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75driver
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Re: The case for more aircraft production cuts/playing chicken

Wed Sep 23, 2020 10:02 pm

Directly from The Times in UK today. Not sure if this is just bluster but according to Guillaume Faury the are not playing chicken. Can’t see his doomsday scenario happening but pretty safe to say the signs point to minimal production across the board.


Airbus in danger of going under, says chief executive

https://www.thetimes.co.uk/article/airb ... -shbrphjgv

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

Wed Sep 23, 2020 10:46 pm

Revelation wrote:
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.


What makes you think that Spirit would have preferred to spend their cash to make these acquisitions in the current climate of affairs? Taking over two companies that are probably fighting for their survival while one finds itself in a difficult situation may not be the best prospect.

On the other hand, amazing job from the EU Commission for derailing an acquisition by obviously imposing conditions near-impossible to fulfill with no obvious benefit for the European citizens besides the public servants and the lawyers involved in following-up this transaction.
 
iamlucky13
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Re: The case for more aircraft production cuts/playing chicken

Wed Sep 23, 2020 10:59 pm

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.


Boeing indicated in the 2Q, 2020 earnings call that they believe they can be profitable at their rate target for the end of 2021:

Greg Smith, CFO wrote:
Clearly, the additional reductions in our commercial production rates as well as the updated 777X schedule have made our cash profile even more challenging. However, based on what we know today and our actions, we still see a path to positive cash flow in 2021.


Obviously, there's a lot of risk in that, and if Lightsaber is right, then the end of 2021 might be too soon for those rate targets.

That would mean, if they burned $5.3 billion of cash this last quarter, and the burn rate declines linearly to 0 for 4Q, 2020, they would consume about $16 billion out of their $32 billion in cash on hand.

So from those assumptions, they do seem to have some room to continue to cut rate further if they need to. Unfortunately, that means burning more of that cash, which makes the $60 billion of debt they now hold an even taller hill to climb.
 
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Revelation
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Re: The case for more aircraft production cuts/playing chicken

Thu Sep 24, 2020 12:33 pm

75driver wrote:
Directly from The Times in UK today. Not sure if this is just bluster but according to Guillaume Faury the are not playing chicken. Can’t see his doomsday scenario happening but pretty safe to say the signs point to minimal production across the board.


Airbus in danger of going under, says chief executive

https://www.thetimes.co.uk/article/airb ... -shbrphjgv


Unfortunately that is a paywall site for me at least.

https://www.reuters.com/article/us-airb ... SKCN26D0MB has the quotes it is based on:

Airbus has said it needs to shed 15,000 posts worldwide.

The crisis is existential. Our life as a business is potentially at risk if we don’t take the right measures. We are taking them,” Faury said.

“The situation is so serious, and we are faced with so much uncertainty, that I think no one can guarantee there won’t be compulsory redundancies if we’re to adapt to the situation, especially if it evolves further.”

So, I think The Times was paraphrasing, but that's ok. I think it is a crisis moment, and cutting hard now then having to deal with shortages as things ramp up later is better than not cutting enough and digging too deep a hole to recover from. I think Faury knows the labor unions go crazy with even one job loss so he's making sure they know it's a serious situation. Note how he uses double negatives when talking about job losses. It's pretty clear this is a letter aimed at the union to prepare them for layoffs rather than a sign that Airbus management thinks it is in danger of going under.
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lightsaber
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Re: The case for more aircraft production cuts/playing chicken

Thu Sep 24, 2020 2:35 pm

Revelation wrote:
75driver wrote:
Directly from The Times in UK today. Not sure if this is just bluster but according to Guillaume Faury the are not playing chicken. Can’t see his doomsday scenario happening but pretty safe to say the signs point to minimal production across the board.


Airbus in danger of going under, says chief executive

https://www.thetimes.co.uk/article/airb ... -shbrphjgv


Unfortunately that is a paywall site for me at least.

https://www.reuters.com/article/us-airb ... SKCN26D0MB has the quotes it is based on:

Airbus has said it needs to shed 15,000 posts worldwide.

The crisis is existential. Our life as a business is potentially at risk if we don’t take the right measures. We are taking them,” Faury said.

“The situation is so serious, and we are faced with so much uncertainty, that I think no one can guarantee there won’t be compulsory redundancies if we’re to adapt to the situation, especially if it evolves further.”

So, I think The Times was paraphrasing, but that's ok. I think it is a crisis moment, and cutting hard now then having to deal with shortages as things ramp up later is better than not cutting enough and digging too deep a hole to recover from. I think Faury knows the labor unions go crazy with even one job loss so he's making sure they know it's a serious situation. Note how he uses double negatives when talking about job losses. It's pretty clear this is a letter aimed at the union to prepare them for layoffs rather than a sign that Airbus management thinks it is in danger of going under.

Airbus is looking, by my estimates, of a revenue cut far greater than the staff reduction. However, it is difficult to furlough staff in Europe.

Boeing is in a brutal state. I have friends there and at vendors panicking.

The issue is neither can afford the size of hole they are digging financially.

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

Thu Sep 24, 2020 3:05 pm

lightsaber wrote:
The issue is neither can afford the size of hole they are digging financially.

Indeed. It seems they misjudged the situation. They thought they could get the markets to loan them enough money to get through a few months of crisis and everything would be better by then. Turns out that governments and the public at large wasn't willing or able to do what was needed to limit the impact of the virus, and now we're in for a long down turn. Industry would have been better off making harsh cut backs up front rather than taking loans that will be a huge burden for many years to come. Same can be said for the easy money the government released. It would have been fine if it came along with measures to limit the virus, but that part of the problem was left wanting.
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FluidFlow
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Re: The case for more aircraft production cuts/playing chicken

Thu Sep 24, 2020 3:20 pm

lightsaber wrote:
Revelation wrote:
75driver wrote:
Directly from The Times in UK today. Not sure if this is just bluster but according to Guillaume Faury the are not playing chicken. Can’t see his doomsday scenario happening but pretty safe to say the signs point to minimal production across the board.


Unfortunately that is a paywall site for me at least.

https://www.reuters.com/article/us-airb ... SKCN26D0MB has the quotes it is based on:

Airbus has said it needs to shed 15,000 posts worldwide.

The crisis is existential. Our life as a business is potentially at risk if we don’t take the right measures. We are taking them,” Faury said.

“The situation is so serious, and we are faced with so much uncertainty, that I think no one can guarantee there won’t be compulsory redundancies if we’re to adapt to the situation, especially if it evolves further.”

So, I think The Times was paraphrasing, but that's ok. I think it is a crisis moment, and cutting hard now then having to deal with shortages as things ramp up later is better than not cutting enough and digging too deep a hole to recover from. I think Faury knows the labor unions go crazy with even one job loss so he's making sure they know it's a serious situation. Note how he uses double negatives when talking about job losses. It's pretty clear this is a letter aimed at the union to prepare them for layoffs rather than a sign that Airbus management thinks it is in danger of going under.

Airbus is looking, by my estimates, of a revenue cut far greater than the staff reduction. However, it is difficult to furlough staff in Europe.

Boeing is in a brutal state. I have friends there and at vendors panicking.

The issue is neither can afford the size of hole they are digging financially.

Lightsaber


At the moment it is very easy in France and Germany to temprary furlough staff. "Activité partielle" and "Kurzarbeit" allow employers to keep staff at home, partially so for example on 20%, and only pay salary for the time at work while the government takes over the rest of the salary (not all of it but a big chunk). Britain is right now debating to implement a similar system.
It is far more difficult to lay off staff.
 
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Revelation
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Re: The case for more aircraft production cuts/playing chicken

Thu Sep 24, 2020 4:08 pm

tomcat wrote:
What makes you think that Spirit would have preferred to spend their cash to make these acquisitions in the current climate of affairs? Taking over two companies that are probably fighting for their survival while one finds itself in a difficult situation may not be the best prospect.

True. It seems very strategic for Spirit to diversify further by picking up an important new product, the A220 wings, because I don't think Spirit has done entire wings before (correct me if I'm wrong). Of course grand strategy is no long driving decisions, survival is. Yet we won't know till late October or November if the BBD deal is off or not.

tomcat wrote:
On the other hand, amazing job from the EU Commission for derailing an acquisition by obviously imposing conditions near-impossible to fulfill with no obvious benefit for the European citizens besides the public servants and the lawyers involved in following-up this transaction.

This would be far from the only example of anti-globalism, if that is what this ends up becoming.
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75driver
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Re: The case for more aircraft production cuts/playing chicken

Thu Sep 24, 2020 4:52 pm

Revelation wrote:
lightsaber wrote:
The issue is neither can afford the size of hole they are digging financially.

