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

Mon Oct 05, 2020 7:42 pm

seahawk wrote:
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.

Now that narrowbody range has grown, by over 50% from the 737NG, A320CEO, widebodies are more pressed on economics.

Every doubling of production allows more automation that cuts costs about 13%. So volume isn't the solution, it is required for survival if a line.

The best example us 787 vs. A350 and A330NEO. By cranking up volume and investing in 3D printing, Boeing reduced the production costs of the 787 to generate high cash flow per airframe delivered. The A350 is early in production, it reached break even in later 2018 and was profitable in 2019, but just so:

viewtopic.php?t=1415649

Boeing has been pricing the 787 aggressive to compete with the A330NEO and A350. I estimate the rate reduction increased the cost if each 787 by $5 million to $8 million.

The A350 line slowing by $4 to $7 million increase in cost per aircraft. The A330NEO line is in worse shape. It amuses me when people note the tooling us paid off when keeping skilksets is the challenge.

It looks like keeping the skillsets us Airbus' concern.

https://www.fool.com/investing/2020/09/ ... e-line-on/

I think healthy airlines will be the 2021 concern. The 3Q reports will tell a story.

I think Airbus is keeping up production to retain more volume discounts. That only works if customers (airlines and leasors) are not crippled.

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

Mon Oct 05, 2020 7:52 pm

Yes, I know the economy of scales behind the production chain, but I believe the last few years, when the OEMs pushed frames into the market through big discounts and hoped to protected their margin to economy of scales effects, were a failed strategy. The key now is to be competitive with a much smaller production. Especially Airbus (Boeing already did) needs to make serious cuts to the workforce and really streamline their production. Efficiency now has to beat national interests if the company is to survive the coming years and jobs will be lost. And yes, it could be a 1/3 of the jobs.
 
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Re: The case for more aircraft production cuts/playing chicken

Mon Oct 05, 2020 8:41 pm

seahawk wrote:
Yes, I know the economy of scales behind the production chain, but I believe the last few years, when the OEMs pushed frames into the market through big discounts and hoped to protected their margin to economy of scales effects, were a failed strategy. The key now is to be competitive with a much smaller production. Especially Airbus (Boeing already did) needs to make serious cuts to the workforce and really streamline their production. Efficiency now has to beat national interests if the company is to survive the coming years and jobs will be lost. And yes, it could be a 1/3 of the jobs.

I agree Airbus needs to cut production. The issue is they already sold at prices that need the economy of scale to have the business case. Airlines want to differ more or cancel, so there is no going back for a price increase. You had better believe they already sent their receiving quality to the AAB school of carpet inspection to differ costs because airlines purely want to preserve cash. I've posted before my Airbus sustainable production rates which are lower than announced.

Boeing isn't exempt, but they have freighters and cut production more. I think the 787 needs to be cut a little more.

The strategy had merit, but declining yields in 2019 showed it was flawed. However, aircraft were sold and priced in that environment. As my Tardis is broken, that is the universe Airbus and Boeing live in.

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

Tue Oct 06, 2020 1:02 am

It seems like airlines are playing chicken with scheduling as much as A & B are with production. They continue to operate at 50-55% capacity when demand is in the 30% range. How long can they sustain flying 25% excess capacity and justify it? My guess is none of the airlines want to miss the expected demand increase so they’re willing to fly well under profitable payloads. That can’t continue that schedule indefinitely though. Like A & B production, airlines will need to right size capacity as much as the manufacturers need to right size production.
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Oct 06, 2020 1:21 am

75driver wrote:
It seems like airlines are playing chicken with scheduling as much as A & B are with production. They continue to operate at 50-55% capacity when demand is in the 30% range. How long can they sustain flying 25% excess capacity and justify it?


Fuel costs are lower than on avg in 2019. The expectation isn't really to make a pre-tax profit on fully-allocated costs: it's to cover variable costs (and a little more). Depending on where avg fares are (and that's a BIG variable) the big carriers might get by with 50-60% load factors instead of making big bucks on last year's low 80s.

Operating 90-100% of last year's schedule would be insane, though, and why WN has backed off prior plans.

Chart: Spot prices Jet A

https://ycharts.com/indicators/gulf_coa ... spot_price
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Oct 06, 2020 3:37 am

75driver wrote:
It seems like airlines are playing chicken with scheduling as much as A & B are with production. They continue to operate at 50-55% capacity when demand is in the 30% range. How long can they sustain flying 25% excess capacity and justify it? My guess is none of the airlines want to miss the expected demand increase so they’re willing to fly well under profitable payloads. That can’t continue that schedule indefinitely though. Like A & B production, airlines will need to right size capacity as much as the manufacturers need to right size production.

Not only lower demand, premium traffic is pretty much dead.

I do not think they are expecting a demand increase, I think the airlines do not want to be pointed out as the biggest loser.

As you note, they cannot continue the schedule. There are just too many that must undergo a reorganizational bankruptcy. The issue is too many airlines were over leveraged and could not generated DIP financing.

It typically takes, IIRC, 10 months to see the results of a financial shock. I do not expect production to be reduced to sane levels timely. I fully expect A and B to go to the edge of financial abyss, even bankruptcy reorganization, before right sizing. I expect by 1Q2021 airlines will finally get across they cannot afford more.

This isn't A vs. B, some Airlines will consolidate on A, some B, some are just shedding aircraft as fast as the can (Indigo, Alaska, Delta, GoAir, SpiceJet, AirAsia, LATAM, Avianca, AeroMexico). I've yet to hear of any airline not returning leased aircraft, if able.

We are looking at, I estimate, 2,000 aircraft looking for a new operator in 2020. I'd like to see a more survivable production rate.

