2175301 wrote:

oldJoe wrote:

jeffrey0032j wrote:

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,

None of the new aircraft is needed. Best case is the A320NEO is delivered and out into service while an A320CEO (or A319, in many cases) is returned to the leasing company. When we recover, the A319 will probably be parted and that returned A320CEO will probably go back into service.

Most of the new aircraft are needed. Somewhere an aircraft goes into storage. If the prior plane is scrapped, then the OEM losses out on spares revenue at some point in the future. Boeing used to say during their conference calls and employee presentations that their primary competition is used Boeings. For Airbus, it is also used Airbus aircraft.

Since Delta, American, and United (+ others) operate both, they will likely expand again on the ample and discounted used inventory on whatever makes sense to them. Who here thought Delta would pull the stored NW A320s back into service? Until the limit of Validity extension, they were pretty used up (then they weren't, just paper, but certification has a purpose). Or buy up used MD-90s? AA has even discussed used A319s a year ago:

https://simpleflying.com/american-airli ... -purchase/

We've had discussions on the aircraft lease/values threads on declining used pricing:
viewtopic.php?f=3&t=1449067&p=22420627#p22420627

For low utilization duty, for example, United, Delta, or American feeding the largest (premium) hub banks or Allegiant/Volotea, they are most profitable expanding used or 'hand me down' within the fleet as aircraft age out of high utilization duty.

I posted current values look too synthetic, as if pricing was on previously negotiated terms. When it comes time to clear the market, used 10 to 15 year old aircraft will drop in transaction price from today's already discounted.

I like shiney new planes. But I can do a cash flow analysis, present value analysis, risk analysis (scenarios with probabilities, various weighting strategies), and worst case analysis, borrowing cost analysis and risk...

I see most younger parked aircraft returning to service.

I also see a Logan's Run where the over 30 year olds are scrapped, excluding freighters/conversion stock.

Lightsaber

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...

Where did you get the impression they don't understand demand is dead for the next 18 months?

Boeing and Airbus don't have to rely on news articles and speculation to know that demand is effectively zero in the near term. The airlines are telling it to them directly. The manufacturers are having really serious discussions (probably with lawyers present on both sides) with their customers about which side will give how much, and why they can't give any more. A lot of deliveries will be delayed. Some will be cancelled. Some will be accepted in order to keep the penalties small. Both sides will take losses and face debt as a result, and there will be concessions on both sides.

This is a two way relationship. Shoving products down your customers throats is not a good long term strategy, but neither is contracting them to build a product and then not paying for it. Neither party planned this. It contracts the long term strategies of both sides, and all parties are facing severe financial harm from it.

The cash they spend now doesn't go away. It turns into inventory to deliver and receive payment for when demand recovers. Their options are bookended by the following extremes, neither of which is good:

1) Reduce production to the current demand. Fixed costs will not go away, and some economy of scale will be lost, so per unit costs will be higher. When the market recovers, reinvestment in the workforce will be required. Because of the reduced inventory, market growth translates quickly to higher production rates, but that does not command higher prices to pay back the higher per-unit costs.

2) Produce above demand. Economy of scale is more favorable, but cash is consumed, forcing them to maintain more debt, and therefore pay more interest. They will also have to invest in maintaining parked aircraft and performing service on them before delivery. There will be a lag between market growth and higher production rates as excess inventory is gradually delivered.

The optimum is somewhere in the middle. I don't know where. I think the Aviation Week forecast that airlines will accept over 1300 deliveries next year is likely at the high end of what should be considered credible.

The manufacturers don't know the exact optimum yet, either, but they almost certainly have a better idea of it than we do. They'll continue to re-assess as we move forward. I think we'll get another update at the 4Q20 earnings report. If Airbus realizes at that time they need to drop all the way to 24 x A320's per month, they'll have ~50 more airframes to park than if they decide today.

FiscAutTecGarte wrote:

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.

It is very far from an isolated sentiment, but forecasts since the outbreak became serious outside of China have consistently anticipated a slow recovery to 2019 levels due to economic factors. Although stock market valuations are high for various reasons (government aid, tech company opportunities driven by the business and consumer disruptions, and low expected returns from bonds as an alternative investment are likely all factors), the financial pain we all know the airlines are feeling is being felt to varying degrees by numerous other industries.

The IATA has a very brief summary forecast here:
https://www.iata.org/en/iata-repository ... er-demand/

The ICAO has a far more extensive but more near term forecast:
https://www.icao.int/sustainability/Doc ... Impact.pdf

Speaking very approximately, a common expectation is that getting the pandemic fully under control gets the airline market fairly quickly back up to somewhere in the ballpark of 80% of 2019 demand. Businesses may continue to limit trips in favor of attempting to accomplish more work remotely, and individuals affected by lost or reduced income will be doing less personal travel.

80% of 2019 is a lot of people flying - equivalent to something like 2015 levels globally or 2010 for the US.

However, it's also a 20% decrease compared to what was expected and what the industry had invested in being able to accommodate, and that is a painful drop in business by any criteria except in comparison to how bad it is right now.

iamlucky13 wrote:

The cash they spend now doesn't go away. It turns into inventory to deliver and receive payment for when demand recovers. Their options are bookended by the following extremes, neither of which is good:

1) Reduce production to the current demand. Fixed costs will not go away, and some economy of scale will be lost, so per unit costs will be higher. When the market recovers, reinvestment in the workforce will be required. Because of the reduced inventory, market growth translates quickly to higher production rates, but that does not command higher prices to pay back the higher per-unit costs.

2) Produce above demand. Economy of scale is more favorable, but cash is consumed, forcing them to maintain more debt, and therefore pay more interest. They will also have to invest in maintaining parked aircraft and performing service on them before delivery. There will be a lag between market growth and higher production rates as excess inventory is gradually delivered.

The optimum is somewhere in the middle. I don't know where. I think the Aviation Week forecast that airlines will accept over 1300 deliveries next year is likely at the high end of what should be considered credible.

The manufacturers don't know the exact optimum yet, either, but they almost certainly have a better idea of it than we do. They'll continue to re-assess as we move forward. I think we'll get another update at the 4Q20 earnings report. If Airbus realizes at that time they need to drop all the way to 24 x A320's per month, they'll have ~50 more airframes to park than if they decide today.

A good summary, I truncated down to discussion points.

Produced aircraft have the advantage of economics of scale. They have risk if held by the OEM. Some fraction will not be taken up by the original buyer.

The issue is September and October is contract signing time for 2021 in Aerospace. Airbus and Boeing face penalties (which vendors need). Right now you reserve space in casting foundaries, 3D printing shops, and the vendors. But the aviation production supply chain is a long train.

Material for most of 2021 production had to be ordered in 2018. (cheapest to pre plan the hole in the ground).

Engine casings, rotors, and shafts and landing gear, APUs, and other long lead items for 2021 had to start production in 2019.

Galleys, lavatories, avionics, and wing structure started production for 2021 in 2020.

Seats, lights, and most other cabin fittings must be started 3 to 6 months in advance.

That backlog is why the do nothing approach is preferred (option 2).

Whatever decision is made by September 31st sets 1Q2021 components and sub assemblies.

Ok, enough on how long it takes to make a plane.

But what matters is starting and stopping is slow. This makes the decision far more analyzed than I or any small group of us can do. What I know is the labor put into parts and assemblies goes up exponentially as final assembly aporoaches and that is why a quick reduction can save expenses by reducing labor hours.

I remain an advocate of maintaining production if economically viable. Alas, as I keep posting, there are more aircraft in production than can be manufactured.

This is a slow trainwreck.

Lightsaber

Contracts with vendors and customers is also playing a big part - deliver X by Y or face a daily penalty of $. Can't let a date sneak up where an item informally deferred suddenly triggers penalties due from the OEM. Boeing in particular must have a real brier patch, MAX frames delayed for production delays, then the grounding, negotiations with airlines on a whole host of items to a settlement. But then MAX grounding goes way past initial dates. Back to negotiations, now COVID hits. Is it Boeing's responsibility for storage costs for MAX's or is it the Airlines for excess capacity.

Planes being brought forward in the schedule due to those penalty dates, forcing Airline to defer. Other slots NTU, things looking better only to have a batch of 2021 planes suddenly without financing. Allowing deferrals for some IF delivery is made of others. Each plane slot has its own story.

I would love to listen into the negotiations, Airlines that pushed Boeing to the breaking point on the MAX are now asking for mercy. Tough situation. Other Airlines probably stayed professional and asked for what is fair, now Boeing has the opportunity to be fair in return.

iamlucky13 wrote:

JonesNL wrote:

lightsaber wrote:

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...

Where did you get the impression they don't understand demand is dead for the next 18 months?

Boeing and Airbus don't have to rely on news articles and speculation to know that demand is effectively zero in the near term. The airlines are telling it to them directly. The manufacturers are having really serious discussions (probably with lawyers present on both sides) with their customers about which side will give how much, and why they can't give any more. A lot of deliveries will be delayed. Some will be cancelled. Some will be accepted in order to keep the penalties small. Both sides will take losses and face debt as a result, and there will be concessions on both sides.

This is a two way relationship. Shoving products down your customers throats is not a good long term strategy, but neither is contracting them to build a product and then not paying for it. Neither party planned this. It contracts the long term strategies of both sides, and all parties are facing severe financial harm from it.

