wrote:
My entire premise above, by the way, is partially biased against being willing to believe as many of the people I know in aerospace will be laid off as would be dictated by a 60% production rate cut.

I work in that industry. I do not want the layoffs. Boeing and Airbus are running through cash too quickly and airlines are worse off.

Airbus' profits in the good times weren't high enough to ride this magnitude of a drop without my previously quoted production drops.

Boeing's 2q report had $4.3 billion go out when March was a normal (ish) delivery month.

Production needs to drop for Airbus by 20/month.
For Boeing, by a few 787 per month and reign back on MAX production restart to the absolute minimum.

Lightsaber
Ps, for example, AirAsiaX is being sued for not paying Aircraft leases. As the primary A330NEO buyer, they will not be receiving aircraft until the leasors are happier:

https://simpleflying.com/airasia-x-sued ... -payments/


As the title suggests, parties are playing chicken and are/were in denial about the lack of demand. Airbus should go to survival mode asap; kill the A330, convert all orders to A350s or an "in the pipeline" A322 (entering development after the XLR is finished or not depending on demand) and lower the production volume even more: 50-60%. Less cash spent now, is more cash in the future to invest.

I can't understand they do not understand that demand is dead for the next 18 months. The only reason that airliners are accepting deliveries are contractual obligations, not because they need it. Shoving your products in your customers throats when they do not want them is never a good long term strategy...


The problem is the A330 line is somewhat an insurance an possible military sales can keep it going. So "killing it" might be counter productive, especially if Airbus can trim the line to be profitable at 2 per month. That has to be the goal, because then it can just be kept. With 2 A330 and 2 A350 per month Airbus would be ok in the WB segment and the sales team might be able to get customers to swap from A350 to A330. Especially if this leads to cost reduction for the airline and a smaller profit for Airbus is still a profit. Sitting on an A350 NTU does not help to make a profit.
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 4:53 pm

JonesNL wrote:
I can't understand they do not understand that demand is dead for the next 18 months. The only reason that airliners are accepting deliveries are contractual obligations, not because they need it. Shoving your products in your customers throats when they do not want them is never a good long term strategy...


If demand is dead for the next 18 months, I wonder myself, why Boeing builds MAX planes at all ? There are already ~500 ( ? ) parked ! No OEM can send the workforce on a 18 months holiday.
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 5:32 pm

oldJoe wrote:
JonesNL wrote:
I can't understand they do not understand that demand is dead for the next 18 months. The only reason that airliners are accepting deliveries are contractual obligations, not because they need it. Shoving your products in your customers throats when they do not want them is never a good long term strategy...


If demand is dead for the next 18 months, I wonder myself, why Boeing builds MAX planes at all ? There are already ~500 ( ? ) parked ! No OEM can send the workforce on a 18 months holiday.

The good thing for Boeing now is that the Max is on low rate production, easier for them if they need to stop production.

A similar situation for Airbus will hit Airbus worse than Boeing as Airbus is still not cutting production rates to match demand, I reckon that in a few months time, Airbus may have more planes sitting around than Boeing.
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 5:40 pm

MIflyer12 wrote:
JonesNL wrote:
I can't understand they do not understand that demand is dead for the next 18 months. The only reason that airliners are accepting deliveries are contractual obligations, not because they need it. Shoving your products in your customers throats when they do not want them is never a good long term strategy...


It's not as if they can terminate the assembly workers (French & German labor contracts) and kill all the elements of the supply chain by taking production to zero.


It will be painfull, but sometimes you need to amputate the leg to make sure the patient survives...
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 5:55 pm

lightsaber wrote:
JonesNL wrote:
I can't understand they do not understand that demand is dead for the next 18 months. The only reason that airliners are accepting deliveries are contractual obligations, not because they need it. Shoving your products in your customers throats when they do not want them is never a good long term strategy...

This is an astute observation. Airbus is really hurting their customer base producing aircraft that cannot be needed before 2022.

60% of aircraft are normally built for industry growth and with so many parked, there is no replacement demand.