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

Tue Oct 06, 2020 4:32 am

lightsaber wrote:
75driver wrote:
It seems like airlines are playing chicken with scheduling as much as A & B are with production. They continue to operate at 50-55% capacity when demand is in the 30% range. How long can they sustain flying 25% excess capacity and justify it? My guess is none of the airlines want to miss the expected demand increase so they’re willing to fly well under profitable payloads. That can’t continue that schedule indefinitely though. Like A & B production, airlines will need to right size capacity as much as the manufacturers need to right size production.

Not only lower demand, premium traffic is pretty much dead.

I do not think they are expecting a demand increase, I think the airlines do not want to be pointed out as the biggest loser.

As you note, they cannot continue the schedule. There are just too many that must undergo a reorganizational bankruptcy. The issue is too many airlines were over leveraged and could not generated DIP financing.

It typically takes, IIRC, 10 months to see the results of a financial shock. I do not expect production to be reduced to sane levels timely. I fully expect A and B to go to the edge of financial abyss, even bankruptcy reorganization, before right sizing. I expect by 1Q2021 airlines will finally get across they cannot afford more.

This isn't A vs. B, some Airlines will consolidate on A, some B, some are just shedding aircraft as fast as the can (Indigo, Alaska, Delta, GoAir, SpiceJet, AirAsia, LATAM, Avianca, AeroMexico). I've yet to hear of any airline not returning leased aircraft, if able.

We are looking at, I estimate, 2,000 aircraft looking for a new operator in 2020. I'd like to see a more survivable production rate.

Lightsaber


I do think they are expecting an increase but in short spikes or seasonal bursts. Nothing long term but thanksgiving, Xmas and (unknown epiphany) might be wished for. That’s the only thing prompting them to keep scheduling excessive capacity. No airline wants to miss out on a possible uptick but they can’t sustain that game. Sooner or later someone is going to cry “I give” and adjust schedules appropriately. All of them likely.

Similar to Airlines, A & B don’t want to miss out on some uptick either. Their situation is much worse because the sheer number of new or near new aircraft availability is going to be astronomical. Likely the highest numbers of perfectly fine aircraft ever seen will be flooding the market. I think a case could be made for ceasing production for months if not years on some lines. Certainly there is minimal room for new designs. It also makes no sense for airlines to be taking new aircraft to replace and/or supplement their existing fleets. It might be cheaper to pay lawyers to fight delivery vs taking new planes and the associated debt. I don’t understand those advocating fleet replacements at this point when better financial opportunities exist by not doing so. Maybe in good times a case could be made but certainly not now. My thinking is regardless of fuel prices, maintenance, depreciation, etc the least amount of debt for an airline is the preferable position at this time. I’d like to hear the other side of that argument?

This is absolutely not an A vs B argument, it’s nothing but survival of both. I have no idea which is considered the best financial/long term position but undoubtedly both are in severe stress. It’s bad enough having a duopoly and the industry probably can’t stand one to fail. Both need to think outside the typical box because business as usual can not be sustained. Maybe they buy up suppliers, production lines, sub contractors, etc. Nothing should be off the table at this point. Regardless, the industry can not absorb 2000 new aircraft next year or per year in the future. It’s not feasible in any way. How that’s taken care of I don’t know but considering the airline bankruptcies and the huge number of already built airplanes available that number can’t be a realistic production number.

Forget 9/11 and forget 2008, this is a generational event far surpassing either. Both A & B better diversify and come up with a completely new game plan or their long term viability will be vaporized.
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Oct 06, 2020 5:10 am

75driver wrote:
lightsaber wrote:
This isn't A vs. B, some Airlines will consolidate on A, some B, some are just shedding aircraft as fast as the can (Indigo, Alaska, Delta, GoAir, SpiceJet, AirAsia, LATAM, Avianca, AeroMexico). I've yet to hear of any airline not returning leased aircraft, if able.

We are looking at, I estimate, 2,000 aircraft looking for a new operator in 2020. I'd like to see a more survivable production rate.


Regardless, the industry can not absorb 2000 new aircraft next year or per year in the future. It’s not feasible in any way. How that’s taken care of I don’t know but considering the airline bankruptcies and the huge number of already built airplanes available that number can’t be a realistic production number.


The current production rate targets for Boeing and Airbus total about 1100 aircraft per year.

From the context, I think lightsaber was referring to currently leased aircraft being put up for new leases due to a lease terms ending or bankruptcies. Or perhaps a combination of leases and new production. I'll let him clarify.

Regardless of the exact number, the near term glut comes from the combination of:

- New production
- Aircraft coming off lease
- Used aircraft for sale to downsize fleets and raise cash, or even liquidate.
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Oct 06, 2020 7:49 am

lightsaber wrote:
seahawk wrote:
Yes, I know the economy of scales behind the production chain, but I believe the last few years, when the OEMs pushed frames into the market through big discounts and hoped to protected their margin to economy of scales effects, were a failed strategy. The key now is to be competitive with a much smaller production. Especially Airbus (Boeing already did) needs to make serious cuts to the workforce and really streamline their production. Efficiency now has to beat national interests if the company is to survive the coming years and jobs will be lost. And yes, it could be a 1/3 of the jobs.

I agree Airbus needs to cut production. The issue is they already sold at prices that need the economy of scale to have the business case. Airlines want to differ more or cancel, so there is no going back for a price increase. You had better believe they already sent their receiving quality to the AAB school of carpet inspection to differ costs because airlines purely want to preserve cash. I've posted before my Airbus sustainable production rates which are lower than announced.

Boeing isn't exempt, but they have freighters and cut production more. I think the 787 needs to be cut a little more.

The strategy had merit, but declining yields in 2019 showed it was flawed. However, aircraft were sold and priced in that environment. As my Tardis is broken, that is the universe Airbus and Boeing live in.