The cash they spend now doesn't go away. It turns into inventory to deliver and receive payment for when demand recovers. Their options are bookended by the following extremes, neither of which is good:

1) Reduce production to the current demand. Fixed costs will not go away, and some economy of scale will be lost, so per unit costs will be higher. When the market recovers, reinvestment in the workforce will be required. Because of the reduced inventory, market growth translates quickly to higher production rates, but that does not command higher prices to pay back the higher per-unit costs.

2) Produce above demand. Economy of scale is more favorable, but cash is consumed, forcing them to maintain more debt, and therefore pay more interest. They will also have to invest in maintaining parked aircraft and performing service on them before delivery. There will be a lag between market growth and higher production rates as excess inventory is gradually delivered.

The optimum is somewhere in the middle. I don't know where. I think the Aviation Week forecast that airlines will accept over 1300 deliveries next year is likely at the high end of what should be considered credible.

The manufacturers don't know the exact optimum yet, either, but they almost certainly have a better idea of it than we do. They'll continue to re-assess as we move forward. I think we'll get another update at the 4Q20 earnings report. If Airbus realizes at that time they need to drop all the way to 24 x A320's per month, they'll have ~50 more airframes to park than if they decide today.

It was a slightly overstated comment, but my main gripe is that they are overly optimistic in their production volumes.

Of course I am an outsider, not in any sector of the aviation at all, but I know basic math to know the numbers don't add up. I do understand there are legal obligations to vendors and airliners, but these are desperate times (and in this case this is an understatement) and an tanker is slow to turn.

I think your analysis is correct, but I believe that the slower they react the more pain they have to absorb. I believe they need to dial back to 15-20 x a32x per month to reflect the drop in passenger travel by 70%, lower oil prices which makes investing in new birds less tempting and the availability of a lot of young second-hands in the market...

Just one thing about Airbus letting people go. Germany and France have so called "Kurzarbeit" schemes. They can last way into 2021 and will probably be even more extended by the governments. These schemes help keeping work force contracted but the government pays for the time the worker is not working. So (very simplified explanation) Airbus can reduce worked hours by 50%, can slash salaries by 50% but keep 100% of workers employed. The government will pay the other 50% (it is actually a bit less) of the salary. This leads to a very flexible situation with the work force. So when Airbus actually cuts jobs, this jobs will not be back for a very long time, because every job that Airbus thinks will be needed again in 1-2 years will be put on "Kurzarbeit" instead.

JonesNL wrote:

iamlucky13 wrote:

JonesNL wrote:

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...

Where did you get the impression they don't understand demand is dead for the next 18 months?

Boeing and Airbus don't have to rely on news articles and speculation to know that demand is effectively zero in the near term. The airlines are telling it to them directly. The manufacturers are having really serious discussions (probably with lawyers present on both sides) with their customers about which side will give how much, and why they can't give any more. A lot of deliveries will be delayed. Some will be cancelled. Some will be accepted in order to keep the penalties small. Both sides will take losses and face debt as a result, and there will be concessions on both sides.

This is a two way relationship. Shoving products down your customers throats is not a good long term strategy, but neither is contracting them to build a product and then not paying for it. Neither party planned this. It contracts the long term strategies of both sides, and all parties are facing severe financial harm from it.

The cash they spend now doesn't go away. It turns into inventory to deliver and receive payment for when demand recovers. Their options are bookended by the following extremes, neither of which is good:

1) Reduce production to the current demand. Fixed costs will not go away, and some economy of scale will be lost, so per unit costs will be higher. When the market recovers, reinvestment in the workforce will be required. Because of the reduced inventory, market growth translates quickly to higher production rates, but that does not command higher prices to pay back the higher per-unit costs.

2) Produce above demand. Economy of scale is more favorable, but cash is consumed, forcing them to maintain more debt, and therefore pay more interest. They will also have to invest in maintaining parked aircraft and performing service on them before delivery. There will be a lag between market growth and higher production rates as excess inventory is gradually delivered.

The optimum is somewhere in the middle. I don't know where. I think the Aviation Week forecast that airlines will accept over 1300 deliveries next year is likely at the high end of what should be considered credible.

The manufacturers don't know the exact optimum yet, either, but they almost certainly have a better idea of it than we do. They'll continue to re-assess as we move forward. I think we'll get another update at the 4Q20 earnings report. If Airbus realizes at that time they need to drop all the way to 24 x A320's per month, they'll have ~50 more airframes to park than if they decide today.

It was a slightly overstated comment, but my main gripe is that they are overly optimistic in their production volumes.

Of course I am an outsider, not in any sector of the aviation at all, but I know basic math to know the numbers don't add up. I do understand there are legal obligations to vendors and airliners, but these are desperate times (and in this case this is an understatement) and an tanker is slow to turn.

I think your analysis is correct, but I believe that the slower they react the more pain they have to absorb. I believe they need to dial back to 15-20 x a32x per month to reflect the drop in passenger travel by 70%, lower oil prices which makes investing in new birds less tempting and the availability of a lot of young second-hands in the market...

Just to add, Airbus is overproducing by about a billion Euros per month. On the current track, that over-production isn't needed for 36 months. Airlines are broke, making them take planes just puts the customer into bankruptcy. Does Airbus have 36 billion Euros to spare, plus R&D?

Boeing is in bad shape too. But due to freighters and the MAX shutdown, they are over-producing by about $500 million usd per month. Due to the MAX issues, Boeing has a worse cash flow problem. The only solution I can see is reduced production.

While we focus on the two big vendors, I see an even worse situation in the regional markets. Those airlines always had a more marginal business case. Due to scope clauses, the US market will differ as much as possible for 3 years. Considering 75% of the E-170/175s operating are under scope, this removes the economy of scale:

https://www.airfleets.net/exploit/production-e170.htm

This is the most massive game of chicken. The only thing comparable I can recall is how in 1929 and 1930 the radio manufacturers built up 2 years of inventory in their game of chicken that customers would return. Back then they were a high tech industry trying to preserve their supply chain with the assumption of a V recovery. We all know thst didn't end well.

The more over-supply, the less each vendor will be able to fund R&D. There must always be PiPs to keep an airframe and the engines competitive.

I'm old enough to recall how if too many white tails pile up, how badly that impacts the always slower than expected ramp back up.

Lightsaber

I guess I just push back a little when we talk about 2019 levels... which were EXTREMELY high. Returning to somewhere between 2016-2018 levels is still good because airlines were making decent profits even at those levels.

I do consulting... My largest customer just prior to Covid in Jan 2020 was complaining about orders being so off from 2018.... But 2018 was a RECORD year for this 350 year old company. Of course, now they would be delighted to have 2016, 2017 or 2019 levels... as they would still be very profitable.

If we all look at travel and set our eyes on achiving 2017/2018 levels we'd be more satisfied..... We can hope for 2019's RECORD levels a few years from now...but it will still be a healthy industry even at prior year's level....

I take COVID very seriously.... I'm down a good 30% this year myself... it is what it is... Travel will recover nicely, it's just not going to hit our recent RECORD levels for some time. Regarding so many cancellations.... We all knew we were at the end of a 'bubble ordering cycle'.... with a crazy number of planes being sold each year for more than a decade..

Leeham just posted a link of orders at risk:

https://leehamnews.com/2020/09/15/hotr- ... rderbooks/

Therefore, adjusting order books is necessary to assess an aircraft program’s backlog situation.

I do not agree fully, buy in order of risk:
A330CEO 71% at risk, Leeham had only 10 true firm
A330NEO 58% at risk, 120 true firm
777(GE-90) 29% at risk, only 29 true firm.

I noted the MAX still had 705 possible (probable?) cancelations.

I personally expect cancelations to impact far more, including by bankruptcy. I expect this is the minimum at risk.

Half the orders were Leasing companies and half their orders (or more) were very speculative.

Lightsaber

Raytheon technologies stopped playing chicken, 15,000 layoffs:

https://www.courant.com/business/hc-biz ... utType=amp

It will take until at least 2023 for the air travel business to recover

Article notes they are still looking to cut costs (more layoffs).

It looks like prior demand predictions need to be ratcheted down, unfortunately.

Lightsaber

lightsaber wrote:

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

Which 3 lines do you think will stop?

morrisond wrote:

lightsaber wrote:

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

Which 3 lines do you think will stop?

I posted above, I just don't know. I see some weak links, but nothing certain.

The freighters will continue (767,777).
The 737 and A320 will continue.
The 787 and A350 will continue.

Everything else is uncertain.
I think the A220 has more chance than those I didn't list above of staying in production.
I think the A330 has less chance due to so many not really certain orders and AirAsiaX being in a horrible place and not profitable before.

Lightsaber

lightsaber wrote:

morrisond wrote:

lightsaber wrote:

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

Which 3 lines do you think will stop?

I posted above, I just don't know. I see some weak links, but nothing certain.

The freighters will continue (767,777).
The 737 and A320 will continue.
The 787 and A350 will continue.

Everything else is uncertain.
I think the A220 has more chance than those I didn't list above of staying in production.
I think the A330 has less chance due to so many not really certain orders and AirAsiaX being in a horrible place and not profitable before.

Lightsaber

Among the regional market I'd suggest that ATR has a leg up because of the FedEx order for 50 freighters.