Indeed. It seems they misjudged the situation. They thought they could get the markets to loan them enough money to get through a few months of crisis and everything would be better by then. Turns out that governments and the public at large wasn't willing or able to do what was needed to limit the impact of the virus, and now we're in for a long down turn. Industry would have been better off making harsh cut backs up front rather than taking loans that will be a huge burden for many years to come. Same can be said for the easy money the government released. It would have been fine if it came along with measures to limit the virus, but that part of the problem was left wanting.


:checkmark: I’ve said all along this was going to be a generational event. It had all the markings of something extraordinary, not just for aviation but the entire travel industry. I’m not going to point the finger because it’s easy to sit here in retrospect and claim the ole shoulda, coulda, woulda when there was so much unknown. The very nature of COVId indicated a cataclysm of sorts. All the government money did was kick the can down the road. Boeing and Airbus are facing monumental challenges but playing chicken with manufacturing won’t happen. Never mind that it would be foolish but neither have the resources. The longer this goes on the more their order books will dry up. They’ll be fortunate to deliver what’s already built and ordered. Then what happens to all the perfectly fine excess metal sitting around with years of physical and economic life? The airlines are still flying too much capacity and Boeing and Airbus are building too much capacity. The supply/demand on both sides of that equation is way out of proportion and can’t continue.
 
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Revelation
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Re: The case for more aircraft production cuts/playing chicken

Thu Sep 24, 2020 5:11 pm

Yet we have early indications Airbus is not cutting production:

https://www.reuters.com/article/us-airb ... SKCN26F2NA

Jet traders say the acid test for Airbus’ bid to stabilise output will be whether the majority of cash-starved airlines will be able to find financing for next year’s deliveries.

Funds are slowly returning for airlines with the strongest finances, but many airlines are struggling to find support and are seen likely to draw on European government export credits.

So it seems they are confident that the gain from this year's production is worse than the pain of impacting the supply chain, but next year could be more of a challenge.

Kinda interesting given the article says they already have 170 jets that have not yet been delivered, several $billions of inventory.

Time will tell if they are getting this right nor not.
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tomcat
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Re: The case for more aircraft production cuts/playing chicken

Thu Sep 24, 2020 5:27 pm

75driver wrote:
Revelation wrote:
lightsaber wrote:
The issue is neither can afford the size of hole they are digging financially.

Indeed. It seems they misjudged the situation. They thought they could get the markets to loan them enough money to get through a few months of crisis and everything would be better by then. Turns out that governments and the public at large wasn't willing or able to do what was needed to limit the impact of the virus, and now we're in for a long down turn. Industry would have been better off making harsh cut backs up front rather than taking loans that will be a huge burden for many years to come. Same can be said for the easy money the government released. It would have been fine if it came along with measures to limit the virus, but that part of the problem was left wanting.


:checkmark: I’ve said all along this was going to be a generational event. It had all the markings of something extraordinary, not just for aviation but the entire travel industry. I’m not going to point the finger because it’s easy to sit here in retrospect and claim the ole shoulda, coulda, woulda when there was so much unknown. The very nature of COVId indicated a cataclysm of sorts. All the government money did was kick the can down the road. Boeing and Airbus are facing monumental challenges but playing chicken with manufacturing won’t happen. Never mind that it would be foolish but neither have the resources. The longer this goes on the more their order books will dry up. They’ll be fortunate to deliver what’s already built and ordered. Then what happens to all the perfectly fine excess metal sitting around with years of physical and economic life? The airlines are still flying too much capacity and Boeing and Airbus are building too much capacity. The supply/demand on both sides of that equation is way out of proportion and can’t continue.


On a more optimistic note, the airlines are not done fighting to get the passenger demand back to a more substantial level. Look at the protocol that Lufthansa is trying to implement:
German airline Lufthansa says it will test the practice of offering on-the-spot coronavirus tests before boarding intercontinental flights in an attempt to find a way to get long-haul passengers flying again.

the practice will depend on government approval.

The proposal is in line with calls by the IATA industry association to use testing as an alternative to quarantines to restore confidence in flying and get air travel moving again. The tests would be a way around the different quarantine requirements

Those rules, while they can help contain the spread of the virus, are a major deterrent to air travel, industry representatives say.


https://apnews.com/article/virus-outbreak-germany-travel-airlines-5860e7c3adf1edc863662caa6aaa978a

If implemented, such a protocol could quickly boost the demand for air travel, especially the long-haul travel.

I would also point that we may be too western-centric in our analysis of the state of the airline industry. I just had a look at Air China traffic data. In August, their domestic RPKs were down 17% only vs Aug 2019 while the overall RPKs were down 49%. It's not as dramatic as the figures we see in Europe for example. If long haul travel can be re-opened with suitable protocols, the level of global traffic could go up fairly quickly. Let's give it a couple more months before booking the funeral ceremony of the air travel industry.

http://www.airchina.com.cn/en/investor_relations/traffic_data.shtml
Last edited by tomcat on Thu Sep 24, 2020 5:31 pm, edited 1 time in total.
 
jeffrey0032j
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Re: The case for more aircraft production cuts/playing chicken

Thu Sep 24, 2020 5:30 pm

Revenues for A&B will take a further hit from the parts market when excess planes eventually get parted out. Boeing's announcement of additional BCF lines is probably to support a viable secondary market for Boeing frames to cushion this impact.
 
75driver
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Re: The case for more aircraft production cuts/playing chicken

Thu Sep 24, 2020 6:06 pm

tomcat wrote:

On a more optimistic note, the airlines are not done fighting to get the passenger demand back to a more substantial level. Look at the protocol that Lufthansa is trying to implement:


https://apnews.com/article/virus-outbreak-germany-travel-airlines-5860e7c3adf1edc863662caa6aaa978a

If implemented, such a protocol could quickly boost the demand for air travel, especially the long-haul travel.

I would also point that we may be too western-centric in our analysis of the state of the airline industry. I just had a look at Air China traffic data. In August, their domestic RPKs were down 17% only vs Aug 2019 while the overall RPKs were down 49%. It's not as dramatic as the figures we see in Europe for example. If long haul travel can be re-opened with suitable protocols, the level of global traffic could go up fairly quickly. Let's give it a couple more months before booking the funeral ceremony of the air travel industry.

http://www.airchina.com.cn/en/investor_relations/traffic_data.shtml


I don’t think the airlines have even begun fighting for increased passenger demand. It’s been a huge fail not promoting how safe air travel is. I’ve read where the US military has also been conducting studies and trying to establish safe protocols but it hasn’t been promoted enough in my view.

On the 2nd matter, I don’t believe a word coming from China. There have been additional unreported lockdowns around China long since they quit publishing cases and deaths. I don’t want to get too far off topic and I’d be happy to expand upon it in another thread but no, I don’t believe anything China reports based on intel from 2 people on the ground.
 
tomcat
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Re: The case for more aircraft production cuts/playing chicken

Thu Sep 24, 2020 8:45 pm

75driver wrote:
tomcat wrote:

On a more optimistic note, the airlines are not done fighting to get the passenger demand back to a more substantial level. Look at the protocol that Lufthansa is trying to implement:


https://apnews.com/article/virus-outbreak-germany-travel-airlines-5860e7c3adf1edc863662caa6aaa978a

If implemented, such a protocol could quickly boost the demand for air travel, especially the long-haul travel.



I don’t think the airlines have even begun fighting for increased passenger demand. It’s been a huge fail not promoting how safe air travel is. I’ve read where the US military has also been conducting studies and trying to establish safe protocols but it hasn’t been promoted enough in my view.


I don't think the issue is the fear about the lack of health safety. What is refraining people to travel by plane are more practical issues: travel bans, the quarantine requirements and the risk of having the return flight cancelled with no alternative to fly back home. Nobody will plan a one or two weeks trip with the requirement of having to be quarantined for the entire duration of the trip. This summer has shown that as soon as the practical disincentives are lifted, the travel demand is back instantly to a substantial level.
 
2175301
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Re: The case for more aircraft production cuts/playing chicken

Thu Sep 24, 2020 10:06 pm

tomcat wrote:
I don't think the issue is the fear about the lack of health safety. What is refraining people to travel by plane are more practical issues: travel bans, the quarantine requirements and the risk of having the return flight cancelled with no alternative to fly back home. Nobody will plan a one or two weeks trip with the requirement of having to be quarantined for the entire duration of the trip. This summer has shown that as soon as the practical disincentives are lifted, the travel demand is back instantly to a substantial level.


I disagree. I think people are not just worried about the quarantine periods... but what happens if they get sick when in another country... Right now it appears that they would not be allowed to travel home in many cases.