Lightsaber


You can´t heal the current contracts and I think the majority will be renegotiated anyway. Both will probably enter bankruptcy reorganization in the process, but I still do not see volume as the way to save themselves. Sure only products that sell enough to allow a sustainable volume must survive, but production volume will have to go down by 50% at least. The challenge is to adjust for that and become more efficient in the process. And if one is honest at least Airbus has a lot of fat to cut.
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Oct 06, 2020 10:43 am

Rumors out of the Mobile FAL (I have friends working there) indicate they are ramping back up to rate 5 early 2021. This is supported by multiple job postings for Airbus Mobile.

https://www.indeed.com/q-Airbus-Final-A ... 6ebde4d24b

Also, Airbus has just renewed a 3 year logistics contract for delivery of parts to the Mobile FAL.

https://www.aero-mag.com/yusen-logistic ... -05102020/
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Oct 06, 2020 1:40 pm

stranger706 wrote:
Rumors out of the Mobile FAL (I have friends working there) indicate they are ramping back up to rate 5 early 2021. This is supported by multiple job postings for Airbus Mobile.

https://www.indeed.com/q-Airbus-Final-A ... 6ebde4d24b

Also, Airbus has just renewed a 3 year logistics contract for delivery of parts to the Mobile FAL.

https://www.aero-mag.com/yusen-logistic ... -05102020/

Facinating breaking down the jobs

5 jobs for either aircraft
ADU shop (drilling)
Air craft electrician
Customer Liaison
Aircraft cabin installer
Aircraft structural assembler

One for A320: MAP

4 for A220:
Material planner
QA
Operations lead
A/C electrician

I see a need to ramp the A220. Not so the A320, but that is just my opinion. The A220 has an underfilled niche. The A320 is in over-supply...

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

Tue Oct 06, 2020 3:23 pm

https://www.cnbc.com/2020/10/06/boeing-covid-pandemic-to-hurt-aircraft-sales-for-more-than-a-decade.html

This is Boeing's latest prediction, seems a little optimistic in the short term to me.
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Oct 06, 2020 4:36 pm

Exeiowa wrote:
https://www.cnbc.com/2020/10/06/boeing-covid-pandemic-to-hurt-aircraft-sales-for-more-than-a-decade.html

This is Boeing's latest prediction, seems a little optimistic in the short term to me.

I started a new thread on the CMO.

viewtopic.php?f=3&t=1452577

The predicted recovery, if I scaled correctly, is 6 years to old demand, 8 years to the new reduced curve. As that is even more pessimistic than myself, I will not call it optimistic. I agree with many of the assumptions. This becomes a proper back end focused market outlook.

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2175301
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Re: The case for more aircraft production cuts/playing chicken

Tue Oct 06, 2020 4:39 pm

Exeiowa wrote:
https://www.cnbc.com/2020/10/06/boeing-covid-pandemic-to-hurt-aircraft-sales-for-more-than-a-decade.html

This is Boeing's latest prediction, seems a little optimistic in the short term to me.



It's a 10 year estimate... and I believe its on the high side of reasonable.

Boeing has done fairly decent job of projecting future long term demand. I once looked at a series of their 20 year old estimates of future demand and found they were fairly accurate overall.

Thus, I'll give them the benefit of the doubt on this one.

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

Tue Oct 06, 2020 4:44 pm

2175301 wrote:
Exeiowa wrote:
https://www.cnbc.com/2020/10/06/boeing-covid-pandemic-to-hurt-aircraft-sales-for-more-than-a-decade.html

This is Boeing's latest prediction, seems a little optimistic in the short term to me.



It's a 10 year estimate... and I believe its on the high side of reasonable.

Boeing has done fairly decent job of projecting future long term demand. I once looked at a series of their 20 year old estimates of future demand and found they were fairly accurate overall.

Thus, I'll give them the benefit of the doubt on this one.

Have a great day,

It is a 20 year estimate very bearish for the short term. Please scale the recovery, I found it incredibly bearish for the next 3 to 6 years.

Please see the link to the CMO thread I started, this should be a seperate topic, but good information for short term chicken.

Since this is more bearish than my prior assumptions, I think we will hear about more production cuts and soon.

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

Tue Oct 06, 2020 5:14 pm

2175301 wrote:
Exeiowa wrote:
https://www.cnbc.com/2020/10/06/boeing-covid-pandemic-to-hurt-aircraft-sales-for-more-than-a-decade.html

This is Boeing's latest prediction, seems a little optimistic in the short term to me.



It's a 10 year estimate... and I believe its on the high side of reasonable.

Boeing has done fairly decent job of projecting future long term demand. I once looked at a series of their 20 year old estimates of future demand and found they were fairly accurate overall.

Thus, I'll give them the benefit of the doubt on this one.

Have a great day,

Chances are this may be a signal that the market sounding for any new program have been done or is nearing completion if they are to launch it within a year or two.
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Oct 06, 2020 9:19 pm

Unfortunately, for the vendors, news us getting worse:

https://aviationweek.com/mro/aircraft-p ... -us-desert

Ascent is beginning to see an increased demand for teardowns, which implies that demand for used parts will be strong in recovery as customers look for low-cost solutions.

A disproportionate share of vendor profit is overhauling parts. While some of the scavanged parts will be rebuilt, it us cheaper to first use up the green time (green time is usable time before next overhaul).

My concern for vendors is growing, in particular those that rebuild a lot of parts: Hitchner, Meggitt, Moog, Woodward and the engine companies (Green time applies to engines, and Power by the hour is not happening.... enough).

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

Tue Oct 06, 2020 10:46 pm

Revelation just posted in the Covid19 reference thread this IATA link:

https://www.flightglobal.com/airlines/i ... 93.article

More complete link:

http://tradearabia.com/touch/article/TTN/373633
The International Air Transport Association (IATA) has warned that the airline industry will burn through $77 billion in cash during the second half of 2020 (almost $13 billion/month or $300,000 per minute), despite the restart of operations.