Have a great day,

2175301 wrote:

lightsaber wrote:

morrisond wrote:

Which 3 lines do you think will stop?

I posted above, I just don't know. I see some weak links, but nothing certain.

The freighters will continue (767,777).
The 737 and A320 will continue.
The 787 and A350 will continue.

Everything else is uncertain.
I think the A220 has more chance than those I didn't list above of staying in production.
I think the A330 has less chance due to so many not really certain orders and AirAsiaX being in a horrible place and not profitable before.

Lightsaber

Among the regional market I'd suggest that ATR has a leg up because of the FedEx order for 50 freighters.

Have a great day,

I just read the thread on its first flight. That is a big order for ATR.

viewtopic.php?f=3&t=1451853

Cessna is probably thrilled right now to have the SkyCourier coming on line for FedEx also.

Wishful thinking on my part, but I somehow hope that Airbus uses Covid to rethink whether to shut down the A380 line.
It wasn't selling before Covid and it's not going to sell now, but we don't know what aviation is going to look like after Covid.

All those thin routes operated point to point stopped making sense as even a tiny loss in business traffic has a huge impact annd wipes out the business case for such routes'. It also stopped making sense to have different airlines part of joint ventures operating multiple frequencies separetely.

We may see a revival of the hub to hub concept, who knows?

CAPA aviation has a very informative article:

https://centreforaviation.com/analysis/ ... met-530864

Some analysts currently estimate that new narrowbody values have dropped by somewhere in the region of 20% to 25%, while new widebodies have lost more like 25% to 30% of their value since the start of the year (source: Aviation Strategy, May/Jun 2020 issue).

There are charts galore and quite a bit of explaining so few aircraft are changing hands that the real values are uncertain. The information us scattered, but we can see a trend by class if how many are in service, this includes freighters:
Turboprops, 62.0% in service
Narrowbodies, 43.7% in service
Widebodies, 42.1% in service (do not forget this includes all freighters)
Regional jets: 37.7% in service

So if we go through my list if at risk, the turboprops (ATR in particular) gained risk, but the least.

The RJ market is the opposite end of the risk spectrum. Since we've seen RJs parked for tears and then reactivated (e.g., Envoys E140s), we'll probably see the same again.
The reactivation was discussed in this thread:
viewtopic.php?f=3&t=1370337&p=20063679&hilit=envoy+reactivated#p20063679

The main punchline is leasing rates have plummeted and leasors are not taking many aircraft. If the lease rates noted are accurate, a 30% to 50% drop in lease rates has occurred (the upper end for less desirable used aircraft).

We need to accept the huge leasor backlog is in stasis.

Lightsaber

Waterbomber2 wrote:

Wishful thinking on my part, but I somehow hope that Airbus uses Covid to rethink whether to shut down the A380 line.
It wasn't selling before Covid and it's not going to sell now, but we don't know what aviation is going to look like after Covid.

All those thin routes operated point to point stopped making sense as even a tiny loss in business traffic has a huge impact annd wipes out the business case for such routes'. It also stopped making sense to have different airlines part of joint ventures operating multiple frequencies separetely.

We may see a revival of the hub to hub concept, who knows?

A380 demand aa well as 744 pax demand is down more than competing aircraft. See my previous post, it briefly discusses the A380.

A crisis accelerates trends.
I disagree on the alliances not making sense. If anything, they'll be used to maintain as many spokes as possible. Frequency will drop, but not completely go away. For example, I'm picking one airline as they offer 5 frequencies a day to my most common destination. Two are best for me and onother for with the family and then the two that are generally best for workers without my constraints. Now, the longer the flight, the fewer the frequencies that make sense, but they will still be there.

The largest and smallest jets are being hit the hardest It will remain extreamly difficult to fill an A380 profitably. LH might not reactivate the fleet.

It is already too late to restart production of the A380. The 747 will suffer too, but as many are already freighters, we'll see those for years.

Lightsaber

lightsaber wrote:

The main punchline is leasing rates have plummeted and leasors are not taking many aircraft. If the lease rates noted are accurate, a 30% to 50% drop in lease rates has occurred (the upper end for less desirable used aircraft).

If the drop in values is correct in brings another range of issues for many airlines (and lessors) as it implies book values, thus asset values, thus security values against capital taken, may have to be corrected big time soon. Will have drastic impact on balance sheets and the question of airlines being going concerns or not for quite a number of them...

There is another long-term topic to think of. Many airlines have taken huge sums of loans etc., which need to be repaid at one point of time. Considering the time this will take - years - it raises the question long-term how much reserve they will be able to build for the "recession-after-this", which will come at one point of time.

Flying-Tiger wrote:

lightsaber wrote:

The main punchline is leasing rates have plummeted and leasors are not taking many aircraft. If the lease rates noted are accurate, a 30% to 50% drop in lease rates has occurred (the upper end for less desirable used aircraft).

If the drop in values is correct in brings another range of issues for many airlines (and lessors) as it implies book values, thus asset values, thus security values against capital taken, may have to be corrected big time soon. Will have drastic impact on balance sheets and the question of airlines being going concerns or not for quite a number of them...

There is another long-term topic to think of. Many airlines have taken huge sums of loans etc., which need to be repaid at one point of time. Considering the time this will take - years - it raises the question long-term how much reserve they will be able to build for the "recession-after-this", which will come at one point of time.

You make a good point. In other industries, banks are doing what they can to keep effectively insolvent companies afloat (ok, bad pun, example us Royal Caribbean cruise lines):
https://www.marketwatch.com/story/banke ... 1600186130

But keeping a company a going concern is different than loaning money to expand (buy new aircraft).

As someone who works in aerospace, the concern that airlines will be the walking dead (Zombie companies that operate, but are effectively consuming themselves to keep going). That means they function until either enough years of elevated profits or a new entrant puts them out of their misery.

Lightsaber

Capa has an interesting article.

The GFC in 2009 had no drop in deliveries due to Asian growth. That was with a mere 0.4% drop in passengers. We now have a 60% drop in traffic.

bhttps://centreforaviation.com/analysis ... 30s-537730

Article on Asian recession:

https://finance.yahoo.com/news/asia-see ... 53456.html

I work in the industry, I'm not happy where things are going. This is just ugly.

Lightsaber

lightsaber wrote:

Capa has an interesting article.

The GFC in 2009 had no drop in deliveries due to Asian growth. That was with a mere 0.4% drop in passengers. We now have a 60% drop in traffic.

bhttps://centreforaviation.com/analysis ... 30s-537730

Article on Asian recession:

https://finance.yahoo.com/news/asia-see ... 53456.html

I work in the industry, I'm not happy where things are going. This is just ugly.

Lightsaber

This is quite definitely of a different dimension than the GFC, although you wouldn't believe so if you were looking at the S&P or the Nasdaq.
This has repercussions all the way down the food chain.

The coming months we will be confronted more and more with the consequences of the crisis.

Despite all of that, I think that aircraft manufacturing is like running a copper mine. Demand will return eventually, and then you can take orders with deliveries spilling over into the next downturn or have them ready to deliver. Debt is cheap and aircraft are not perishables like seats on a flight. Time to build aircraft and parts for aircraft so that the industry is ready to sell them when the time comes.

Airlines have come and gone during major downturns.
One man's death, is another man's bread.
There is no doubt that the industry will crawl back eventually. I'm very bearish short-term but very bullish long term, and building aircraft is a long-term business.

Waterbomber2 wrote:

lightsaber wrote:

Capa has an interesting article.

The GFC in 2009 had no drop in deliveries due to Asian growth. That was with a mere 0.4% drop in passengers. We now have a 60% drop in traffic.

bhttps://centreforaviation.com/analysis ... 30s-537730

Article on Asian recession:

https://finance.yahoo.com/news/asia-see ... 53456.html

I work in the industry, I'm not happy where things are going. This is just ugly.

Lightsaber

This is quite definitely of a different dimension than the GFC, although you wouldn't believe so if you were looking at the S&P or the Nasdaq.
This has repercussions all the way down the food chain.

The coming months we will be confronted more and more with the consequences of the crisis.

Despite all of that, I think that aircraft manufacturing is like running a copper mine. Demand will return eventually, and then you can take orders with deliveries spilling over into the next downturn or have them ready to deliver. Debt is cheap and aircraft are not perishables like seats on a flight. Time to build aircraft and parts for aircraft so that the industry is ready to sell them when the time comes.

Airlines have come and gone during major downturns.
One man's death, is another man's bread.
There is no doubt that the industry will crawl back eventually. I'm very bearish short-term but very bullish long term, and building aircraft is a long-term business.

The problem is the airlines this time cannot afford the aircraft. Yes, they have orders, but they cannot afford to take them.

Boeing and Airbus will run out of cash. No company can build up the level of inventory proposed. The industry will crawl back. We might even have a scramble to rebuild production. But if costs in the industry are not dropped, the manufacturers will not survive. If the airlines are forced to take their contracted aircraft, they will not survive.

I'm afraid, in a few months, we'll hear about the plans.
I've already posted links on Raytheon Technologies cutting the workforce. GE is also cutting 13,000:
https://wolfstreet.com/2020/09/02/the-s ... paid-jobs/

I believe both Boeing and Airbus are still playing chicken. Both were suffering just a short time ago trying to ramp up production.
But we've seen this before in other industries. If demand rebounds quickly, the executives look like a genius. If wrong, layoffs are far worse due to the expenses of the debt.