My wife was planning a trip to Ukraine this summer. She actually has some legal things to wrap up from when her mother died and has to change banks for her local account and other things to manage her property and a suspended business (which she hopes to restart again). She was OK with a fixed quarantine period (she could do a lot of stuff over the internet and phone once she was in country - more than she could do from the USA). But, was not OK in that there was no apparent timetable or way to get her back to the USA for her fall work schedule if she became sick while in Ukraine - especially if it was suspected COVID-19. Also, discussed was what if she became seriously ill while in Ukraine. I'm not so free to travel internationally due to some of my health issues. Due to Covid many of the normally available travelers insurance (including emergency medical treatment and transportation back to her home area) either vanished or became very very expensive.

I don't think we will see much international travel until people are allowed some way to return home in a timely manner - even if sick.

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

Thu Sep 24, 2020 10:38 pm

2175301 wrote:
tomcat wrote:
I don't think the issue is the fear about the lack of health safety. What is refraining people to travel by plane are more practical issues: travel bans, the quarantine requirements and the risk of having the return flight cancelled with no alternative to fly back home. Nobody will plan a one or two weeks trip with the requirement of having to be quarantined for the entire duration of the trip. This summer has shown that as soon as the practical disincentives are lifted, the travel demand is back instantly to a substantial level.


I disagree. I think people are not just worried about the quarantine periods... but what happens if they get sick when in another country... Right now it appears that they would not be allowed to travel home in many cases.

My wife was planning a trip to Ukraine this summer. She actually has some legal things to wrap up from when her mother died and has to change banks for her local account and other things to manage her property and a suspended business (which she hopes to restart again). She was OK with a fixed quarantine period (she could do a lot of stuff over the internet and phone once she was in country - more than she could do from the USA). But, was not OK in that there was no apparent timetable or way to get her back to the USA for her fall work schedule if she became sick while in Ukraine - especially if it was suspected COVID-19. Also, discussed was what if she became seriously ill while in Ukraine. I'm not so free to travel internationally due to some of my health issues. Due to Covid many of the normally available travelers insurance (including emergency medical treatment and transportation back to her home area) either vanished or became very very expensive.

I don't think we will see much international travel until people are allowed some way to return home in a timely manner - even if sick.


I understand your argument and I have no doubt it is relevant for some people. I just don't know how prevalent it is.

In order to go beyond the anecdotal evidences, here is an article providing some indications that what I summarize as 'practical considerations' is impacting the level of the demand:
Searches to travel within a week have been trending upward since June, around the time that lockdowns ended in many countries, according to Skyscanner’s data.

“When you see restrictions being lifted there is a frenzy,” Aitken said, using the example of when Britain stopped requiring quarantines on return for many countries.

“But equally when we see the potential that a restriction will be added there is a big lift because that is just people ... scrambling on how to get home again,”


On the other hand, the article is also pointing to a negative trend related to the business travel which is expected to remain on the back burner for some time. This will definitely affect the airlines yields:
Skyscanner says it will take several years before business travel returns to previous levels, forcing some airlines to rethink their strategies and reconfigure their plane cabins.


https://www.albawaba.com/business/here-are-latest-air-travel-trends-covid-19-era-1382312
 
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Re: The case for more aircraft production cuts/playing chicken

Thu Sep 24, 2020 11:43 pm

iamlucky13 wrote:
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.


Boeing indicated in the 2Q, 2020 earnings call that they believe they can be profitable at their rate target for the end of 2021:

Greg Smith, CFO wrote:
Clearly, the additional reductions in our commercial production rates as well as the updated 777X schedule have made our cash profile even more challenging. However, based on what we know today and our actions, we still see a path to positive cash flow in 2021.


Obviously, there's a lot of risk in that, and if Lightsaber is right, then the end of 2021 might be too soon for those rate targets.

That would mean, if they burned $5.3 billion of cash this last quarter, and the burn rate declines linearly to 0 for 4Q, 2020, they would consume about $16 billion out of their $32 billion in cash on hand.

So from those assumptions, they do seem to have some room to continue to cut rate further if they need to. Unfortunately, that means burning more of that cash, which makes the $60 billion of debt they now hold an even taller hill to climb.


Boeing has 0% chance of being profit at at the end of the 2021. 0% chance. That was the best best best case scenario then and things have not improved in a best case scenatio way. Additionally those calls they will say anything on long term projections to keep the stock price as high as they can for as long as they can. Boeing is in deep Doo too also, don't think they are in some amazing position either and this is just airbus. Both of them are in trouble until this is over.
 
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Re: The case for more aircraft production cuts/playing chicken

Fri Sep 25, 2020 12:15 am

Revelation wrote:
Yet we have early indications Airbus is not cutting production:

https://www.reuters.com/article/us-airb ... SKCN26F2NA

Jet traders say the acid test for Airbus’ bid to stabilise output will be whether the majority of cash-starved airlines will be able to find financing for next year’s deliveries.

Funds are slowly returning for airlines with the strongest finances, but many airlines are struggling to find support and are seen likely to draw on European government export credits.

This is more to build on your comment (I'm not rebutting):
So it seems they are confident that the gain from this year's production is worse than the pain of impacting the supply chain, but next year could be more of a challenge.

Kinda interesting given the article says they already have 170 jets that have not yet been delivered, several $billions of inventory.

Time will tell if they are getting this right nor not.


First, let us not forget Airbus and Boeing have huge inventories. Yes, the MAX is a disproportionate share, but 600 back in July of undelivered aircraft (423 MAX of 462 Boeing) with Airbus back then having 166 undelivered:
https://simpleflying.com/airbus-boeing- ... delivered/

Other posters are talking about financing. It isn't helping airlines to finance aircraft they do not need. While I understand airlines must contractually accept aircraft, they need to stop bleeding cash.

Traditionally there is a surge of deliveries at month end and quarter end (in particular in June and December). I couldn't find out how many aircraft Airbus had undelivered in the middle of last September. Last September Boeing was building up the MAX inventory, so already in trouble.

But I guarantee the industry doesn't need 600 more aircraft before 2023 and yet they are built and hundreds more will be built.

Good news is undelivered only grew, for Airbus, by 4 since July. Then again, don't they mostly shut down the factories for August (but not flight testing)? I'm used to Airbus scrambling to deliver aircraft due to having delivered the available stock.

https://www.reuters.com/article/us-airb ... 6F2NA?il=0

Contributing to pressure for a new cut, around 30 of the jets due in 2021 belong to lessors who have yet to find an airline able to take them, Ascend by Cirium data shows.


Several others do have a home, but questions remain over whether their designated operators will survive the winter.


We should be talking
1. New built aircraft that do not have a home, that is over 200 for airbus (as delivered but not yet having a home leased planes impact the market too) and I would guess about 500 for Boeing, plus the 387 (per Wikipedia) delivered but not currently flying MAXes.
2. New(ish) aircraft delivered, but at operators unlikely to survive to summer 2021. All A320NEOs, MAX, A330NEOs, A350s, and 787s are certain to find a new home. The question is when and at what price.

We have six months of combined peak production sitting idle (over a thousand new aircraft, perhaps as much as one thousand one hundred).

And they keep producing at historically high rates.
We have hundreds and hundreds of A320CEOs/737NGs already announced to be returned to leasing companies (e.g., 120 A320 CEOs from Indigo, a few dozen from GoAir, Spricejet returning 737NGs, Easyjet returning A319s/A320CEOs, and the flood of aircraft leased due to the MAX grounding on short term leases).

I don't know how it makes sense to build at 2/3rds the prior rate which was above demand when there is six months supply sitting waiting for an airline to pick it up. That means 2021 and 2022 are already taken care of. :cry2: If demand grows from a new lower plateau, typical of a recession, we start debating when more production is needed and the number quickly goes out to 2025 or later. :scared:
Lightsaber
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frmrCapCadet
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Re: The case for more aircraft production cuts/playing chicken

Fri Sep 25, 2020 1:57 am

Does anyone have an economic game plan for aviation companies to survive 2+ years on a starvation diet? I somehow imagine they will, but at this time little conviction. There are any number of sectors of the economy in similar peril.
Buffet: the airline business...has eaten up capital...like..no other (business)
 
75driver
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Re: The case for more aircraft production cuts/playing chicken

Fri Sep 25, 2020 2:46 am

lightsaber wrote:
This is more to build on your comment (I'm not rebutting):

So it seems they are confident that the gain from this year's production is worse than the pain of impacting the supply chain, but next year could be more of a challenge.

Kinda interesting given the article says they already have 170 jets that have not yet been delivered, several $billions of inventory.

Time will tell if they are getting this right nor not.