The slow recovery in air travel will see the airline industry continuing to burn through cash at an average rate of $5 to $6 billion per month in 2021, stated IATA in its report.



Ok, I was too optimistic. Rhoo Rhoo...

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

Wed Oct 07, 2020 6:03 am

It’s seems that every estimate or piece of news that comes out is getting revised down. I haven’t seen a single story or stake holder claim a more optimistic view vs previous claims. It’s almost like there is no recovery, it’s just a continued downward trend for manufacturers and their supply chain including ancillary businesses.

While Boeing says things are worse than expected they propose a measly 10%/10 year production cut. Sorry, but they are living in fantasy land. Maybe it’s investor speak but that is absurd considering the current conditions. It’s going to be a much bigger cut.

I still say there are going to be 1000’s of perfectly good new or near new aircraft to service the industry for many years and debt (or lack thereof) will determine airlines survivability. It will be interesting to see what the airlines debt ratio is compared to market capitalization. That will be a very important number. Debt servicing will become a problem for many airlines in the not to distant future.
 
CuriousMonkey
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Re: The case for more aircraft production cuts/playing chicken

Wed Oct 07, 2020 6:23 am

How long can this downwards trend continue before we can all forget about seeing 2019 numbers again.

At some point, the very idea of getting in a plane with 100-400 people in a confined space for hours on end will looks like an irresponsible thing to do.
 
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Re: The case for more aircraft production cuts/playing chicken

Wed Oct 07, 2020 6:34 am

I think in most places (save for Hong Kong) downward tends in passenger travel is probably over. This topic is about production of new aircraft and that trend still hasn’t hit bottom.

How many new aircraft have been put into service in the last 5-10 years? Those planes will still be flying 20 years from now. Add that to the inventory sitting on tarmacs along with the current production rate and you can’t find enough vacant parking lots to store perfectly good new or near new airplanes.
 
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Re: The case for more aircraft production cuts/playing chicken

Wed Oct 07, 2020 6:54 am

The rate of the downward trend is slowing, but when expectations keep dropping means the trend is still falling but slower. The market is seeking a bottom, but we are not there yet and it is uncertain how much lower this final bottom is. It will still be a few months after the bottom will we notice any uptick.
 
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Re: The case for more aircraft production cuts/playing chicken

Wed Oct 07, 2020 7:21 am

As long as there is no working vaccine, things won´t get better and to be honest, the winter will be even worse than spring.
 
MIflyer12
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Re: The case for more aircraft production cuts/playing chicken

Wed Oct 07, 2020 10:05 am

75driver wrote:
I still say there are going to be 1000’s of perfectly good new or near new aircraft to service the industry for many years and debt (or lack thereof) will determine airlines survivability.


It's going to be a big number but we don't know how big. It may not be as big as you're thinking because lots of aircraft are getting retired well before they reach mechanical end of life:

- DL 777
- DL 77L
- DL 717
- DL 737-700
- AS A320ceo
...

Some of those may find new passenger use (not just as parts donors) but it's not going to approach 100%.

There's really no single metric that points to a firm having too much debt. If they can still borrow at decent rates (and WN and DL have shown they can) that's the market saying they're ok providing new money. Years and years of poor or negative free cash flow wouldn't be a good sign. At some point Chapter 11 starts to look good - so much of cash flow is going to debt service that shareholders aren't going to see any returns (dividends, share buybacks, share price appreciation), anyway. May as well wipe them out formally while wiping away $billions in debt (and facilities leases, aircraft orders you don't need...)
 
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Re: The case for more aircraft production cuts/playing chicken

Wed Oct 07, 2020 12:29 pm

With just a little luck one year from now enough people will have been vaccinated so that the economy will be set to recover. That is the good news. The bad news is that we have several more months of economic disaster in multiple sectors of the economy. Economists should be able at the point to assess what terminal damage will be incurred sector by sector with that ongoing damage. While they should be able to determine the actual damage in each sector, it will be a little more speculative to measure what the collateral damage the various sectors will inflict on other sectors. In WWII Roosevelt and Churchill rewrote their economies, industry and labor were not particularly cooperative, but we need accurate economic advice, cooperation of the various political parties, forbearance of the public if we are to recover. It may be more than what the humans are capable of.
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

Wed Oct 07, 2020 12:32 pm

MIflyer12 wrote:
75driver wrote:
I still say there are going to be 1000’s of perfectly good new or near new aircraft to service the industry for many years and debt (or lack thereof) will determine airlines survivability.


It's going to be a big number but we don't know how big. It may not be as big as you're thinking because lots of aircraft are getting retired well before they reach mechanical end of life:

- DL 777
- DL 77L
- DL 717
- DL 737-700
- AS A320ceo
...

Some of those may find new passenger use (not just as parts donors) but it's not going to approach 100%.

There's really no single metric that points to a firm having too much debt. If they can still borrow at decent rates (and WN and DL have shown they can) that's the market saying they're ok providing new money. Years and years of poor or negative free cash flow wouldn't be a good sign. At some point Chapter 11 starts to look good - so much of cash flow is going to debt service that shareholders aren't going to see any returns (dividends, share buybacks, share price appreciation), anyway. May as well wipe them out formally while wiping away $billions in debt (and facilities leases, aircraft orders you don't need...)

Many more for that list:
Indigo returning 120 A320CEO
Go returning A320CEO (IIRC, about 20)
Spicejet returning all the 737NGs on short term leases (most of fleet)
Rwandair returning 2 A330NEO and 2 737 MAX

According to IBA, there are 1,300 aircraft looking at lease returns with no clear forward market: https://www.ainonline.com/aviation-news ... raft-lease

That is 200 widebodies and I assume most of the rest are narrowbodies (I would assume some fraction are RJs). IBA said it believes that, while those operators would likely have extended the majority of those leases, that option now appears extremely unlikely.