In good times, a copper mine has far higher profits than Boeing or Airbus.
Profit on a 737 MAX was $12 to $15 million before the crisis, with selling price (if we use the 50% to 55% discount) of $55 to $61 million. In other words, 20% to 25% profit
https://www.businessinsider.com/boeing- ... dys-2019-3

Airbus makes a similar profit, . However, I provided prior links that new aircraft have dropped in pricing. Now ignoring the YE Airbus report (dominated by the bribary scandal and A400 losses), the mid-year was noting a 75% increase in profit, speculated to be dependent upon the A320NEO:
https://leehamnews.com/2019/10/30/airbu ... year%20ago

It is probably Airbus makes a little more profit. But not enough to stockpile aircraft for 3 or more years. That is unfortunately how long I think it will take. We're talking a Cost of $40 million to $45 million per A320NEO (more for the A321NEO, but also a higher profit margin). So if production is indeed 16 per month to much (as per my prior link), we're talking 170*40=6,800 million usd (or euro, almost equivalent) per year on just the narrowbody aircraft. The widebodies have no demand and while airlines will take some up, I see another $4 billion to $7 billion per year of inventory.

Inventory that requires maintenance, storage, and financial payments. I'm trying to see the business case for the magnitude of the backlog.
Boeing has already borrowed most of what they can borrow to handle their expanding inventory. They'll have to cut expenses soon.
Airbus simply wasn't making the profits to store cash before this crisis.
https://www.airbus.com/investors/financ ... ports.html

Aibus made 12 billion fewer Euros in 1H2020 in revenue, but not all the loss was realized. They had a negative cash flow of 12.4 billion Euros. I believe that is accelerating as airlines are realizing they cannot take up aircraft and doing whatever they can. Airbus only recognized 0.9 billion euros in losses. This pushed Airbus in the first half, with only 3 months of crisis, from a good 12.5 billion Euro positive net cash positive position to (barely) 0.6 billion Euro in debt. That is with 196 deliveries. I would have to imagine airlines are getting desperate not to accept aircraft (other threads have highlighted how bad the market is, I posted earlier how we're at 32.9% in the USA... Ugly).

If Airbus blew through all their cash in 3 months, what the heck will happen for the rest of 2020?!?

Boeing had a negative 9.852 billion usd net cash flow. Of course the MAX debacle worsened it for Boeing (only 70 aircraft delivered)
https://investors.boeing.com/investors/ ... fault.aspx

We're talking Airbus burning through 2 billion Euro or 2.4 billion USD in cash per month and Boeing 1.5 billion USD or 1.25 billion Euro.

Reducing production by 16 A320s per month should cut that burn by about .5 billion Euros for Airbus.
Boeing has less to cut (due to MAX shutdown and trying to keep vendors alive), but they still can cut 0.25 billion or more per month.

This is the month next year's production rate is set (traditionally). So the decision must have already been made. If not, chaos and penalties.

I don't want much more of a cut. I think it must happen.

Lightsaber

If Airbus drop the A320 rate to 16 per month, that's over 50% of what they are producing right now.

This economic devastation is quite different than the Dot com crash and GFC, the GFC was pretty uniform on how it hit, other crisis in the last 30 years have hit a region say. Covid has hit world wide - some industries have seen growth - grocery stores and in-home food supply chains have huge growth rates, but restaurants and their supply chains are at 1/4 of previous activity.

The travel and leisure industry is just decimated - casinos, cruise lines, resort hotels, amusement parks, and international aviation have been in near shutdown for 6 months with no signs of dawn.

I saw the US Auto industry go down for the count in 1981. The industrial construction company I had been a project manager for did make it thru in survival mode - the fab shop went from 91 to 8 people, similar for our field crews. Three of our toughest competitor's all failed. The car companies at first kept building at lower rates but when the inventory hit a 180 day supply all but the most popular car lines were mothballed a few years until demand came back.

The airlines right now have 2/3 of their fleet in excess, not in service but requiring maintenance and upkeep, some airlines like Delta has owned metal already paid for - hurts less but... There are over 400 MAX built but not delivered. The airlines need 75% of their fleet in revenue service at at least break even fares before even thinking a bit ahead. Untangling leases and financing, getting the stored fleet back, flying every drop of green time possible, and accepting delivers only on those that have to be taken.

The picture is not becoming clear yet, possibly looking scarier as return to normal has been quite slow. In six months we will have a better idea how many more months until traffic gets to 75% of previous.

I will try to say it in an acceptable manner this time. Companies exist within a complex of stormy seas, mortal enemies and best friends. Those relationships often working within every entity - Mainly mechanics, engineers, airlines, governments, other companies, and the public. Boeing drank the (Ayn Rand?) cool aid. Legalities were compromised, regulators were co-opted, governments were outsmarted, workers were coerced, quality suffered. So who is going to stand up for Boeing? Or if they do stand up, it is likely they will be hiring the best attorneys so the intention of the help is iron clad, and the price will be high. My prejudices in this - Boeing was the home team. They have made it very clear they are not the home team. I now believe it.

I believe this topic needs a bit of economic theory. I hope the mods bear with me.

While I appreciate Keynes for his Bancor idea, I usually dislike deficit spending and its usual suspects. That's because usually recessions are caused by a period of easy money, by Keynesian economics, so to say.

Today is the exception to the rule. It's in situations like today that Keynes applies. I say this as a believer in monetarism, the opposite school of thought.

"Keynesian economics... are various macroeconomic theories about how, in the short run – and especially during recessions – economic output is strongly influenced by aggregate demand (total spending in the economy). In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation.[1]
Keynesian economics developed during and after the Great Depression from the ideas presented by Keynes in his 1936 book, The General Theory of Employment, Interest and Money.[2] "
https://en.wikipedia.org/wiki/Keynesian ... %20economy).

If an economy shrinks by 5%/ year it may be a necessary correction to overinvestment caused by years of stupid cheap money.
If demand collapses by 50% because of a virus politics can't stand aside.

I can't tell if OEMs should cut production by 15% or 25%. But 50% cuts is not something politics can allow. It's wise of the governments to give money to Airbus and Boeing to save the value chain.

We speak of a high tech value chain. That's not something one can just restart. It's crucial technology for our way of life.

Sokes wrote:

I believe this topic needs a bit of economic theory. I hope the mods bear with me.

While I appreciate Keynes for his Bancor idea, I usually dislike deficit spending and its usual suspects. That's because usually recessions are caused by a period of easy money, by Keynesian economics, so to say.

Today is the exception to the rule. It's in situations like today that Keynes applies. I say this as a believer in monetarism, the opposite school of thought.

"Keynesian economics... are various macroeconomic theories about how, in the short run – and especially during recessions – economic output is strongly influenced by aggregate demand (total spending in the economy). In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation.[1]
Keynesian economics developed during and after the Great Depression from the ideas presented by Keynes in his 1936 book, The General Theory of Employment, Interest and Money.[2] "
https://en.wikipedia.org/wiki/Keynesian ... %20economy).

If an economy shrinks by 5%/ year it may be a necessary correction to overinvestment caused by years of stupid cheap money.
If demand collapses by 50% because of a virus politics can't stand aside.

I can't tell if OEMs should cut production by 15% or 25%. But 50% cuts is not something politics can allow. It's wise of the governments to give money to Airbus and Boeing to save the value chain.

We speak of a high tech value chain. That's not something one can just restart. It's crucial technology for our way of life.

You don't destroy the value chain by cutting 50% - that is what saves it. Not cutting by 50% now and then later having to cut by 100% is what destroys it.

Boeing and Airbus just have to figure out the tickover rates of the lines to keep the knowledge intact (Production and Design).

Presently that may only be something like 5-10 MAX per Month (New Builds), 2-3 787, 1x 777 (747 and 767 will end as Commercial programs at end of current production). For Airbus that could be something like 15-20 A320NEO and 2-3 A350.

It's time for Airbus to shutter the A330 and force those purchasers into A320/321 or A350 to support those lines.

I doubt we will see any new clean sheet metal for some time - it may just be derivatives to keep a core group of Engineers busy. Production jobs will be few and far between.

For Boeing an 737-8ER using 737-10 MTOW/Wing/Gear and the much talked about 788er/f.

For Airbus if they do decide to scrap A330 they could finally do A358 and maybe make a really nice freighter out of it - but in reality they should just focus on getting build cost out of the program.

They could possibly do the rewinged/Lengthend A322 but not much incentive to do that - focus on Optimizing A350 and finish 321XLR.

lightsaber wrote:

Waterbomber2 wrote:

lightsaber wrote:

Capa has an interesting article.

The GFC in 2009 had no drop in deliveries due to Asian growth. That was with a mere 0.4% drop in passengers. We now have a 60% drop in traffic.

bhttps://centreforaviation.com/analysis ... 30s-537730

Article on Asian recession:

https://finance.yahoo.com/news/asia-see ... 53456.html

I work in the industry, I'm not happy where things are going. This is just ugly.

Lightsaber

This is quite definitely of a different dimension than the GFC, although you wouldn't believe so if you were looking at the S&P or the Nasdaq.
This has repercussions all the way down the food chain.