I’m not trying to rebut your comments but I don’t understand. How can a manufacturer consider a gain of this years manufacturing is worse than impacting a supply chain? What gain is that exactly, numbers...as in total AC built? Keeping the (unneeded) supply chain going? What impact would that have on next year being “more of a challenge”? The supply chain needs to be downsizing as much as the manufacturers and airlines.

lightsaber wrote:

We should be talking
1. New built aircraft that do not have a home...
2. New(ish) aircraft delivered, but at operators unlikely to survive 2021...

We have six months of combined peak production sitting idle (over a thousand new aircraft, perhaps as much as one thousand one hundred).

And they keep producing at historically high rates.


Another example of kicking the can down the road. My biggest issue with the travel industry is lack of self examination. My close friends and colleagues sit there thinking “something” will happen that changes the current path. It seems many are hoping for another bailout or market epiphany instead of recognizing the data for what it is. The manufacturers seem to be oblivious to 100’s, or even 1000’s, of aircraft already built and in service with years of economic and physical life remaining. How can that be ignored? Something has to give because the current production path can not be sustained.

It’s easy to see these continued high production levels are unrealistic and will leave Boeing and Airbus with more airplanes on property than delivered to customers. I’m not the smartest guy in the room but both companies need to shift some of their resources to focus on limited areas of growth. Seems that refurbishments, maintenance, reconfigurations and even thinking outside the box like re-engine, re-wing, etc. might have more impact on their survival that producing aircraft nobody needs.
 
JayinKitsap
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Re: The case for more aircraft production cuts/playing chicken

Fri Sep 25, 2020 3:07 am

For firms that do foundry or 3D printing work, many will need to look for added work outside of Aviation. Industrial machine tools, military work (ships and vehicles), and the like could be sources - but it is disruptive to venture into work of a new industry, have to learn all the in's and out's.

The bids on the B-52 re-engine RFP will be very, very competitive. An order for 600 engines could save the low bidder, but in this market those 600 will be at low margin because 3 outfits REALLY needed to build 600 engines, that is approaching a total years worth of work. With the way things work the RFP will be probably delayed enough that the main production will happen back in boom times, but the margins will be so thin.
 
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Re: The case for more aircraft production cuts/playing chicken

Fri Sep 25, 2020 3:24 am

frmrCapCadet wrote:
Does anyone have an economic game plan for aviation companies to survive 2+ years on a starvation diet? I somehow imagine they will, but at this time little conviction. There are any number of sectors of the economy in similar peril.

Unfortunately, the industry has been through this before.

I far upthread pointed out there are just too many different airframes in production. What I didn't say, but is equally true, there are too many different engine families too.

Widebodies going out of production:
A380 (last just rolled out of factory)
747 (the factory that makes the bodies is already shut down, it is pretty much just final assembly left, the vendors are being mothballed).

Widebodies with good backlog:
A350
787

Widebodies with intermediate backlogs
777 (But those 777F are in demand and the 777xF has potential)
767 (but the KC-46 will keep it in production and freighters are doing well)
A330NEO (My opinion is the A330NEO-Freighter at the high MTOW fixes the original A330 issues, but alas, the A330F went out of production, which is never good.)

I don't know of any narrobodies going out of production.

Great backlogs
A320NEO
737MAX (still, even with cancelations)

Narrowbodies with intermediate backlogs
A220

Narrowbodies with insufficient backlogs
E2-190/195

I exclude C919 as who knows when it will be certified and will it have the EIS issues of the ARJ-21?

Regional planes going out of production:
CRJ

Regional planes with good backlogs:
ATR
ARJ-21 (only because airlines are forced to buy it, but that goes off thread)

Regional planes with intermediate backlogs:
E-175, but the absolute chaos in the US regional market puts several orders in doubt that the airlines could accept the aircraft.

Regional planes with insufficient backlogs:
MRJ (I only consider the Japanese airlines as firm)
Q400
SSJ
E2-175 (none, not one has been officially sold)


So hope is pretty dead for two years for new orders.

I see Airbus and Boeing surviving. They'll suffer, but survive (no promise on a debt reorganization...)
I see survivors also with: GE, CFM, Raytheon Technologies (Pratt, Honeywell, Collins, Hamilton-Sunstrand,), General Dynamics (Gulfstream), Textron, Pilatus, SAFRAN (engines, Zodiac), Dassault, MTU, Lockheed, Northrop, BAE, and Moog

Numbers: Raytheon technologies had $41.7 billion in stockholders equity YE2019: https://www.stock-analysis-on.net/NYSE/ ... ers-Equity

plus a good defense business.

Use the same site and GE had $28.7 billion (remember when GE was always better than UTX, by a factor of 3... how times have changed).

Textron: $5.5 billion https://ycharts.com/companies/TXT/shareholders_equity

General Dynamics over $13 billion stockholders equity: https://ycharts.com/companies/GD/shareholders_equity

BAE $5.6 billion in stockholder equity https://ycharts.com/companies/BAESY/shareholders_equity

Moog $1.246 billion (small company, seems more stable): https://ycharts.com/companies/MOG.A/shareholders_equity

Woodward was still profitable: https://s23.q4cdn.com/504122716/files/d ... Q3FY20.pdf

Companies I have Concerns with:
Meggitt is down to $2.5 billion of stockholders equity which looks ok until you see how fast it is being expended:
https://ycharts.com/companies/MEGGF/shareholders_equity

Spirit Aerosystems is down to $1.27 billion of stockholder equity, they are in trouble IMHO: https://www.zacks.com/stock/chart/SPR/f ... -quarterly

Rolls Royce is technically bankrupt and so deep in the hole, I know of no company that could afford to buy them out and turn them around. They are a zombie corporation at this point due to the debt to revenue and near term profit potential:
https://ycharts.com/companies/RYCEY/shareholders_equity

There is no avoiding the industry 'taking its medicine.' Expect consolidation.

Lightsaber
Winter is coming.
 
75driver
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Re: The case for more aircraft production cuts/playing chicken

Fri Sep 25, 2020 4:11 am

tomcat wrote:
I would also point that we may be too western-centric in our analysis of the state of the airline industry. I just had a look at Air China traffic data. In August, their domestic RPKs were down 17% only vs Aug 2019 while the overall RPKs were down 49%. It's not as dramatic as the figures we see in Europe for example. If long haul travel can be re-opened with suitable protocols, the level of global traffic could go up fairly quickly. Let's give it a couple more months before booking the funeral ceremony of the air travel industry.

http://www.airchina.com.cn/en/investor_relations/traffic_data.shtml


Here is the back story re my comments about China.

viewtopic.php?f=11&t=1452159
 
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Re: The case for more aircraft production cuts/playing chicken

Fri Sep 25, 2020 9:33 am

75driver wrote:
tomcat wrote:
I would also point that we may be too western-centric in our analysis of the state of the airline industry. I just had a look at Air China traffic data. In August, their domestic RPKs were down 17% only vs Aug 2019 while the overall RPKs were down 49%. It's not as dramatic as the figures we see in Europe for example. If long haul travel can be re-opened with suitable protocols, the level of global traffic could go up fairly quickly. Let's give it a couple more months before booking the funeral ceremony of the air travel industry.

http://www.airchina.com.cn/en/investor_relations/traffic_data.shtml


Here is the back story re my comments about China.

viewtopic.php?f=11&t=1452159


We'll see. The proof will be in the pudding: the rate at which the Chinese airlines will keep accepting new aircraft deliveries will tell us about the level of travel demand in that country. And if they would be accepting more aircraft than they actually need just to hide the actual dire state of air travel in China, I would say that it would be their loss while Airbus and Boeing could only be happy about delivering aircraft.

Generally speaking my point was to caution to not extrapolate the expected level of new aircraft demand based on the worst fairing airlines.
 
iamlucky13
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Re: The case for more aircraft production cuts/playing chicken

Fri Sep 25, 2020 10:11 am

75driver wrote:
The manufacturers seem to be oblivious to 100’s, or even 1000’s, of aircraft already built and in service with years of economic and physical life remaining. How can that be ignored? Something has to give because the current production path can not be sustained.

It’s easy to see these continued high production levels are unrealistic and will leave Boeing and Airbus with more airplanes on property than delivered to customers. I’m not the smartest guy in the room but both companies need to shift some of their resources to focus on limited areas of growth. Seems that refurbishments, maintenance, reconfigurations and even thinking outside the box like re-engine, re-wing, etc. might have more impact on their survival that producing aircraft nobody needs.


They're not oblivious. It's their money that is being spent building those aircraft, and they're the ones talking to the customers (as I said upthread, probably with lawyers present to make the manufacturers know its a serious conversation) regularly about what they want to accept. Boeing and Airbus aren't stuck with trying to speculate on forums about what the airlines will accept.