The prior chart shown was for a readership that produces aircraft. No magazine catering to that audience will have subscribers if they publish to worst case scenario too early. Unfortunately, global lockdown has hit, for the aerospace industry, a worse scenario than my April worst case scenario.

Boeing and Airbus must conserve cash to develop those future products. They need to spend more on automation (e.g., I would make the A350 landing gear linkages out of monolithic printed titanium saving cost and weight as the current fastened together assembly is not the normal elegant Airbus design). Only recently was that tech developed for such large and stressed parts.

Until an aircraft comes out that adds a large new cost advantage, airlines do not need new aircraft (e.g., A321xLR).


As I said earlier, as an OEM you have two choices.
Shut production down and book the fixed costs as losses, or keep production running and convert the fixed costs and variable cost into inventory, resulting in zero losses. The latter strategy comes at the expense of a larger negative cash flow, but with liquidity secured from the government, this is the smartest thing to do.

Sure those aircraft are going to be parked for a while, but inventory is inventory, they'll be able to sell them in a few years, resulting in a double positive cash flow.

If you are building a product that has higher demand than the production capacity, and the demand is wiped out because of macro-issues that are very temporary, the most stupid thing is to stop or reduce the production rate.
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 6:04 pm

Waterbomber2 wrote:
lightsaber wrote:
JonesNL wrote:
I can't understand they do not understand that demand is dead for the next 18 months. The only reason that airliners are accepting deliveries are contractual obligations, not because they need it. Shoving your products in your customers throats when they do not want them is never a good long term strategy...

This is an astute observation. Airbus is really hurting their customer base producing aircraft that cannot be needed before 2022.

60% of aircraft are normally built for industry growth and with so many parked, there is no replacement demand.

The prior chart shown was for a readership that produces aircraft. No magazine catering to that audience will have subscribers if they publish to worst case scenario too early. Unfortunately, global lockdown has hit, for the aerospace industry, a worse scenario than my April worst case scenario.

Boeing and Airbus must conserve cash to develop those future products. They need to spend more on automation (e.g., I would make the A350 landing gear linkages out of monolithic printed titanium saving cost and weight as the current fastened together assembly is not the normal elegant Airbus design). Only recently was that tech developed for such large and stressed parts.

Until an aircraft comes out that adds a large new cost advantage, airlines do not need new aircraft (e.g., A321xLR).


As I said earlier, as an OEM you have two choices.
Shut production down and book the fixed costs as losses, or keep production running and convert the fixed costs and variable cost into inventory, resulting in zero losses. The latter strategy comes at the expense of a larger negative cash flow, but with liquidity secured from the government, this is the smartest thing to do.

Sure those aircraft are going to be parked for a while, but inventory is inventory, they'll be able to sell them in a few years, resulting in a double positive cash flow.

If you are building a product that has higher demand than the production capacity, and the demand is wiped out because of macro-issues that are very temporary, the most stupid thing is to stop or reduce the production rate.


Cash is King and losses are expected in crisis. (Negative) cash flow is the most important parameter at the moment. Why do you think all CEO's focus on cash burn rate and not on losses...
 
Waterbomber2
Posts: 1445
Joined: Mon Feb 04, 2019 3:44 am

Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 6:13 pm

JonesNL wrote:
Waterbomber2 wrote:
lightsaber wrote:
This is an astute observation. Airbus is really hurting their customer base producing aircraft that cannot be needed before 2022.

60% of aircraft are normally built for industry growth and with so many parked, there is no replacement demand.

The prior chart shown was for a readership that produces aircraft. No magazine catering to that audience will have subscribers if they publish to worst case scenario too early. Unfortunately, global lockdown has hit, for the aerospace industry, a worse scenario than my April worst case scenario.

Boeing and Airbus must conserve cash to develop those future products. They need to spend more on automation (e.g., I would make the A350 landing gear linkages out of monolithic printed titanium saving cost and weight as the current fastened together assembly is not the normal elegant Airbus design). Only recently was that tech developed for such large and stressed parts.