The coming months we will be confronted more and more with the consequences of the crisis.

Despite all of that, I think that aircraft manufacturing is like running a copper mine. Demand will return eventually, and then you can take orders with deliveries spilling over into the next downturn or have them ready to deliver. Debt is cheap and aircraft are not perishables like seats on a flight. Time to build aircraft and parts for aircraft so that the industry is ready to sell them when the time comes.

Airlines have come and gone during major downturns.
One man's death, is another man's bread.
There is no doubt that the industry will crawl back eventually. I'm very bearish short-term but very bullish long term, and building aircraft is a long-term business.

The problem is the airlines this time cannot afford the aircraft. Yes, they have orders, but they cannot afford to take them.

Boeing and Airbus will run out of cash. No company can build up the level of inventory proposed. The industry will crawl back. We might even have a scramble to rebuild production. But if costs in the industry are not dropped, the manufacturers will not survive. If the airlines are forced to take their contracted aircraft, they will not survive.

I'm afraid, in a few months, we'll hear about the plans.
I've already posted links on Raytheon Technologies cutting the workforce. GE is also cutting 13,000:
https://wolfstreet.com/2020/09/02/the-s ... paid-jobs/

I believe both Boeing and Airbus are still playing chicken. Both were suffering just a short time ago trying to ramp up production.
But we've seen this before in other industries. If demand rebounds quickly, the executives look like a genius. If wrong, layoffs are far worse due to the expenses of the debt.

In good times, a copper mine has far higher profits than Boeing or Airbus.
Profit on a 737 MAX was $12 to $15 million before the crisis, with selling price (if we use the 50% to 55% discount) of $55 to $61 million. In other words, 20% to 25% profit
https://www.businessinsider.com/boeing- ... dys-2019-3

Airbus makes a similar profit, . However, I provided prior links that new aircraft have dropped in pricing. Now ignoring the YE Airbus report (dominated by the bribary scandal and A400 losses), the mid-year was noting a 75% increase in profit, speculated to be dependent upon the A320NEO:
https://leehamnews.com/2019/10/30/airbu ... year%20ago

It is probably Airbus makes a little more profit. But not enough to stockpile aircraft for 3 or more years. That is unfortunately how long I think it will take. We're talking a Cost of $40 million to $45 million per A320NEO (more for the A321NEO, but also a higher profit margin). So if production is indeed 16 per month to much (as per my prior link), we're talking 170*40=6,800 million usd (or euro, almost equivalent) per year on just the narrowbody aircraft. The widebodies have no demand and while airlines will take some up, I see another $4 billion to $7 billion per year of inventory.

Inventory that requires maintenance, storage, and financial payments. I'm trying to see the business case for the magnitude of the backlog.
Boeing has already borrowed most of what they can borrow to handle their expanding inventory. They'll have to cut expenses soon.
Airbus simply wasn't making the profits to store cash before this crisis.
https://www.airbus.com/investors/financ ... ports.html

Aibus made 12 billion fewer Euros in 1H2020 in revenue, but not all the loss was realized. They had a negative cash flow of 12.4 billion Euros. I believe that is accelerating as airlines are realizing they cannot take up aircraft and doing whatever they can. Airbus only recognized 0.9 billion euros in losses. This pushed Airbus in the first half, with only 3 months of crisis, from a good 12.5 billion Euro positive net cash positive position to (barely) 0.6 billion Euro in debt. That is with 196 deliveries. I would have to imagine airlines are getting desperate not to accept aircraft (other threads have highlighted how bad the market is, I posted earlier how we're at 32.9% in the USA... Ugly).

If Airbus blew through all their cash in 3 months, what the heck will happen for the rest of 2020?!?

Boeing had a negative 9.852 billion usd net cash flow. Of course the MAX debacle worsened it for Boeing (only 70 aircraft delivered)
https://investors.boeing.com/investors/ ... fault.aspx

We're talking Airbus burning through 2 billion Euro or 2.4 billion USD in cash per month and Boeing 1.5 billion USD or 1.25 billion Euro.

Reducing production by 16 A320s per month should cut that burn by about .5 billion Euros for Airbus.
Boeing has less to cut (due to MAX shutdown and trying to keep vendors alive), but they still can cut 0.25 billion or more per month.

This is the month next year's production rate is set (traditionally). So the decision must have already been made. If not, chaos and penalties.

I don't want much more of a cut. I think it must happen.

Lightsaber

Your arguments would be correct in an economy functioning normally or let's say pretend-normally.

Please try to analyse the same issue again starting with the hypothesis that Airbus and Boeing have access to unlimited money.
Because they do.
Airbus and Boeing's money supply being dictated by trading conditions or market conditions has ended in February of 2020.

In the current reality, Airbus and Boeing sit at the top of the food chain of companies that governments would save at all cost.
Airlines, hotels, restaurants, cruise lines. Governments will take reasonable measures to help those, but if they fail, so be it.
But Airbus and Boeing are too big to fail, or perhaps too important to fail. So no matter how many aircraft they build, these companies will be the last standing.
The governments will invoke "national security" reasons if need be.
I don't particularly like that from an ethical and fair open market perspective, but the light will probably go out globally before Airbus and Boeing run out of cash.

Lawmakers have inserted in the Senate’s $2 trillion stimulus package a little-noticed provision aimed at providing billions of dollars in emergency assistance to Boeing, the aerospace giant already under fire for deadly safety lapses in its commercial jets, three people with knowledge of the internal deliberations said.
The Senate package includes a $17 billion federal loan program for businesses deemed “critical to maintaining national security.” The provision does not mention Boeing by name but was crafted largely for the company’s benefit, two of the people said. Other firms could also receive a share of the money, one of the people said. The people spoke on the condition of anonymity to discuss sensitive internal deliberations.

https://www.washingtonpost.com/business ... ronavirus/

Sokes wrote:

I believe this topic needs a bit of economic theory. I hope the mods bear with me.

While I appreciate Keynes for his Bancor idea, I usually dislike deficit spending and its usual suspects. That's because usually recessions are caused by a period of easy money, by Keynesian economics, so to say.

Today is the exception to the rule. It's in situations like today that Keynes applies. I say this as a believer in monetarism, the opposite school of thought.

"Keynesian economics... are various macroeconomic theories about how, in the short run – and especially during recessions – economic output is strongly influenced by aggregate demand (total spending in the economy). In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation.[1]
Keynesian economics developed during and after the Great Depression from the ideas presented by Keynes in his 1936 book, The General Theory of Employment, Interest and Money.[2] "
https://en.wikipedia.org/wiki/Keynesian ... %20economy).

If an economy shrinks by 5%/ year it may be a necessary correction to overinvestment caused by years of stupid cheap money.
If demand collapses by 50% because of a virus politics can't stand aside.

I can't tell if OEMs should cut production by 15% or 25%. But 50% cuts is not something politics can allow. It's wise of the governments to give money to Airbus and Boeing to save the value chain.

We speak of a high tech value chain. That's not something one can just restart. It's crucial technology for our way of life.

We did have mal-investment due to cheap money.

At the end of 2019, pre-Covid19, it was already predicted that the return of the MAX would be "hard to swallow." While the blame was pointed at only the trade war, I believe it was more over-expansion due to cheap money:

https://www.financialexpress.com/indust ... 0/1790910/

We ended 2019 with too many aircraft. Covid19 shrank the market while production continued.

Which value chain should be supported? CFM is half SAFRAN. Should Boeing support them or Airbus the GE side?

I am a supporter of keeping the supply chain on life support. But most of what is precious is in a third of the staffing.

In the 1999s, aerospace, military and commercial, shrank by half. It was brutal though.

What needs to be preserved, in my opinion by industrial experience: 3D printing and casting houses, if they go under, the industry is done. There is over-supply in aerostructures, in particular aluminum aerostructures, so that area must consolidate.

Many of the components are by Megitt, Raytheon Technologies, Woodward, or Moog. I think they'll survive. The engines are already consolidated to GE/CFM, Pratt (Raytheon), and RR. The 1st tier vendors will survive.

All that is key to preserve is the key 2nd tier vendors. The seal makers, rivits, casting houses, landing gear, bearings, glass houses (probably plexi now, but the windscreen vendors as both are just called glass in the industry), and 3D printing. But we don't have to preserve at the current production.

Some I have little concern. For example, aviation for the avionics components is a small market overall.

The cost is too high.

We had production at least 30% high, in my opinion, due to the continued low interest rates. We now must correct for years of overbuilding.

I am not advocating going to zero.
200 to 250 per year on the A320
Perhaps 150 to 200 on the MAX
perhaps 50 year on the A350 and 787
Draw down the 777 to only 25/year pax+ freight

Is see enough demand for the A220 and 767 for their survival.

Everything else fends for itself.
Now Brazil might support Embraer and Japan the MRJ.

Too much government distortion will kill the recovery.

We're talking about building hundreds of white tails. That means in 2023, the current prediction of when traffic returns, we are talking a surplus of 18 months of narrowbody production if current rates are maintained.

Far worse on widebodies. That means the industry barely survives until 2026 or later due to the massive surplus.

Keep the industry going, but at the current high capacity us creating future problems. This is based on my opinion that the last few years the widebody market was over-supplied and that expansion in the narrowbody market drove down yields too much.