That does not mean the current production rate and employment plans are the right levels. I think more bad employment news is coming, and I would not be surprised if more production rate cuts are coming. I think they will wait until the end of the year for that, though.

If Airbus cuts the A320 production rate again in February, for example, to the 250/year that lightsaber suggested, then in the meantime they'll have built 80-100 additional aircraft. That's hardly a small chunk of change, but it turns into an asset, not a loss. There are costs to maintaining those assets while they wait for customers to accept all the undelivered frames, but the loss from that is smaller than the value of the asset, and it potentially offsets wasted labor from being overstaffed for the rate, or penalties to suppliers for deliveries not accepted.

As noted before, Boeing is closer to where they probably should be for rate, although for very unfortunate reasons. I think read the 737 rate is at 14 right now, with a 15+ month plan to go to 31. That plan can be slowed down. The 777 is at 2.5, and something like 3/4 of those are freighters, which are being accepted. The 767 is being accepted by freight customers and the Air Force.

So the 737 is continuing its previous pain. The 777 is continuing its previous pain. The 767 is ok. The 787 is new pain for Boeing. The 747 is in hospice and the medications (write-offs) have already dulled the pain.
 
Aither
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Re: The case for more aircraft production cuts/playing chicken

Fri Sep 25, 2020 10:32 am

Nobody knows what will happen in the coming months yet people expect Airbus and Boeing to destroy a supply chain which can take a decade to build, based on elements nobody can predict?

The current air travel situation is cataclysmic but it is not the end of air travel. The passenger demand is still there. When people can fly people do fly and sometime close to 2019 traffic levels (see in Asia, Africa). International yields are hugely expensive showing a demand much higher than the capacity offered.

We will come out of this crises with much lower costs (fuel, aircraft, staff, leaner processes) and more intense competition as airlines will need quickly to regenerate cash (profitability will be a second priority). Lower costs and markets shares wars will lead to extreme ticket price wars stimulating the traffic. True the economic crisis will alter the demand but air travel became a commodity for a large part, and it can be cheaper than train or taking cars (in particular if you consider a full holiday package). Large parts of premium traffic may be lost but the new nomad digital workers are also a great source to fill the premium economy cabin. Also if there is a " new world to be built", business travellers will need to fly all around for quite some time. Change create movements, making people move is the core source of air travel.

Honestly, if we have a vaccine within a year, I think our traffic could recover 80% of its pre covid levels within another year, and 100% a year later. 2023/2024 are not unrealistic targets for almost a full traffic recovery.

On the fleet side many aircraft are being permanently retired. Also we won't keep on long sectors old aircraft if all the competitors operate aircraft with 20% lower costs. Fleet types needs could also change as networks will be different. Last but not least, there is plenty of money out there and rock bottom interest rates. Overall, intuitively I don't see any reason today why Boeing and Airbus should cut production rates like crazy. It won't help them to go too far in the cuts nor the airlines. Environmental constraints is the next big thing, bigger than the covid. We won't be allowed to keep flying aircraft with 20 years old technology. We don't need OEMs to produce less, we want them to produce cheaper and greener aircraft and this won't be possible it their production rates fall too low as a result of the pandemic.

If we want the best for our industry we have to provoke and push for the best. It's not being naive. If Airbus and Boeing were acting based on doomsday scenarios then just shut down the factories and it will be doomsday. For everybody. It's called self anticipating prophecy.

In the meantime government support is needed, like for other industries. It is a new paradigm for the capitalism system and this is what central banks are saying. There is no alternative. Governments not supporting their economies these days are just idiots.
Last edited by Aither on Fri Sep 25, 2020 10:54 am, edited 6 times in total.
Never trust the obvious
 
75driver
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Re: The case for more aircraft production cuts/playing chicken

Fri Sep 25, 2020 10:34 am

tomcat wrote:
75driver wrote:
tomcat wrote:
I would also point that we may be too western-centric in our analysis of the state of the airline industry. I just had a look at Air China traffic data. In August, their domestic RPKs were down 17% only vs Aug 2019 while the overall RPKs were down 49%. It's not as dramatic as the figures we see in Europe for example. If long haul travel can be re-opened with suitable protocols, the level of global traffic could go up fairly quickly. Let's give it a couple more months before booking the funeral ceremony of the air travel industry.

http://www.airchina.com.cn/en/investor_relations/traffic_data.shtml


Here is the back story re my comments about China.

viewtopic.php?f=11&t=1452159


We'll see. The proof will be in the pudding: the rate at which the Chinese airlines will keep accepting new aircraft deliveries will tell us about the level of travel demand in that country. And if they would be accepting more aircraft than they actually need just to hide the actual dire state of air travel in China, I would say that it would be their loss while Airbus and Boeing could only be happy about delivering aircraft.

Generally speaking my point was to caution to not extrapolate the expected level of new aircraft demand based on the worst fairing airlines.


Well, it fails all reasonable assumptions that China is anywhere near the numbers they claim. It was a known fact China relied on a huge number of expat pilots to operate. Pretty much all of them were laid off/fired and told to leave the country months ago. There has been no call back that I’m awards of. Just who is flying all these planes that required so many expats to operate before? Take HK as another example. There was a pretty big number of daily flights between the mainland prior to COVId. Chek Lap Kok Is currently operating around 1-2% of previous passenger volume. That also contradicts Chinas claims. It would not surprise me at all if China accepts delivery of aircraft despite not needing them. That can’t be used to measure their traffic because It’s the exact kind of thing they would do. Hopefully Airbus and Boeing can take advantage of the situation and clear some new metal off their tarmacs.
 
Aither
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Re: The case for more aircraft production cuts/playing chicken

Fri Sep 25, 2020 11:05 am

75driver wrote:
tomcat wrote:
75driver wrote:

Here is the back story re my comments about China.

viewtopic.php?f=11&t=1452159


We'll see. The proof will be in the pudding: the rate at which the Chinese airlines will keep accepting new aircraft deliveries will tell us about the level of travel demand in that country. And if they would be accepting more aircraft than they actually need just to hide the actual dire state of air travel in China, I would say that it would be their loss while Airbus and Boeing could only be happy about delivering aircraft.

Generally speaking my point was to caution to not extrapolate the expected level of new aircraft demand based on the worst fairing airlines.


Well, it fails all reasonable assumptions that China is anywhere near the numbers they claim. It was a known fact China relied on a huge number of expat pilots to operate. Pretty much all of them were laid off/fired and told to leave the country months ago. There has been no call back that I’m awards of. Just who is flying all these planes that required so many expats to operate before? Take HK as another example. There was a pretty big number of daily flights between the mainland prior to COVId. Chek Lap Kok Is currently operating around 1-2% of previous passenger volume. That also contradicts Chinas claims. It would not surprise me at all if China accepts delivery of aircraft despite not needing them. That can’t be used to measure their traffic because It’s the exact kind of thing they would do. Hopefully Airbus and Boeing can take advantage of the situation and clear some new metal off their tarmacs.


Crew flying international routes are now flying domestic routes. Also more widebody aircraft are operated on domestic routes. So more traffic carried per crew. Seriously not everything coming out of China is a lie.
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frmrCapCadet
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Re: The case for more aircraft production cuts/playing chicken

Fri Sep 25, 2020 12:57 pm

lightsaber wrote:
frmrCapCadet wrote:
Does anyone have an economic game plan for aviation companies to survive 2+ years on a starvation diet? I somehow imagine they will, but at this time little conviction. There are any number of sectors of the economy in similar peril.

Unfortunately, the industry has been through this before.

I far upthread pointed out there are just too many different airframes in production. What I didn't say, but is equally true, there are too many different engine families too.

Widebodies going out of production:
A380 (last just rolled out of factory)
747 (the factory that makes the bodies is already shut down, it is pretty much just final assembly left, the vendors are being mothballed).

Widebodies with good backlog:
A350
787

Widebodies with intermediate backlogs
777 (But those 777F are in demand and the 777xF has potential)
767 (but the KC-46 will keep it in production and freighters are doing well)
A330NEO (My opinion is the A330NEO-Freighter at the high MTOW fixes the original A330 issues, but alas, the A330F went out of production, which is never good.)

I don't know of any narrobodies going out of production.

Great backlogs
A320NEO
737MAX (still, even with cancelations)

Narrowbodies with intermediate backlogs
A220

Narrowbodies with insufficient backlogs
E2-190/195

I exclude C919 as who knows when it will be certified and will it have the EIS issues of the ARJ-21?

Regional planes going out of production:
CRJ

Regional planes with good backlogs:
ATR
ARJ-21 (only because airlines are forced to buy it, but that goes off thread)

Regional planes with intermediate backlogs:
E-175, but the absolute chaos in the US regional market puts several orders in doubt that the airlines could accept the aircraft.