Until an aircraft comes out that adds a large new cost advantage, airlines do not need new aircraft (e.g., A321xLR).


As I said earlier, as an OEM you have two choices.
Shut production down and book the fixed costs as losses, or keep production running and convert the fixed costs and variable cost into inventory, resulting in zero losses. The latter strategy comes at the expense of a larger negative cash flow, but with liquidity secured from the government, this is the smartest thing to do.

Sure those aircraft are going to be parked for a while, but inventory is inventory, they'll be able to sell them in a few years, resulting in a double positive cash flow.

If you are building a product that has higher demand than the production capacity, and the demand is wiped out because of macro-issues that are very temporary, the most stupid thing is to stop or reduce the production rate.


Cash is King and losses are expected in crisis. (Negative) cash flow is the most important parameter at the moment. Why do you think all CEO's focus on cash burn rate and not on losses...


Except when you are industrial champions called Airbus and Boeing and your government is going to give you all the cash you need.
Airbus shed only 10% of its workforce so far and already received billions from France.
Trump also said that they'd be doing anything to keep Boeing alive.
Last edited by Waterbomber2 on Tue Sep 15, 2020 6:17 pm, edited 1 time in total.
 
User avatar
Polot
Posts: 11076
Joined: Thu Jul 28, 2011 3:01 pm

Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 6:15 pm

Waterbomber2 wrote:
JonesNL wrote:
Waterbomber2 wrote:

As I said earlier, as an OEM you have two choices.
Shut production down and book the fixed costs as losses, or keep production running and convert the fixed costs and variable cost into inventory, resulting in zero losses. The latter strategy comes at the expense of a larger negative cash flow, but with liquidity secured from the government, this is the smartest thing to do.

Sure those aircraft are going to be parked for a while, but inventory is inventory, they'll be able to sell them in a few years, resulting in a double positive cash flow.

If you are building a product that has higher demand than the production capacity, and the demand is wiped out because of macro-issues that are very temporary, the most stupid thing is to stop or reduce the production rate.


Cash is King and losses are expected in crisis. (Negative) cash flow is the most important parameter at the moment. Why do you think all CEO's focus on cash burn rate and not on losses...


Except when you are industrial champions called Airbus and Boeing and your government is going to give you all the cash you need.

No strings attached cash is not limitless.
 
User avatar
FiscAutTecGarte
Posts: 171
Joined: Tue Dec 24, 2019 6:40 pm

Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 6:18 pm

What if Covid is a non-issue by March 2021 and everyone wants to start flying? I talk to allot of people who want to start traveling again. That can't be an isolated sentiment.
learning never stops...

FischAutoTechGarten is the full handle and it reflects my interest. It's abbreviated to fit A.net short usernames.
 
Waterbomber2
Posts: 1445
Joined: Mon Feb 04, 2019 3:44 am

Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 6:19 pm

Polot wrote:
Waterbomber2 wrote:
JonesNL wrote:

Cash is King and losses are expected in crisis. (Negative) cash flow is the most important parameter at the moment. Why do you think all CEO's focus on cash burn rate and not on losses...


Except when you are industrial champions called Airbus and Boeing and your government is going to give you all the cash you need.

No strings attached cash is not limitless.


Not for the airlines, but the OEM's are practically pseudo-governmental companies.
 
User avatar
Polot
Posts: 11076
Joined: Thu Jul 28, 2011 3:01 pm

Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 6:22 pm

Waterbomber2 wrote:
Polot wrote:
Waterbomber2 wrote:

Except when you are industrial champions called Airbus and Boeing and your government is going to give you all the cash you need.

No strings attached cash is not limitless.


Not for the airlines, but the OEM's are practically pseudo-governmental companies.