I believe we were heading to an aerospace correction anyway.

Lightsaber

I think the part where we have functioning markets dictating the world disappeared a while ago. Rules are being set at corporate behest, for the reason of "preserving jobs" when really the money was needed to service debt. Having reserves is inefficient use of capital. It is almost the opposite of the paradigm of thrift. I think that Minsky is the most appropriate economic commentator to look to for answers.

So to relate back to aviation as to remain on point. When selling miles is where an airline makes its money and not delivering a service we know the economic incentives are misaligned. Low interest rate encouraged over ordering because the risk was perceived as low. Its rather interesting if you look at interest rates of government debt for major economies over the past 30 years (CNBC works easy for this) it seemed almost inevitable, and will not reverse easily. If corporations can use government money to protect themselves and not have to innovate, then all we really have less was to overproduce.

lightsaber wrote:

I'm afraid, in a few months, we'll hear about the plans.
I've already posted links on Raytheon Technologies cutting the workforce. GE is also cutting 13,000:
https://wolfstreet.com/2020/09/02/the-s ... paid-jobs/

We already did hear the plans, at least the first round. In a few months we'll hear about the next round.

Airbus is cutting 15,000. Boeing already cut 16,000 and said in July, after those cuts took place, "we'll have to further assess the size of our workforce and ensure we're aligning with the smaller market. More hard decisions are likely ahead of us."

lightsaber wrote:

I believe both Boeing and Airbus are still playing chicken.

I certainly understand your argument the production rates seem too high, but as far as I know, the discussions with their customers about when deliveries will be rescheduled for and how many cancellations there will be are still taking place. Is it really "playing chicken" to discharge employees and reduce rates iteratively as they progress through re-negotiating the deliveries with the airlines?

This is the month next year's production rate is set (traditionally). So the decision must have already been made. If not, chaos and penalties.

I would not assume these contracts will be signed in the usual manner this year. I can envision them breaking the commitments into shorter blocks, with the nearest term being a firm commitment, then the later terms including a firm minimum commitment plus options.

Airbus CEO: we can't guarantee no compulsory layoffs

If there's no demand - and there's very little demand, one or two carriers for a certain type doesn't make the market - you don't need 2019-levels of production and you can't maintain worker counts.

Reuters: https://www.reuters.com/article/us-airb ... 6D0MB?il=0

iamlucky13 wrote:

Is it really "playing chicken" to discharge employees and reduce rates iteratively as they progress through re-negotiating the deliveries with the airlines?

Short answer: Yes.

Very long answer:
Look at the overall market. I just posted in the Lease values thread a link on Widebodies at 5 years:

viewtopic.php?f=3&t=1449067&p=22430869#p22430869

The most popular widebodies have lost 10% of value. Everything else, 17% to 22%. Naturally, these discounts will shift demand from new to used aircraft.

Manufacturing requires feed forward analysis. If the executives cannot see this market makes the 1970s market look great, they need to have a coffee!

I posted before the really poor bond ratings if US airlines, only WN investment grade. How about EY:
LH BB, (2 into junk): https://investor-relations.lufthansagro ... bonds.html
IAG now 2 down into junk (started the year investment grade) on negative review as cash bleed expected 2 to 3 more years: https://www.headforpoints.com/2020/09/0 ... rways-iag/

AirBaltic slowed expansion.
Facinating charts on easyJet contraction and returning CEOs:
https://www.forbes.com/sites/willhorton ... 505ff45aa1

The sites with AF-KLM bond ratings had my browser advising to run away, but I doubt better than their competition.

LATAM in a poorly run bankruptcy, returning aircraft
Avianca in bankruptcy, returning aircraft
AeroMexico in bankruptcy, returning a few aircraft.
Interjet had the A320s repossessed (needs funds)

Vietjet slowing expansion.

Indigo returning all A320CEO over next 2 years.
GoAir returning all A320CEO
SpiceJet returning all 737NG (short leases, so should be quick).

Without growth, aircraft production must be dropped 60%. See my prior posts on how yield was dropping in 2019.

There will be a recovery, but supply and demand will kick in. The airlines keeping their cash available (Ryanair, SouthWest, Allegiant, and to a lesser extent Delta) will out expand the competition. I would bet that the horde of used aircraft will be too enticing. Of those, only Ryanair doesn't have a history of buying used.

The artificial flat lines tell me sellers are trying to hold the line on pricing and buyers aren't buying at today's pricing.

I know too many people laid off from corporate travel agencies. Not furloughs, these people are laid off. In other words, the recovery is so far off, it us cheaper to retrain new people than even atrempt to keep experienced staff.

Someone needs to sum up the aircraft available within 90 days. I'm This is my third really bad downturn. Perhaps the first Asian recession in decades might impact the market? This is the first bad global recession of my life. The most optimistic is a recovery in 2 years:

https://skift.com/2020/09/22/delta-ceos ... urney/amp/

The most pessimistic, a lost decade (I disagree enough on this that I won't post a link).

Then again, alarmists had it backwards in 2017, predicting a lost decade instead of the boom we had:
https://www.bloomberg.com/news/articles ... nder-trump

What you propose is behind the market on the downside and upside. Right now airframers are making customers stick to contract (when they can, AirAsia cannot be forced nor any bankrupt or near bankrupt airline) despite airlines leveraging to the hilt who can still borrow. Read about radios and steel in 1930. Industries that over produce as much as Aerospace currently is doing have to shut down, not slow, but stop; we don't want that risk.

In 2020 through 2022 if the most optimistic assumptions are true, over-production of 1000 to 1700 Aircraft at current production levels. Err... That is unrecoverable. My proposal is to cut production by about 700 to 800 during that time. In other words, over-supply the market by 200 to 1000 aircraft.

Lightsaber

lightsaber wrote:

Someone needs to sum up the aircraft available within 90 days.
In 2020 through 2022 if the most optimistic assumptions are true, over-production of 1000 to 1700 Aircraft at current production levels. Err... That is unrecoverable. My proposal is to cut production by about 700 to 800 during that time. In other words, over-supply the market by 200 to 1000 aircraft.

Lightsaber

Yes - it would be interesting to sum up the available aircraft. The carriers that survive will not only have their parked fleets to draw from but from a lot of almost brand new fleets from defunct airlines.

I think we could get back to 75% of 2019 in about 2 years but that will mainly be low yield leisure travel. I think business travel may have a permanent structural shift.

So if we are only going to get back to 75% - even if you retire all the old frames - we probably don't need to make any new aircraft for a few years.

As an airline you would be kind of crazy to take any new deliveries unless you really have too.

morrisond wrote:

lightsaber wrote:

Someone needs to sum up the aircraft available within 90 days.
In 2020 through 2022 if the most optimistic assumptions are true, over-production of 1000 to 1700 Aircraft at current production levels. Err... That is unrecoverable. My proposal is to cut production by about 700 to 800 during that time. In other words, over-supply the market by 200 to 1000 aircraft.

Lightsaber

Yes - it would be interesting to sum up the available aircraft. The carriers that survive will not only have their parked fleets to draw from but from a lot of almost brand new fleets from defunct airlines.

I think we could get back to 75% of 2019 in about 2 years but that will mainly be low yield leisure travel. I think business travel may have a permanent structural shift.

So if we are only going to get back to 75% - even if you retire all the old frames - we probably don't need to make any new aircraft for a few years.

As an airline you would be kind of crazy to take any new deliveries unless you really have too.

I composed on the most optimistic outlook.

I'm quite a bit more optimistic, but as this us my job, I had better be (Upton Sinclair has quotes on how people cannot comprehend too negative for their career...).

Under your revenue scenario, there is a surplus at current production of 5,000 to 7,000 aircraft.

I believe we'll be back to 90%+ in two years, so a split of the two scenarios. (100% vs. 75%). I concur business travel will lag liesure for a long time.

I'm advocating plan for the industry to survive and later thrive under my scenario, but to be nimble enough for the upside or some added downside

Your scenario, which is unfortunately plausible, requires more drastic action. Under your scenario, we will see one or two 1st tier vendors disappear. My scenario has a small number of 2nd tier and a quantity of 3rd tier disappear.

Can I officially state I hope we are both too pessimistic?

Lightsaber

morrisond wrote:

lightsaber wrote:

Someone needs to sum up the aircraft available within 90 days.
In 2020 through 2022 if the most optimistic assumptions are true, over-production of 1000 to 1700 Aircraft at current production levels. Err... That is unrecoverable. My proposal is to cut production by about 700 to 800 during that time. In other words, over-supply the market by 200 to 1000 aircraft.

Lightsaber

Yes - it would be interesting to sum up the available aircraft. The carriers that survive will not only have their parked fleets to draw from but from a lot of almost brand new fleets from defunct airlines.

I think we could get back to 75% of 2019 in about 2 years but that will mainly be low yield leisure travel. I think business travel may have a permanent structural shift.

So if we are only going to get back to 75% - even if you retire all the old frames - we probably don't need to make any new aircraft for a few years.

As an airline you would be kind of crazy to take any new deliveries unless you really have too.

Both you and Lightsaber have a good assessment of the industry situation. Utilization of aircraft is roughly 40% of the fleet, the number of revenue seats is more like 1/3, so the average plane in the system is flying below the break even point. This puts total cost pressure on the airline to get back to profitable, even if just 40% of its prior size. For in the long term that is the only way to survive.