IBA also addressed the unique circumstances of the Boeing 737 Max’s coming return to service. Not only has the extended storage period for the aircraft created a set of technical issues that will need addressing, but aircraft manufactured during the grounding period have swelled the number of grounded airplanes to more than 750.



Plus Boeing and Airbus are overproducing. There are 2,000 surplus aircraft without adding in Airbus' total they have overproduced. We have a seperate thread in the CMO where Boeing recognized the last decade was a bubble. A crisis accelerates trends. In 2019 air fare yields were dropping and 2020 with Covid19 just exposed the huge available surplus (about 20% more capacity than long term demand).

CMO thread: viewtopic.php?f=3&t=1452577

There will be a reduction in capacity.

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

Wed Oct 07, 2020 1:00 pm

I think we are all currently discovering that capitalism(allocation of resources) and markets(exchange of good and services) are not the same thing. And there is a messy reorganizing as this get sorted out, very clearly in a sector immediately impacted by an infectious disease reducing peoples need and desire to travel.
 
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lightsaber
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Re: The case for more aircraft production cuts/playing chicken

Wed Oct 07, 2020 2:54 pm

Exeiowa wrote:
I think we are all currently discovering that capitalism(allocation of resources) and markets(exchange of good and services) are not the same thing. And there is a messy reorganizing as this get sorted out, very clearly in a sector immediately impacted by an infectious disease reducing peoples need and desire to travel.

We quickly go off topic if we discuss how government regulations and subsidies are distorting capitalism. e.g., the cost of furloughs.

At this point, production will be further reduced. It is now a question of how much over-supply will overhang on the market.

Capitalism is always slow to cut production after an era where it couldn't increase production sufficiently. Oh well. I hope this time we can avoid too deep of cuts. We will find out after seeing the aircraft Leasing companies 3Q2020 quarterly reports. That will tell the true aircraft demand story.

I personally look forward to Airbus' 2020 global market forcast.

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

Wed Oct 07, 2020 3:49 pm

frmrCapCadet wrote:
With just a little luck one year from now enough people will have been vaccinated so that the economy will be set to recover. That is the good news. The bad news is that we have several more months of economic disaster in multiple sectors of the economy. Economists should be able at the point to assess what terminal damage will be incurred sector by sector with that ongoing damage. While they should be able to determine the actual damage in each sector, it will be a little more speculative to measure what the collateral damage the various sectors will inflict on other sectors. In WWII Roosevelt and Churchill rewrote their economies, industry and labor were not particularly cooperative, but we need accurate economic advice, cooperation of the various political parties, forbearance of the public if we are to recover. It may be more than what the humans are capable of.


Forbearance. Boy that is a slippery slope isn’t it? It’s been applied to the mortgage crisis but never on the scale we’ll likely see here. The wealth gap widens with every financial crisis and John Q Public will lose their appetite for bailing out large, for profit, public companies. We’ve all been artificially propped up with Cares and now the real economic bite is about to hit and it’s scary. So many sectors of the economy are being impacted. Travel and hospitality probably being #1 if you can even group them together now.

A and B could idle all their lines for a year and it would still not be enough to level supply with demand. Boeing predicting their business as a growth sector over the next 10 (20?) years is so unrealistic it’s almost laughable. Ed Bastian admitted in a town hall recently that business travel would be reduced long term. He didn’t elaborate on how much but that was the airlines money game and it’s largely evaporated. His guess is just that but it’s an educated one worth noting. Indiscriminate business travel is over. The internet has expanded enough with broadband that tele/video is now feasible.

The manufacturers need to reinvent themselves and it might be at a cost of other related companies/jobs within their sphere. Repurposing, conversions, maintenance, parts supply, heck I don’t know but “something” will have to change. I’m not smart enough to figure it out but it’s obvious they can’t continue on their old model. It will probably require a new playbook to be written because nobody has played this game before.

It’s been touched on a bit here but a new topic could be started that tally new, near new, unused stored and lease returns of perfectly fine airplanes could be complied and I think the total number would shock many.
 
jeffrey0032j
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Re: The case for more aircraft production cuts/playing chicken

Wed Oct 07, 2020 3:51 pm

lightsaber wrote:
Exeiowa wrote:
I think we are all currently discovering that capitalism(allocation of resources) and markets(exchange of good and services) are not the same thing. And there is a messy reorganizing as this get sorted out, very clearly in a sector immediately impacted by an infectious disease reducing peoples need and desire to travel.

We quickly go off topic if we discuss how government regulations and subsidies are distorting capitalism. e.g., the cost of furloughs.

At this point, production will be further reduced. It is now a question of how much over-supply will overhang on the market.

Capitalism is always slow to cut production after an era where it couldn't increase production sufficiently. Oh well. I hope this time we can avoid too deep of cuts. We will find out after seeing the aircraft Leasing companies 3Q2020 quarterly reports. That will tell the true aircraft demand story.

I personally look forward to Airbus' 2020 global market forcast.

Lightsaber

I look forward to Airbus' forecast - they are usually more optimistic (ie, off the mark/less accurate) than Boeing.
 
jeffrey0032j
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Re: The case for more aircraft production cuts/playing chicken

Wed Oct 07, 2020 3:59 pm

75driver wrote:
frmrCapCadet wrote:
With just a little luck one year from now enough people will have been vaccinated so that the economy will be set to recover. That is the good news. The bad news is that we have several more months of economic disaster in multiple sectors of the economy. Economists should be able at the point to assess what terminal damage will be incurred sector by sector with that ongoing damage. While they should be able to determine the actual damage in each sector, it will be a little more speculative to measure what the collateral damage the various sectors will inflict on other sectors. In WWII Roosevelt and Churchill rewrote their economies, industry and labor were not particularly cooperative, but we need accurate economic advice, cooperation of the various political parties, forbearance of the public if we are to recover. It may be more than what the humans are capable of.