Regional planes with insufficient backlogs:
MRJ (I only consider the Japanese airlines as firm)
Q400
SSJ
E2-175 (none, not one has been officially sold)


So hope is pretty dead for two years for new orders.

I see Airbus and Boeing surviving. They'll suffer, but survive (no promise on a debt reorganization...)
I see survivors also with: GE, CFM, Raytheon Technologies (Pratt, Honeywell, Collins, Hamilton-Sunstrand,), General Dynamics (Gulfstream), Textron, Pilatus, SAFRAN (engines, Zodiac), Dassault, MTU, Lockheed, Northrop, BAE, and Moog

Numbers: Raytheon technologies had $41.7 billion in stockholders equity YE2019: https://www.stock-analysis-on.net/NYSE/ ... ers-Equity

plus a good defense business.

Use the same site and GE had $28.7 billion (remember when GE was always better than UTX, by a factor of 3... how times have changed).

Textron: $5.5 billion https://ycharts.com/companies/TXT/shareholders_equity

General Dynamics over $13 billion stockholders equity: https://ycharts.com/companies/GD/shareholders_equity

BAE $5.6 billion in stockholder equity https://ycharts.com/companies/BAESY/shareholders_equity

Moog $1.246 billion (small company, seems more stable): https://ycharts.com/companies/MOG.A/shareholders_equity

Woodward was still profitable: https://s23.q4cdn.com/504122716/files/d ... Q3FY20.pdf

Companies I have Concerns with:
Meggitt is down to $2.5 billion of stockholders equity which looks ok until you see how fast it is being expended:
https://ycharts.com/companies/MEGGF/shareholders_equity

Spirit Aerosystems is down to $1.27 billion of stockholder equity, they are in trouble IMHO: https://www.zacks.com/stock/chart/SPR/f ... -quarterly

Rolls Royce is technically bankrupt and so deep in the hole, I know of no company that could afford to buy them out and turn them around. They are a zombie corporation at this point due to the debt to revenue and near term profit potential:
https://ycharts.com/companies/RYCEY/shareholders_equity

There is no avoiding the industry 'taking its medicine.' Expect consolidation.

Lightsaber


Your summary here would seem to make an appropriate sticky for a new thread.
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Re: The case for more aircraft production cuts/playing chicken

Fri Sep 25, 2020 12:59 pm

Aither - I am not persuaded that the aviation sector should be as privileged as you seem to imply when it comes to government subsidies. Other sectors are as deeply troubled, but obviously not as politically powerful.
Buffet: the airline business...has eaten up capital...like..no other (business)
 
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Re: The case for more aircraft production cuts/playing chicken

Fri Sep 25, 2020 2:20 pm

lightsaber wrote:
Other posters are talking about financing. It isn't helping airlines to finance aircraft they do not need. While I understand airlines must contractually accept aircraft, they need to stop bleeding cash.

Jon Ostrower's take on the link I posted:

Look at this in the reverse. One of the big ways Airbus grabbed share over Boeing post 9/11 was by letting lease rates for A320s fall. That fostered adoption by LCCs, which then grew to dominate the market.

Ref: https://twitter.com/jonostrower/status/ ... 5278737408

Seems to be supportive of the "chicken" theory, as does the lack of further rate cuts.

The Reuters article even said:

“There are no signs of slowing; the contrary in fact,” a senior industry source said of the A320neo output.

It seems Airbus has chosen to keep the production rate high and to force the market to deal with the over capacity.

Makes you wonder if some of its customers will be around to enjoy those lower lease rates.
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MIflyer12
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Re: The case for more aircraft production cuts/playing chicken

Fri Sep 25, 2020 3:05 pm

75driver wrote:
All the government money did was kick the can down the road.


One could say the same thing of the support to U.S. carriers by the CARES Act and specifically the Payroll Support Program. But in aircraft assembly as well as passenger service, there is management-led strategic resizing, and then there is industry implosion.
 
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Re: The case for more aircraft production cuts/playing chicken

Fri Sep 25, 2020 3:53 pm

Revelation wrote:
lightsaber wrote:
Other posters are talking about financing. It isn't helping airlines to finance aircraft they do not need. While I understand airlines must contractually accept aircraft, they need to stop bleeding cash.

Jon Ostrower's take on the link I posted:

Look at this in the reverse. One of the big ways Airbus grabbed share over Boeing post 9/11 was by letting lease rates for A320s fall. That fostered adoption by LCCs, which then grew to dominate the market.

Ref: https://twitter.com/jonostrower/status/ ... 5278737408

Seems to be supportive of the "chicken" theory, as does the lack of further rate cuts.

The Reuters article even said:

“There are no signs of slowing; the contrary in fact,” a senior industry source said of the A320neo output.

It seems Airbus has chosen to keep the production rate high and to force the market to deal with the over capacity.

Makes you wonder if some of its customers will be around to enjoy those lower lease rates.

After 9/11 Boeing kept prices high and lost market share. So back then, Airbus was brilliant. My hat is off to them.

This time, the MAX is on a value strategy and Airbus seems to be holding the line on prices.

With 200 A320 NEOs built but never operated (170 at Airbus, 30 not taken up at leasing companies) I would say Airbus is playing chicken on a grand scale as there is about $12 billion of inventory, hence the mere $1.5 billion stockholders equity.

Yes, Boeing is in worse shape with 808 MAX ready minus modifications. Or a staggering $40 billion in inventory, hence the staggering -$8 billion stockholders equity.

With so many airlines declaring they will return leased aircraft, this isn't 9/11 again with the growth in Asia. This time, yields show Asia over expanded.

I hope I am wrong and Airbus is right. From my perspective, they only winners will be freight conversion and freight airlines until that sector goes into over-supply (which happens when pax service recovers).

Because of the August shutdown, Airbus might or might not have a positive Enterprise value reported 3Q2020.

A tiny MAX supplier of about 160 employees has gone bankrupt. I couldn't tell you what they make, as they are not an approved vendor where I work.
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Re: The case for more aircraft production cuts/playing chicken

Fri Sep 25, 2020 5:08 pm

One more link. There were, pre-Covid19, a total if 1,300 aircraft already scheduled to be returned to leasors in 2021. These will have to compete with the over a thousand aircraft I listed before.

There is a prediction that engine overhauls will not see 2019 levels until 2026. I hope that is pessimistic:

https://www.iba.aero/news/over-1000-air ... -says-iba/

I would expect about 300 if those 1,300 lease returns to be scrapped. That means we will enter 2021 with 2,000 aircraft in need of a good home. Scooby says rhoo rhoo.
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Re: The case for more aircraft production cuts/playing chicken

Fri Sep 25, 2020 7:46 pm

lightsaber wrote:

I would expect about 300 if those 1,300 lease returns to be scrapped. That means we will enter 2021 with 2,000 aircraft in need of a good home. Scooby says rhoo rhoo.



I hadn't heard rhoo rhoo in a business context before--thanks for the chuckle !
    300 319 320 321 707 717 720 727 72S 737 73S 734 735 73G 738 739 747 757 762 ARJ B11 C212 CRJ CR2 CR7 CR9 CV5 D8S DC9 D9S D94 D95 D10 DH8 DTO EMB EM2 E135 E145 E190 FH7 F28 F100 FTRIMTR HRN L10 L15 M80 M90 SF3 SWM YS11
     
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    lightsaber
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    Re: The case for more aircraft production cuts/playing chicken

    Fri Sep 25, 2020 8:37 pm

    Just more thought:
    Airbus GMF19 was a more pessimistic than the GMF18
    file:///home/chronos/u-6e4dc32fbd97a9e10dc4cc1b800d61f2bc0cdcb5/MyFiles/Downloads/Airbus-GMF2019-presentation-Christian-Scherer.pdf

    Boeing CMO19 is 5% more optimistic than CMO19: http://www.boeing.com/commercial/market ... t-outlook/?

    I'm betting the next global market forcast or current market outlook is more pessimistic. Somehow the fleet grew in about a year between 2018 and 2019. That was amazing growth, but that diluted yield.

    Now, I know all the prior predictions were pessimistic (pretty much everyone missed the growth in China and the Middle East 20 years ago).

    Airbus was predicting (see slide 13) 64% of aircraft delivered for growth and 34% for replacement.
    Boeing predicts a market 2.5X larger in 20 years, or 60% of deliveries for replacement (Airbus is predicting more large aircraft than Boeing, a consistent difference in their predictions over the decades).

    There were 22,680 aircraft at the start of 2019. The fact that about 8% to 9% of the global fleet is going to be available (the 2,000 aircraft I noted before) is a scary proposition.