Owned metal is the cheapest, look to DL how it has used every last drop of green time in the Mad Dogs, lots of CEOs will be flying. Big decisions on which planes come out of storage as volume returns - newer planes may still stay stored as the old ones are could be cheaper right now as the most senior crews likely are on older frames.

Airlines that expected high rates of growth ordered a whole slew of aircraft, I think there was a lot of prediction that there would always be 5% growth in passengers every year and that we know how to increase market share. They are now faced with obligations far more than they can support. They really need to get rid of 10% or more of their fleet, with the most expensive going out first. However, the sale price of the most expensive planes has dropped far more than the cheapest to operate. 10% of the fleet is like 1,000 aircraft. These need to be absorbed before any new planes are needed.

Nobody knows what the supportable fleet size is a year from now, I noted 10% above, but it could be 20% of the current fleet is excess. New production needs to be really cut back such that the industry is in balance in like 5 years. That might be production rates of just 20% of before.

Compared to other industries the cost to mothball a production line is high compared to keeping a low rate in production. But Boeing is now considering idling one of two 787 production lines. That line could return in 5 years, but possibly building other planes than the 787. Closing the Everett line allows the most important workers could be moved to other production. The MAX line has been in idle or low production now for a couple years, already the most senior workers are among those that remain.

lightsaber wrote:

morrisond wrote:

lightsaber wrote:

Someone needs to sum up the aircraft available within 90 days.
In 2020 through 2022 if the most optimistic assumptions are true, over-production of 1000 to 1700 Aircraft at current production levels. Err... That is unrecoverable. My proposal is to cut production by about 700 to 800 during that time. In other words, over-supply the market by 200 to 1000 aircraft.

Lightsaber

Yes - it would be interesting to sum up the available aircraft. The carriers that survive will not only have their parked fleets to draw from but from a lot of almost brand new fleets from defunct airlines.

I think we could get back to 75% of 2019 in about 2 years but that will mainly be low yield leisure travel. I think business travel may have a permanent structural shift.

So if we are only going to get back to 75% - even if you retire all the old frames - we probably don't need to make any new aircraft for a few years.

As an airline you would be kind of crazy to take any new deliveries unless you really have too.

I composed on the most optimistic outlook.

I'm quite a bit more optimistic, but as this us my job, I had better be (Upton Sinclair has quotes on how people cannot comprehend too negative for their career...).

Under your revenue scenario, there is a surplus at current production of 5,000 to 7,000 aircraft.

I believe we'll be back to 90%+ in two years, so a split of the two scenarios. (100% vs. 75%). I concur business travel will lag liesure for a long time.

I'm advocating plan for the industry to survive and later thrive under my scenario, but to be nimble enough for the upside or some added downside

Your scenario, which is unfortunately plausible, requires more drastic action. Under your scenario, we will see one or two 1st tier vendors disappear. My scenario has a small number of 2nd tier and a quantity of 3rd tier disappear.

Can I officially state I hope we are both too pessimistic?

Lightsaber

Sure - better to undershoot on production though to make sure we don't loose one of those suppliers - which I don't think we will as Governments will bail them out - but no need to waste resources on unneeded frames either.

Oversupply at 200 frames seems like a lot better idea right now - which means some pretty drastic Widebody production cuts and halving existing A320 production.

The one thing that could be very helpful for the industry is to set Greener environmental goals so frames that are less Green than say A320 NEO, A350, MAX, 777X and 787 aren't allowed to fly after say 2030.

Governments could guarantee the debt the airlines need to take on to replenish there fleets and help achieve Environmental goals and save the aircraft industry(and help the economy). Better to spend Government money (in this case no real spending just Guarantees) to accomplish a social goal.

This is totally subjective - but ever since COVID started the sky just looks a lot clearer with the lack of jet traffic and I like it (I live in Oakville, Ontario under one the Flight Paths going into Pearson) - I'm all for greening the industry.

If they did mandate scrapping of frames could the industry make enough in the next decade to replace fleets?

Full production would also give the manufacturers the cash flow to develop even more efficient replacements for after 2030.

I like policies that don't actually cost anything - better than paying out money to support unneeded workers.

lightsaber wrote:
Can I officially state I hope we are both too pessimistic?

At least the CEO of Ryanair is not so pessimistic !

from the link below :
He said the airline hopes to take delivery of the first 737 Max aircraft in January or February of next year, with 30-40 arriving before the summer in order to boost growth.

https://www.rte.ie/news/ireland/2020/0917/1165756-ryanair-oleary/

morrisond wrote:

[
The one thing that could be very helpful for the industry is to set Greener environmental goals so frames that are less Green than say A320 NEO, A350, MAX, 777X and 787 aren't allowed to fly after say 2030.
.

That proposal ends how Aircraft are financed. That also bankrupts the air freight market. It takes 20 years to pay off an aircraft.

You also just bankrupted the engine industry. Engines are sold at a loss, then make a profit per overhaul. The JT9D entered service in 1970, but didn't make a profit until 1995 and was retired from the fleet after 9/11.

I think the MRO network might have a say as well as airlines. Not to mention removing about $25 billion from the book value of AA, UA, and DL makes them insolvent. LH, AF, and BA would all fail too. But the ME3 thank you.

Lightsaber

oldJoe wrote:

lightsaber wrote:
Can I officially state I hope we are both too pessimistic?

At least the CEO of Ryanair is not so pessimistic !

from the link below :
He said the airline hopes to take delivery of the first 737 Max aircraft in January or February of next year, with 30-40 arriving before the summer in order to boost growth.

https://www.rte.ie/news/ireland/2020/0917/1165756-ryanair-oleary/

There are 7 or 8 airlines I expect to do much better than all the others when this us over. Ryanair is one. Ryanair is looking at about 50 MAX per year (including return to service) and how many are parked? 4 of the expanding airlines will mostly (or only) buy used in the recovery.

I see Boeing manufacturing 200 MAX/year. There will be plenty for the few growing airlines.

I see a need for 250 to 270 A320NEO.
For example, if you look through this Ryanair article, it correctly notes Wizz was over-expanding by one metric:
https://www.forbes.com/sites/willhorton ... f73a827845

I do hope I am wrong, but I am talking global Aircraft demand.

Lightsaber

lightsaber wrote:
There are 7 or 8 airlines I expect to do much better than all the others when this us over.

Which airlines you have in mind ?

Ryanair is looking at about 50 MAX per year (including return to service)

Ryanair have no MAX frame delivered yet for return to service

For example, if you look through this Ryanair article, it correctly notes Wizz was over-expanding by one metric:

To be honest : what can we expect from the CEO of Ryanair talking of the competition ? I guess no rosy words ?

from the article
He dismissed Wizz Air’s claim of having cheaper aircraft than Ryanair. “Every time they grow, their aircraft costs rise faster than their revenues,” O’Leary said. “When we grow, our aircraft and ownership costs rise at a slower rate than our revenues because we are the only ones that have genuinely low-cost aircraft.”

So he expect now 30-40 ( in the article 40-50 ) in a slow season in a time frame of about four month says all of his statement

oldJoe wrote:

lightsaber wrote:
There are 7 or 8 airlines I expect to do much better than all the others when this us over.

Which airlines you have in mind ?

Ryanair is looking at about 50 MAX per year (including return to service)

Ryanair have no MAX frame delivered yet for return to service

For example, if you look through this Ryanair article, it correctly notes Wizz was over-expanding by one metric:

To be honest : what can we expect from the CEO of Ryanair talking of the competition ? I guess no rosy words ?

from the article
He dismissed Wizz Air’s claim of having cheaper aircraft than Ryanair. “Every time they grow, their aircraft costs rise faster than their revenues,” O’Leary said. “When we grow, our aircraft and ownership costs rise at a slower rate than our revenues because we are the only ones that have genuinely low-cost aircraft.”

So he expect now 30-40 ( in the article 40-50 ) in a slow season in a time frame of about four month says all of his statement

Discussing too many of the airlines I think will succeed quickly runs into a debate. I mentioned one, where you correctly point out the MAX would be original deliveries, not later. I did a link showing more expansion in negotiation. Little details like 30 or 50 aircraft per year for one airline do not matter. This thread is on the game of chicken in production and deliveries.

I pointed out an example of a metric showing one airline diluting profit by over expansion.

Big picture, I believe 2019 had airline profits plummeting due to over-supply. That just reduced future demand.

I am trying to avoid talking about a few airlines when an man makes an estimate. Everyone has different metrics. I just think order deferals and conserving cash are the order of the day.

Lightsaber

One has to wonder which production line makes profit at what rate of production. In theory both manufacturers have to cut down to the point where there is still a small profit possible.

How many A320 have to be produced to make money? 20 a month? 30 a month?

For the WB it is a bit simpler.
The 767 runs a profit of the freighters at low rate.
I guess the 777 makes a profit as well (taking 777X out of the equation). With the investment in the wing factory and other costs, at 2 777X per month with launch customer discounts etc. the 777X makes a big loss at 2 per month.
The A330 at 2 per month? Could probably be trimmed to make a profit. It was that low in the 90s and was healthy. The line should be paid off so it could survive.