A and B could idle all their lines for a year and it would still not be enough to level supply with demand. Boeing predicting their business as a growth sector over the next 10 (20?) years is so unrealistic it’s almost laughable. Ed Bastian admitted in a town hall recently that business travel would be reduced long term. He didn’t elaborate on how much but that was the airlines money game and it’s largely evaporated. His guess is just that but it’s an educated one worth noting. Indiscriminate business travel is over. The internet has expanded enough with broadband that tele/video is now feasible.

The manufacturers need to reinvent themselves and it might be at a cost of other related companies/jobs within their sphere. Repurposing, conversions, maintenance, parts supply, heck I don’t know but “something” will have to change. I’m not smart enough to figure it out but it’s obvious they can’t continue on their old model. It will probably require a new playbook to be written because nobody has played this game before.

Boeing has a strong defense business, even though it is not the biggest player in defense, and they have just announced ramping up BCF conversion lines in reaction to the changing market. Boeing has also already set up its Global Services for parts supply, including for Airbus planes. Based on them setting up Global Services, I would think they had detected the fat in the market and the falling margins even before the virus hit, and this is probably what they are going to survive on.
 
Jetport
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Re: The case for more aircraft production cuts/playing chicken

Wed Oct 07, 2020 4:41 pm

While I concur with Lightsaber and others the short term is quite bleak, I think the post vaccine bounce back will be very steep. The absolutely ridiculous predictions like never returning to 2019 air travel levels, especially for business travel are just absurd and laughable. Business travel may never return to the 2019 percentage of air travel, but it will surely surpass the absolute 2019 levels, likely with 5 years. Leisure will likely have a permanently higher percentage of travel and surpass 2019 absolute numbers within 3 years.

As for aircraft, many people seem to be forgetting how many aircraft will be scrapped long before they hit 15 or 20 years of age, never mind 25 or 30 years. If current trends hold, over half of the A380's ever built will be retired by next year, that is a lot of seats gone at 10 years or less of age. Many older 777's and A330's will also be retired well before their useful lives are over. While the short term and likely the medium term look better for narrow bodies, the long term may not. With the huge number of middle aged widebodies that will never fly again, the medium to long term (4-10 years) may see a large demand surge for widebodies since so many will have been scrapped.

Out of curiosity, how much does it cost to store an A330 or 777 for a year, and how long can you store one without having to start replacing things that dry rot or corrode over time?
 
smartplane
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Re: The case for more aircraft production cuts/playing chicken

Wed Oct 07, 2020 5:01 pm

lightsaber wrote:
MIflyer12 wrote:
75driver wrote:
I still say there are going to be 1000’s of perfectly good new or near new aircraft to service the industry for many years and debt (or lack thereof) will determine airlines survivability.


It's going to be a big number but we don't know how big. It may not be as big as you're thinking because lots of aircraft are getting retired well before they reach mechanical end of life:

- DL 777
- DL 77L
- DL 717
- DL 737-700
- AS A320ceo
...

Some of those may find new passenger use (not just as parts donors) but it's not going to approach 100%.

There's really no single metric that points to a firm having too much debt. If they can still borrow at decent rates (and WN and DL have shown they can) that's the market saying they're ok providing new money. Years and years of poor or negative free cash flow wouldn't be a good sign. At some point Chapter 11 starts to look good - so much of cash flow is going to debt service that shareholders aren't going to see any returns (dividends, share buybacks, share price appreciation), anyway. May as well wipe them out formally while wiping away $billions in debt (and facilities leases, aircraft orders you don't need...)

Many more for that list:
Indigo returning 120 A320CEO
Go returning A320CEO (IIRC, about 20)
Spicejet returning all the 737NGs on short term leases (most of fleet)
Rwandair returning 2 A330NEO and 2 737 MAX

According to IBA, there are 1,300 aircraft looking at lease returns with no clear forward market: https://www.ainonline.com/aviation-news ... raft-lease

Those numbers won't include lessor's granting payment holidays and discounts. Inducements to rollover / not cancel have never been higher. And then there are an army of leased aircraft now temporarily on fly by the hour.
 
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lightsaber
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Re: The case for more aircraft production cuts/playing chicken

Wed Oct 07, 2020 5:48 pm

jeffrey0032j wrote:
lightsaber wrote:
Exeiowa wrote:
I think we are all currently discovering that capitalism(allocation of resources) and markets(exchange of good and services) are not the same thing. And there is a messy reorganizing as this get sorted out, very clearly in a sector immediately impacted by an infectious disease reducing peoples need and desire to travel.

We quickly go off topic if we discuss how government regulations and subsidies are distorting capitalism. e.g., the cost of furloughs.

At this point, production will be further reduced. It is now a question of how much over-supply will overhang on the market.

Capitalism is always slow to cut production after an era where it couldn't increase production sufficiently. Oh well. I hope this time we can avoid too deep of cuts. We will find out after seeing the aircraft Leasing companies 3Q2020 quarterly reports. That will tell the true aircraft demand story.

I personally look forward to Airbus' 2020 global market forcast.

Lightsaber

I look forward to Airbus' forecast - they are usually more optimistic (ie, off the mark/less accurate) than Boeing.

Airbus does a good job. Their forecast is more through the prism of constrained airports. I happen to agree with Boeing's approach that someone somewhere will build a hub our team didn't consider (e.g., ME3, China expansion, under construction 4 runway airport in South Vietnam, new airports and runways in India and Indonesia).

The only big error on Airbus part was the gauge of aircraft anticipated.