The government will gladly exert more control over the OEM that Airbus and Boeing executives do not want.
 
oldJoe
Posts: 361
Joined: Fri Jan 10, 2020 11:04 pm

Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 6:29 pm

jeffrey0032j wrote:
oldJoe wrote:
JonesNL wrote:
I can't understand they do not understand that demand is dead for the next 18 months. The only reason that airliners are accepting deliveries are contractual obligations, not because they need it. Shoving your products in your customers throats when they do not want them is never a good long term strategy...


If demand is dead for the next 18 months, I wonder myself, why Boeing builds MAX planes at all ? There are already ~500 ( ? ) parked ! No OEM can send the workforce on a 18 months holiday.

The good thing for Boeing now is that the Max is on low rate production, easier for them if they need to stop production.

A similar situation for Airbus will hit Airbus worse than Boeing as Airbus is still not cutting production rates to match demand, I reckon that in a few months time, Airbus may have more planes sitting around than Boeing.


what ?
Airbus builds 40 A32x family aircraft per month and delivers ~35 per month. How on earth will they match 500 in a few months ?
 
2175301
Posts: 1946
Joined: Wed May 16, 2007 11:19 am

Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 9:13 pm

oldJoe wrote:
jeffrey0032j wrote:
oldJoe wrote:

If demand is dead for the next 18 months, I wonder myself, why Boeing builds MAX planes at all ? There are already ~500 ( ? ) parked ! No OEM can send the workforce on a 18 months holiday.

The good thing for Boeing now is that the Max is on low rate production, easier for them if they need to stop production.

A similar situation for Airbus will hit Airbus worse than Boeing as Airbus is still not cutting production rates to match demand, I reckon that in a few months time, Airbus may have more planes sitting around than Boeing.


what ?
Airbus builds 40 A32x family aircraft per month and delivers ~35 per month. How on earth will they match 500 in a few months ?


I believe that most of those "delivered" aircraft are being immediately parked.

The number of aircraft delivered and put into actual service at this time is low. That is the problem. The airlines are likely going to stop accepting aircraft in the near future that are being put into storage...

Have a great day,
 
User avatar
lightsaber
Moderator
Topic Author
Posts: 20967
Joined: Wed Jan 19, 2005 10:55 pm

Re: The case for more aircraft production cuts/playing chicken

Tue Sep 15, 2020 9:54 pm

JonesNL wrote:
MIflyer12 wrote:
JonesNL wrote:
I can't understand they do not understand that demand is dead for the next 18 months. The only reason that airliners are accepting deliveries are contractual obligations, not because they need it. Shoving your products in your customers throats when they do not want them is never a good long term strategy...


It's not as if they can terminate the assembly workers (French & German labor contracts) and kill all the elements of the supply chain by taking production to zero.


It will be painfull, but sometimes you need to amputate the leg to make sure the patient survives...

I'm not saying stop the lines. 25 per year is the minimum for an aircraft and I propose the A320NEO and MAX be above those rates.

Boeing has already gone through tens if billions and must slow the cash bleed to get out the other side of this.

Airbus has done a little better creating demand, but not enough better to maintain the current high production rate. 430 a year was the old rate which is again the new rate. But that is hundreds more per year than demand.

If either doesn't cut further, they and their airline customers will go bankrupt.

I fully realize that only by keeping a line going can future commercial or military sales happen. This is the cash flow portion of your undergraduate introduction to business or Engineering economics. If you also took the course to calculate the cost of money via stock sales, bond sales, and various loans, you understand what the undelivered inventory is doing.

I would bet that the progress payments on in process aircraft were still pretty good in the second quarter. I would speculate that the wheels started falling off in various airlines abilities to make such payments in the third quarter. We are now going into slow season (except for normal times Australia and to/from India and the prior Thanksgiving chaos, but that isn't this year). It will be worse for airlines in the 4th quarter.

I think of it as culling of the herd. There is only enough corn to feed so many until the next harvest. Pick your favorites, just realize each OEM has a choice to make. If you eat the seed corn to early...

Lightsaber
I cannot wait to get vaccinated to live again! Warning: I simulated that it takes 50%+ vaccinated to protect the vaccinated and 75%+ vaccinated to protect the vac-hesitant.
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