A350? Hard to tell. Can it make money at 3 per month? That would be a good target rate
787 goes a bit in the same direction. Can the 787 make money at rate of 3-4 per month?

A220 is the right sized aircraft at the moment but there are still so many launch costs looming and the rate can not increase right now to pay off them costs. Airbus has to bite the bullet here and pay the aircraft through the crisis because I believe there will be a big profit waiting in the future.

Embraer will also make it through but it will be a tough one and unfortunately it will stay in a very niche role because there is no money to ramp up production of E2s and I dont know if all the E1s will ever be delivered with the slow death of the regionals in the US.

FluidFlow wrote:

One has to wonder which production line makes profit at what rate of production. In theory both manufacturers have to cut down to the point where there is still a small profit possible.

How many A320 have to be produced to make money? 20 a month? 30 a month?

For the WB it is a bit simpler.
The 767 runs a profit of the freighters at low rate.
I guess the 777 makes a profit as well (taking 777X out of the equation). With the investment in the wing factory and other costs, at 2 777X per month with launch customer discounts etc. the 777X makes a big loss at 2 per month.
The A330 at 2 per month? Could probably be trimmed to make a profit. It was that low in the 90s and was healthy. The line should be paid off so it could survive.

A350? Hard to tell. Can it make money at 3 per month? That would be a good target rate
787 goes a bit in the same direction. Can the 787 make money at rate of 3-4 per month?

A220 is the right sized aircraft at the moment but there are still so many launch costs looming and the rate can not increase right now to pay off them costs. Airbus has to bite the bullet here and pay the aircraft through the crisis because I believe there will be a big profit waiting in the future.

Embraer will also make it through but it will be a tough one and unfortunately it will stay in a very niche role because there is no money to ramp up production of E2s and I dont know if all the E1s will ever be delivered with the slow death of the regionals in the US.

It is said tat, see below. If true, who knows: As I remember and please note, I have no links/sources.

A350: Airbus shall be fine with a production rate of 6 per month.
A330: Airbus shall be fine with a production rate of 4 per month.

Boeing and the B787: They have made two big mistakes, according to this, these idiots have "doomed" the program.
1. They have successfully replaced Airbus and the 6x A330-800 order for Hawaiian Airlines with a B787-9 order. They have made a nice price and this was the most stupid thing possible. All other airlines were not stupid, they also of course wanted this nice price, so "Me To" and they got it.
2. The Boeing Sales team has always sold the B787 ambitious, so below or near production costs at that moment. So they have made a bet, that Boeing will be able to reduce the production costs per plane accordingly. There is a reason, why we see now all the production flaws for the B787 popping up.

They have two production lines with a capacity now of 14 in total. It is said, Boeing is earning money and will be able to get back the development costs at a production rate of 14. Even prior COVID-19, it was clear, that a production rate of 14 was not any more sustainable and now during and post COVID-19...........
It is said, they will be able to earn money at a production rate of twelve, but will not able to get back the development costs.
At a production rate of 10 and less and two production lines, they will produce the B787 with a loss.

In best case, I expect a production rate of 6 to 8 for the B787 in next years. Boeing has made a third big mistake, they have produced too many planes in short time and have overcrowded the global wb market with cheap B787. This reminds me the turboprop market in the 90s, when too many companies have produced too many turboprop planes in short time and have overcrowded the global market; suddenly, the market was over-full, no further demand was needed for near to two decades and more or less all companies have collapsed. Only two products were left in reasonable numbers, the Q400 and the ATR. Names like Fokker, Dornier e.g. are now long time gone.

I take a look in a very simplistic way.
Businesses have adapted to the "new reality". Consequences: (1) much less business traffic, thus much emptier front cabins; (2) less FF point accumulated by those who fly for their dear jobs.
Yet, air travel will be growing in places where distances are huge, the infrastructure is poor, islands are separated by water, etc. (Indonesia, India, many African countries, etc.).
For example, I find it amazing that Chinese airlines are still taking aircraft at a decent rate these days.
A large part of holiday-going will survive. And holidaygoers always go for economy and "economy minus".
Therefore, I do not find it surprising that Ryanair wants their MAXes as soon as possible. Their business will rebound. In my airport, they are doing just fine right now, along with Wizzair.
I would say that, if we add 320series and 737series, by January 2023, we will have 100 aircraft per month.
However, what concerns widebodies (which were "supported" by business trips while Y and Y- just added 5 cents to the business case), I am afraid that we will be at about 20 aircraft per month.
Props will be fine.
I think in 2023 ATR as a standalone unit will make more profit than Boeing and Airbus taken together

Despite their ability of the executives and management to travel around on commercial aircraft being nixed the likes of Amazon, Nike and Walmart have been doing just fine in our current reality. It might take longer for it to come back.

T4thH wrote:

Boeing and the B787: They have made two big mistakes, according to this, these idiots have "doomed" the program.
1. They have successfully replaced Airbus and the 6x A330-800 order for Hawaiian Airlines with a B787-9 order. They have made a nice price and this was the most stupid thing possible. All other airlines were not stupid, they also of course wanted this nice price, so "Me To" and they got it.

Can you expand?

T4thH wrote:

This reminds me the turboprop market in the 90s, when too many companies have produced too many turboprop planes in short time and have overcrowded the global market; suddenly, the market was over-full, no further demand was needed for near to two decades and more or less all companies have collapsed. Only two products were left in reasonable numbers, the Q400 and the ATR. Names like Fokker, Dornier e.g. are now long time gone.

I don't fully agree with the comparison, as turboprops are replaced with jets and as runways got longer. But you do have a point.

lightsaber wrote:

We did have mal-investment due to cheap money.
Lightsaber

Yes and no. If one compared old aircraft in need of replacement than yes.
But then MD planes and B747-400s were still in use.
As you rightly argued some years back, most new planes were for growth.
Another question is in how far the cheap money led to overinvestment in the world and if a correction was due anyway.

lightsaber wrote:

In the 1999s, aerospace, military and commercial, shrank by half. It was brutal though.
Lightsaber

Can you expand?

I have the nuclear industry in mind. In the 1970s/1980s that was a big industry. Any problem? Just pick up the phone and call the right guy.
Solar cells on the other side were very expensive.

Today it's the other way round. Solar technology is common. But at least Europe can't build a new nuclear power plant any more. At least not without cost overruns and without mistakes. The workforce is gone.

I can't judge how much aviation can shrink without loosing critical knowledge. Laissez faire is needed up to a certain point. Above this government intervention is needed.

lightsaber wrote:

morrisond wrote:

[
The one thing that could be very helpful for the industry is to set Greener environmental goals so frames that are less Green than say A320 NEO, A350, MAX, 777X and 787 aren't allowed to fly after say 2030.
.

That proposal ends how Aircraft are financed. That also bankrupts the air freight market. It takes 20 years to pay off an aircraft.

You also just bankrupted the engine industry. Engines are sold at a loss, then make a profit per overhaul. The JT9D entered service in 1970, but didn't make a profit until 1995 and was retired from the fleet after 9/11.

I think the MRO network might have a say as well as airlines. Not to mention removing about $25 billion from the book value of AA, UA, and DL makes them insolvent. LH, AF, and BA would all fail too. But the ME3 thank you.

Lightsaber

Good points. Further clarification is needed.

Finance would continue just with Government Guarantees. Less risk for the finance companies - they put up the capital - the frames don't need to be bought they could be leased.

Make an exception for Air Freight to say 2040 - before they need to green and sufficient used NEO, MAX, 787 or 350 Feedstock is available (assuming you can convert them to Freighters), or suitable new builds are ready.

Engine industry is a problem - but how many frames will actually come out of mothballs that will ever make it to overhaul? The economic life of older frames could be such that they never see an overhaul - as the amount of old engines with time still left before overhaul could be large - they will just swap engines on that have time left. They would still need to overhaul Engines on the new fleet. Those engines are more expensive/complex so overhauls are more expensive (I assume).

That $25B in book value is probably radically overstated in todays environment anyways and is just a paper exercise. Those non-green aircraft would be pretty worthless by 2030 regardless.

This could actually level things out for the Legacy airlines as ME3 essentially has Government Backed financing anyways - it would give them new efficient metal to compete with on similar terms.

lightsaber wrote:

I just think order deferals and conserving cash are the order of the day.

Interesting article at FG ( https://www.flightglobal.com/aerospace/ ... 68.article ) about Spirt Aerosystems's various acquisitions now being "unlikely" / "uncertain".

“The conditions to the Asco acquisition have not been satisfied and the company does not expect to extend the Asco end date,” Spirit says in a 22 September regulatory filing. “The company’s management believes it is unlikely that the [European Commission] condition will be satisfied by the Asco end date.”

Additionally, “there can be no assurances” that conditions related to Spirit’s planned Bombardier acquisition will be met by that agreement’s deadline of 31 October.

The Bombardier deal’s conditions, “some of which remain outstanding”, include terms related to “material adverse change” to the Bombardier commercial aerospace businesses.

Other conditions relate to “legal impediments” and “third-party consents”, says Spirit’s regulatory filing.

Hard to think they might be happy to be conserving cash rather than making aquisitions in the current climate.

Kind of reminds me of how Boeing found a way to walk away from the EMB deal.

Kinda sucks to be BBD holding those facilities they were trying to get rid of and Airbus having to count on BBD to keep making those A220 wings.