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

    Fri Sep 25, 2020 10:46 pm

    frmrCapCadet wrote:
    Aither - I am not persuaded that the aviation sector should be as privileged as you seem to imply when it comes to government subsidies. Other sectors are as deeply troubled, but obviously not as politically powerful.


    I believe a particularity of aviation is that it helps directly and indirectly a lot of other sectors. I think, but I have no evidence, that putting 1 USD in the aviation industry pays off more than many other sectors.
    An example Is a florist I know who just went bankrupt. It went bankrupt because it was doing most of this business with hotels. Hotels were doing most of their business with conferences. Conferences were all cancelled because people could not come by air...
    Never trust the obvious
     
    iamlucky13
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    Re: The case for more aircraft production cuts/playing chicken

    Fri Sep 25, 2020 10:56 pm

    lightsaber wrote:
    Yes, Boeing is in worse shape with 808 MAX ready minus modifications. Or a staggering $40 billion in inventory, hence the staggering -$8 billion stockholders equity.


    When you put it that way, the $60 billion in debt doesn't sound quite as bad.

    Granted, some payments are already complete on them, and there will be additional costs to maintain them until delivery - I'm not suggesting that the $40 billion in inventory would simply pay their debt down to $20 billion once they're all delivered. And I absolutely do agree this inventory makes it harder to manage their production rates until that inventory is gone, which will have additional cost effects.

    But it's still a bit of a comfort to me to get a multi-billion dollar reminder that their $60 billion in debt is not all money that evaporated.
     
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    Re: The case for more aircraft production cuts/playing chicken

    Sat Sep 26, 2020 12:30 pm

    frmrCapCadet wrote:
    Aither - I am not persuaded that the aviation sector should be as privileged as you seem to imply when it comes to government subsidies. Other sectors are as deeply troubled, but obviously not as politically powerful.

    Starting with engines:
    Engine technology is required for air forces.

    The more difficult to build up a supply chain, the more important to protect it.

    Should governments be allowed to ban flights without compensating airlines their running cost?
    It's called investment security. Governments continuing to pay salaries is therefore generous, but also justified. Agreed, the last point is true for other sectors as well.
    Why can't the world be a little bit more autistic?
     
    frmrCapCadet
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    Re: The case for more aircraft production cuts/playing chicken

    Sat Sep 26, 2020 1:31 pm

    Restaurant are going out of business, one of the biggest employers in the country
    Transit systems, which are a total necessity, for much of the economy are in danger of going broke
    City and State governments are close to failure mode as tax receipts have collapsed
    Hotels and motels are in a world of hurt, we have a big project in failure mode next door
    Nonprofits such as the arts, museums, and parks are losing their budgets
    The educations system throughout the US is in near failure mode.

    Aviation is not and should not be privileged. It is one of many sectors of the economy which needs subsidies.
    Buffet: the airline business...has eaten up capital...like..no other (business)
     
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    Re: The case for more aircraft production cuts/playing chicken

    Sat Sep 26, 2020 4:31 pm

    Subsidies mean tax increases which means fewer jobs. They'll get counter productive.

    What matters is we have 2,000 surplus aircraft for 2021. Yikes! That is over a years peak production! We know the supply was too high in 2019 (yields were falling.) Until mass travel returns, we have manufacturers playing chicken.

    As a side note, I'm happy a lot of airports are expanding in the downturn as they were just too crowded in 2019 (overcrowded but expanding: SLC, DEN, TPA, even LGA). If only LAX would build 50%+ more space.

    There will be another side to the recession we are in (which, for the first time I can recall in forever, includes Asia).


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

    Sat Sep 26, 2020 5:02 pm

    frmrCapCadet wrote:
    Restaurant are going out of business, one of the biggest employers in the country
    Transit systems, which are a total necessity, for much of the economy are in danger of going broke
    City and State governments are close to failure mode as tax receipts have collapsed
    Hotels and motels are in a world of hurt, we have a big project in failure mode next door
    Nonprofits such as the arts, museums, and parks are losing their budgets
    The educations system throughout the US is in near failure mode.

    Aviation is not and should not be privileged. It is one of many sectors of the economy which needs subsidies.


    Agree aviation should not be privileged. But it should at least part of the support package like many other sectors.

    This was to say we should change our software/model/way of thinking when it comes to the recovery, debts, financing. To a large extend we are in the unknown, total unknown for the better or the worst. As a consequence we can't blame Airbus or Boeing or any big corporation to select "middle of the way" measures rather than extreme ones.
    Never trust the obvious
     
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    Re: The case for more aircraft production cuts/playing chicken

    Sun Oct 04, 2020 12:09 am

    The nature of MAX whitetails tells a story:
    https://aviationweek.com/air-transport/ ... -customers

    The company had about 470 MAXs in its possession awaiting delivery to customers as of Aug. 31. Most of Boeing’s MAX inventory has been built since mid-March 2019, when the model was grounded and Boeing paused deliveries of its newest narrowbody.

    An Aviation Week Intelligence Network Fleet Data analysis shows 62 of these, or 13% of the total, have been canceled by their original customers and not re-booked as part of new orders, a serial-number-level analysis of available data shows. Lessors accounted for 49 of these cancellations, while airlines canceled 11 of them. Two others were Boeing Business Jet VIP versions.


    I posted before this link on how many widebodies, the actual firm order count is much lower.
    https://leehamnews.com/2020/09/15/hotr- ... rderbooks/

    I use the old definition of a firm order, Leasing companies must get out of as many orders as they legally are able.


    I'm not going to pound on the MAX, but I posted earlier how Airbus has 200 A320 built but undelivered. Plus there are another 30 A320 delivered to

    https://www.reuters.com/article/us-airb ... 6F2NA?il=0

    I posted before how 60% of aircraft deliveries are normally for growth. Two years of that isn't happening, perhaps more.

    With all the already built A320NEO and MAX looking for a home (or where airlines might own aircraft, but need to sell the aircraft for cash).

    This is far more than Airbus and Boeing can keep going. j

    The leasing companies having such stockpiles of the most popular aircraft means they will differ for years.
    This means 2021 production that is planned is too high.

    Lightsaber
    Winter is coming.
     
    pugman211
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    Re: The case for more aircraft production cuts/playing chicken

    Sun Oct 04, 2020 9:14 am

    This is my worry about the A320 production, yet, it still showing no signs of slowing down (which is good for short term job security) but my bigger fear is that it will just suddenly reduce to a much lower rate, which in turn means more redundancies all around.
     
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    Re: The case for more aircraft production cuts/playing chicken

    Sun Oct 04, 2020 11:39 am

    You can not reduce production so quickly, without killing your suppliers. The planes not sold today are made from parts ordered up to 3-4 years ago, Parts that the supply chain produced and already paid their own suppliers for. If Airbus and Boeing refuse to take delivery of those parts, they risk killing off core suppliers, something that would be much damaging in the long run.
     
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    Re: The case for more aircraft production cuts/playing chicken

    Sun Oct 04, 2020 4:00 pm

    The step down must be sensible to keep suppliers in business. The sad truth is many will have to reorganize through bankruptcy. The money being spent now will not be recovered for 3 to 5 years due to the large surplus of overbuilt aircraft at either Airbus or Boeing. I posted before on the deluge of lease returns expected in 2021.

    The normal bet is that growth has about 50% of planned aircraft lease returns delayed as airlines would need time for new replacements. Sometimes airlines would sign a longer 2nd lease instead of continuing the original (higher rate) lease another 1 or 2 years (a typical option that benefitted both parties).

    Look at either the Boeing current market outlook or the Airbus market forecast and production was just too high:
    http://www.boeing.com/commercial/market ... t-outlook/
    https://www.airbus.com/aircraft/market/ ... ecast.html

    I posted a link before that if you take the 20 year total aircraft outlook, divide by 20, you could see 2018 production was too close to that rate (economic growth is exponential, so early in a 20 year period production should be 40% to 60% of the average while at the end production should be above the average).

    Falling airfare yields in 2019, even without the MAX, showed that production was too high. Now the MAX is about to return to service (I hope).



    seahawk wrote:
    You can not reduce production so quickly, without killing your suppliers. The planes not sold today are made from parts ordered up to 3-4 years ago, Parts that the supply chain produced and already paid their own suppliers for. If Airbus and Boeing refuse to take delivery of those parts, they risk killing off core suppliers, something that would be much damaging in the long run.

    I 100% agree on the long lead parts. But that is for Airbus, Boeing, Pratt, and CFM/GE to honor their long term contracts.

    What needs to halt is the surge of labor before delivery. That needs to slow more. It pains me to type that as it is my friends performing that labor and many will be laid off.