That said, I anticipate the Boeing estimate on widebodies is very overly optimistic. I'm not expecting as much of a "V" recovery either. However, I've been at this long enough to know my long term predictions have all been too low.

Lightsaber

Let's not forget the Boeing CMO is widely considered too optimistic:
https://www.fool.com/investing/2020/10/ ... ptimistic/

I cannot wait for the Airbus market forecast.
Winter is coming.
 
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seahawk
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Re: The case for more aircraft production cuts/playing chicken

Wed Oct 07, 2020 6:46 pm

But this time it a different scenario to the past. In the past it was mostly a question of how many people will be flying and that largely depended on having the financial means and enough service capacity at their origin and destination. Today we also have to consider if people will be allowed to fly.
 
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75driver
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Re: The case for more aircraft production cuts/playing chicken

Wed Oct 07, 2020 7:23 pm

Jetport wrote:
The absolutely ridiculous predictions like never returning to 2019 air travel levels, especially for business travel are just absurd and laughable. Business travel may never return to the 2019 percentage of air travel, but it will surely surpass the absolute 2019 levels, likely with 5 years.


Completely disagree and evidence to the contrary abounds. You don’t have the head of Delta saying a piece of business travel is gone forever and you don’t have Lufthansa closing their flight academy telling recruits to look at other career options because they won’t be needed for a “very long time” if that’s not their view. Two high profile examples among dozens of others. Lufthansa is even questioning IATA’s 2024 outlook which should speak volumes.

It’s more laughable to think the opposite when a mountain of evidence is ominously dead ahead. It may take a few years to prove who’s right but I’m siding with the head of Delta and Lufthansa’s opinions, among others.
 
Capricorn
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Re: The case for more aircraft production cuts/playing chicken

Wed Oct 07, 2020 8:06 pm

Jetport wrote:

While I concur with Lightsaber and others the short term is quite bleak, I think the post vaccine bounce back will be very steep. The absolutely ridiculous predictions like never returning to 2019 air travel levels, especially for business travel are just absurd and laughable. Business travel may never return to the 2019 percentage of air travel, but it will surely surpass the absolute 2019 levels, likely with 5 years. Leisure will likely have a permanently higher percentage of travel and surpass 2019 absolute numbers within 3 years.


I do disagree with that. I think 2024 is a good optimistic baseline scenario for when traffic might return to 2019 levels. If you look at the graph in the source below of passengers carried by year you can see, that it took traffic 4 years to rebound from 9/11 combined with the minor 2000 recession. Only in 2004 did traffic surpass the 2000 mark, but substantially so. The GFC was of more minor nature, but that was due to mainly strong growth in the developing world. But with C19 affecting everything, and the very strong expansion aviation saw during the last 5+ years, it will take some time to rebound, which will eventually happen, just not so soon. Don't get me wrong, there certainly is some pent up demand, but there are equally ppl who will just not fly so soon, either because of a multitude of different reasons (financial means, encountered other form of travel like caravan, scared, don't want to get vaccinate, green conscience, online meeting and so on)

https://data.worldbank.org/indicator/IS.AIR.PSGR

So its easy to get to >80% of pre-C19 demand, but to reach 2019 demand, the demand level the industry was set up to serve, will take a little longer. And arguably there was already oversupply when you look at all the abundance of unprofitable airlines in the marked prior to C19 while the industry in general was operating at a record level. So production cuts as well as capacity cuts will help the industry get through the next 5+ years.

What would be an interesting question, which I as an industry outsider have no knowledge about, would be what the effect of prolonged underutilisation has on ACs and their replacements. Can airlines now use some of the ACs longer (especially the younger frames) which would mean that depending on how long C19 crisis continues, that airlines can now use their frames let's say 2 years longer? This would subsequently shift replacements further down the road affecting sales and delivery of replacements.
 
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Re: The case for more aircraft production cuts/playing chicken

Wed Oct 07, 2020 8:16 pm

75driver wrote:
Jetport wrote:
The absolutely ridiculous predictions like never returning to 2019 air travel levels, especially for business travel are just absurd and laughable. Business travel may never return to the 2019 percentage of air travel, but it will surely surpass the absolute 2019 levels, likely with 5 years.


Completely disagree and evidence to the contrary abounds. You don’t have the head of Delta saying a piece of business travel is gone forever and you don’t have Lufthansa closing their flight academy telling recruits to look at other career options because they won’t be needed for a “very long time” if that’s not their view. Two high profile examples among dozens of others. Lufthansa is even questioning IATA’s 2024 outlook which should speak volumes.

It’s more laughable to think the opposite when a mountain of evidence is ominously dead ahead. It may take a few years to prove who’s right but I’m siding with the head of Delta and Lufthansa’s opinions, among others.

The debate is more how long until 2019 levels.

In 2018, we hit 3.7 billion in the middle class:

https://www.nextbigfuture.com/2018/09/w ... icher.html

Saying we won't hit 2019 levels if air travel is the same as not having a huge chunk of the global population enter the middle class or progress up the ladder.

I'm bearish, not that bearish. It will be years until pilots are needed following Boeing's chart from the CMO, so Lufthansa is being honest. Delta didn't offer a timeline, but I agree, some fraction of business traffic is lost. But growth happens.

There will be some time to recover, but never? That is saying South America, Africa, and a good part of Asia do not grow.

I will remain bearish, but not this bearish.

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

Thu Oct 08, 2020 12:00 am

Jetport wrote:
While I concur with Lightsaber and others the short term is quite bleak, I think the post vaccine bounce back will be very steep. The absolutely ridiculous predictions like never returning to 2019 air travel levels, especially for business travel are just absurd and laughable.
...
As for aircraft, many people seem to be forgetting how many aircraft will be scrapped long before they hit 15 or 20 years of age, never mind 25 or 30 years....