    At the current pace, leasing companies as well as the airframers will be bankrupted. I posted early that I think Airbus needs to get down to 250 A320/year and Boeing at (or under) a production rate of 200 MAX/year with widebodies taking a brutal hit. e.g., as much as I like the 787, I think the planned going forward rate is too high, the 777xF is needed yesterday as the 777F will be heavily impacted by the 777-300ERSF availability/pricing. The 767 will survive for a few more years keeping some vendors and some staff. For Airbus the A320 and in particular all the A321NEO variants will sell well as will the A220. The A350 rate needs further cutting and I don't know how to make the A330NEO succeed.

    Very early in the thread I dismissed the 747, A380, and CRJ as their production is going to end anyway. For those aircraft it is a matter of getting customers to accept what they have already ordered.

    I still see more airframes in production than are viable

    By size, in production
    **1. A380 (production effectively ended at vendors)
    **2. 747 (production phasing out at vendors, e.g., all bodies are built)
    3. 777/777F/777x (freighters will keep alive)
    4. A350 (in demand, but at a lower rate)
    5. 787 (in demand, but at a lower rate)
    6. A330NEO (Delta will take up, AirAsia in deep trouble).
    7. 767F+tanker ( freighters healthy, only mention military for production economy of scale)
    8. A320NEO family (in demand, but not at 430/year)
    9. 737MAX family (in demand, despite the incidents, but a huge built backlog)
    10. MS21 ( Neat concept, entering a tough market)
    11. C919 (in development, the issues are interesting)
    12. A220 (great aircraft, in demand in the USA, needs more production scale)
    13. E2-190/195/175? (The #1 customer is taking a multi year break and there just aren't enough customers.
    14. ARJ-21 (My opinion is poor quality, but airlines told to buy, so they will. Not efficient)
    **15. CRJ (Production is being phased out per plan)
    16.Q400 (Needs more sales, but also a new engine as the current optimization... isn't optimized)
    17.ATR (Has potential, needs a new more efficient engine)
    18. MRJ (Good concept, poor execution. This is Mitsubishi's call).

    At least 3 more aircraft families need to end production or else the sales will be so diluted another 3+ will exit production. This is an industry that needs volume. The only two widebodies will good volume are the 787 and A350. However, freighters can keep the 777 alive (and 767). Although someone needs to create a really good modern 50 seater (probably a turboprop, but it must have a CFRP wing and new engines or it will be obsolete too early and there just won't be a new 50 seater jet engine in this economy, but GE, Pratt, and SAFRAN would bid for a new turboprop, so expect some really good offerings for new turboprop engines).

    There just isn't the money to keep the vendor networks going at their current rate. Not with leasing companies building up a ready inventory (NEO/CEO and MAX/NG as well as widebodies) as I noted and not with both Boeing and Airbus building up white tails. I do not talk widebodies much as that market is just on life support. The survival of both Boeing and Airbus is dependent upon getting the narrowbody production correct. It is easier to talk Airbus as they have fewer surplus aircraft, but they are still on course to have 250 to 400 surplus A320 in 2021 (NEO + newer CEO). :faint: (Yes, Boeing is worse, with 800 to 1000).

    There is no magical fix. For example, as soon as the market recovers, we can expect the following airlines to start expanding and they won't mind white tails or used: Allegiant (almost certainly used CFM-56-5 powered newer A320CEOs), Delta (anything goes, we'll go off thread as they have so many options), Spirit (NEOs), Indigo group (NEOs, includes Wizz, Frontier), Ryanair (MAXes) and others. I expect not only for these (and more) airlines to take advantage of the cheap available aircraft, but I would expect the huge amount of cash expended during the lockdowns will make buying new a challenge, even in the low interest rate environment.

    So it is a choice of cut a bit more now or keep playing chicken and cut more later.
    I'm not advocating going to zero. I'm not advocating cutting below what I see is 2022 demand. But there is no point in producing in 2020 and 2021 what won't be taken up until 2023 or later. We have such a surplus building, the widebodies produced now are unlikely to in normal service for 90% of then until 2025. For the narrowbodies, 2021 production could not happen (I'm not advocating that). If production isn't slowed further, we'll have MAXes and NEOs not taken up until 2024.

    This is the 3rd industry downturn of my life I've witnessed. I'm gathering most here haven't see how bad it is for a large surplus to accumulate. Airlines are sophisticated customers. Delta is the extreme example of how to get the most profit out of any type of aircraft. A crisis only accelerates trends, so the healthier airlines are going to make life miserable for the poorly run (too deep in debt) airlines. I'm advocating cutting production for the airframers survival. Scrap rates are so low, most of the parked A320CEOs and 737NGs will be stored for a later sale. We missed the summer, for travel the V recovery's timeline has come and gone, in my opinion. Oh, we will bounce up post vaccine, but then will grow from 20% to 40% below the last peak at best at the past growth rate.

    We'll see with the next quarterly reports. But look at the leasing companies more: AerCAP, ALC, Avolon, GECAS, AirCastle, Norwegian, Aviation Capitol group, China Aircraft Leasing Holdings, BOC Aviation,CBD leasing, ICBC, CIT group, Wells Fargo, China development banks, and effectively also AirAsia. Their growing backlog of delivered new or returned aircraft is getting scary. Since the leasing companies took over the role of arbitrating the slack in the market, they will signal the real need. The 3Q2020 is the first quarter they are really impacted by the CoronaVirus. I expect the news to be scary and will get scarier for the next 12 to 18 months.

    Lightsaber
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    MIflyer12
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    Re: The case for more aircraft production cuts/playing chicken

    Sun Oct 04, 2020 4:11 pm

    Aither wrote:
    frmrCapCadet wrote:
    Restaurant are going out of business, one of the biggest employers in the country
    Transit systems, which are a total necessity, for much of the economy are in danger of going broke
    City and State governments are close to failure mode as tax receipts have collapsed
    Hotels and motels are in a world of hurt, we have a big project in failure mode next door
    Nonprofits such as the arts, museums, and parks are losing their budgets
    The educations system throughout the US is in near failure mode.

    Aviation is not and should not be privileged. It is one of many sectors of the economy which needs subsidies.


    Agree aviation should not be privileged. But it should at least part of the support package like many other sectors.

    This was to say we should change our software/model/way of thinking when it comes to the recovery, debts, financing. To a large extend we are in the unknown, total unknown for the better or the worst. As a consequence we can't blame Airbus or Boeing or any big corporation to select "middle of the way" measures rather than extreme ones.


    I'm not sure what you advocate. Do you accept that there is little demand for new aircraft, and little passenger demand? Do you then accept that aircraft manufacturers and airlines need to shrink? Do you want to do that by cutting employment, or by cutting both hours worked and hourly wage rates? If you just want government money to prop up both industries to 2019 size you are insisting it is privileged... it is not as if major governments are doing that for all sectors.
     
    JayinKitsap
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    Re: The case for more aircraft production cuts/playing chicken

    Mon Oct 05, 2020 12:24 am

    So is it better for the OEM's to just store parts for later production or go ahead and build, then store the partially or fully completed planes? One saves the labor cost now, but fills warehouses. Probably is affected by shelf life as a part vs stored life in the plane. Things like rubber seals store better as can be kept from oxygen and controlled temperatures. Very different question between storing for 6 months or storing for years.
     
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    Re: The case for more aircraft production cuts/playing chicken

    Mon Oct 05, 2020 12:53 am

    JayinKitsap wrote:
    So is it better for the OEM's to just store parts for later production or go ahead and build, then store the partially or fully completed planes? One saves the labor cost now, but fills warehouses. Probably is affected by shelf life as a part vs stored life in the plane. Things like rubber seals store better as can be kept from oxygen and controlled temperatures. Very different question between storing for 6 months or storing for years.

    Best to lower maintenance costs. Since we are talking storing for 2 to 4 years, no good choices.

    Parts are double bagged on the shelf. Many do not age and could be use for spare parts, so their us another route to consumption. If as parts, vendors can store.

    To think, both Boeing and Airbus had adopted near just in time inventory. To say the least, that is blown away.

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

    Mon Oct 05, 2020 3:34 pm

    I am not sure volume is the solution. Historically the industry has never seen such volume and 2-5 widebodies a month was normal. Sure the prices were higher at the time and airlines used the planes much longer, but that is where we are going anyway. With the reduced passenger demand, that will stay with us for a long time, growths of airlines will be reduced and the used market for airliners will be depressed for a decade, so all those 8-12 years lease deals or selling the planes before they reach the first big maintenance event, will not work out in the future.

    I can see the 777 at 2-3 frames a month. The 787 at 5-7 a month and the A350 at 4-5 and the A330 at 2-3. With a production optimized for that rate, they should make it into the 2030s. On the single aisle front we will probably see rates drop down to 20-30 frames a month. Again it means lines will have to close. But the cut has to come quickly now.

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