To add to your argument:
The A380s started being removed before the epidemic. Cheap interest seems to do wonders for replacement demand. Demand growth the last years was just so much that airlines couldn't retire all their A380s, B747-400s or A340s.

Let's say Covid19 wipes out demand of 1,5 years of aircraft production.
Once traffic picks up, will airlines be creditworthy enough to absorb that surplus for retirement of "outdated" models?
Or are the outdated models already retired, but their replacements not yet taken because of working capital limitations?

Speaking of narrowbodies:
All airlines need politics at the moment. If the US government asks US airlines to order MAXs, can airlines say no?
If politics asks banks to finance it, can banks say no?
I think there is enough old metal in the US that can be replaced to absorb the overhang. It may just not be possible as long as business is so depressed. Until a vaccine is found, Airbus/ Boeing will have to finance the temporary surplus.

"Buying on bad news is a strategy commonly employed by savvy investors. The trick is to understand whether the problem is acute or will affect a company in the long term."
https://news.law.fordham.edu/jcfl/2017/ ... -bad-news/

Image
https://steemit.com/bitcoin/@haejin/be- ... re-fearful

What is acute? Considering the life of a narrowbody, is one more year without business an acute problem?

I thought narrowbodies are sold out for years.
How much advance is paid when airlines order planes?
How many MAXs with delivery in the next two years were cancelled, how many are still planned to be taken?

I suppose Boeing shouldn't ramp up MAX production until a vaccine is widely available.
Why can't the world be a little bit more autistic?
 
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seahawk
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Re: The case for more aircraft production cuts/playing chicken

Thu Oct 08, 2020 7:13 am

That depends on how long you keep it. Some airlines sell their fleet once they reach the first big check, so after 7-8 years for a narrowbody. One year is substantial in that time frame. And imho before we have a working vaccine that is actually widely available, there is no reasonable prediction of the recovery possible. And even then there are plenty of unknowns left.
 
FluidFlow
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Re: The case for more aircraft production cuts/playing chicken

Thu Oct 08, 2020 7:21 am

lightsaber wrote:
75driver wrote:
Jetport wrote:
The absolutely ridiculous predictions like never returning to 2019 air travel levels, especially for business travel are just absurd and laughable. Business travel may never return to the 2019 percentage of air travel, but it will surely surpass the absolute 2019 levels, likely with 5 years.


Completely disagree and evidence to the contrary abounds. You don’t have the head of Delta saying a piece of business travel is gone forever and you don’t have Lufthansa closing their flight academy telling recruits to look at other career options because they won’t be needed for a “very long time” if that’s not their view. Two high profile examples among dozens of others. Lufthansa is even questioning IATA’s 2024 outlook which should speak volumes.

It’s more laughable to think the opposite when a mountain of evidence is ominously dead ahead. It may take a few years to prove who’s right but I’m siding with the head of Delta and Lufthansa’s opinions, among others.

The debate is more how long until 2019 levels.

In 2018, we hit 3.7 billion in the middle class:

https://www.nextbigfuture.com/2018/09/w ... icher.html

Saying we won't hit 2019 levels if air travel is the same as not having a huge chunk of the global population enter the middle class or progress up the ladder.

I'm bearish, not that bearish. It will be years until pilots are needed following Boeing's chart from the CMO, so Lufthansa is being honest. Delta didn't offer a timeline, but I agree, some fraction of business traffic is lost. But growth happens.

There will be some time to recover, but never? That is saying South America, Africa, and a good part of Asia do not grow.

I will remain bearish, but not this bearish.

Lightsaber


I think it is important to differ the regions. EU and US Business-Travel will recover slow and might never return to the level before. There were so many unnecessary trips done just because. 75% of my business travel was not necessary and is definitely going to stay digital. And the companies we consult do the same. Company intern we cut travel budget by 90%. Top Execs will still meet but we in the middle management have to meet virtual. And I prefer it. So much time lost to get to London or Berlin. Now I can work untill 11am then have a meeting and then work from 2pm again. Before this was a whole day lost as the only productive time was actually 50min on the aircraft and even that is not practical especially when half the information is confidential and should not be seen by the guy sitting literally on top of me in Y.

On the other side, Asia, especially SE Asia and India will still see a massive growth. China too. Africa will grow, faster with stable governments. South America I personally can not make an assessment as we do not work in that region (yet).
 
MIflyer12
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Re: The case for more aircraft production cuts/playing chicken

Thu Oct 08, 2020 1:40 pm

Sokes wrote:
All airlines need politics at the moment. If the US government asks US airlines to order MAXs, can airlines say no?
If politics asks banks to finance it, can banks say no?


Are you trolling, or are you that grossly unfamiliar with American politics and business? It's not France, nor one of those big Asian countries... U.S. politicians do not write business plans. They don't determine capital spending. They don't determine suppliers for $10 Billion contracts for private companies. They don't actively match-make. They don't tell banks to whom they should lend $ Billions.
 
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Re: The case for more aircraft production cuts/playing chicken

Thu Oct 08, 2020 3:34 pm

FluidFlow wrote:
lightsaber wrote:
75driver wrote:

Completely disagree and evidence to the contrary abounds. You don’t have the head of Delta saying a piece of business travel is gone forever and you don’t have Lufthansa closing their flight academy telling recruits to look at other career options because they won’t be needed for a “very long time” if that’s not their view. Two high profile examples among dozens of others. Lufthansa is even questioning IATA’s 2024 outlook which should speak volumes.

It’s more laughable to think the opposite when a mountain of evidence is ominously dead ahead. It may take a few years to prove who’s right but I’m siding with the head of Delta and Lufthansa’s opinions, among others.

The debate is more how long until 2019 levels.

In 2018, we hit 3.7 billion in the middle class:

https://www.nextbigfuture.com/2018/09/w ... icher.html

Saying we won't hit 2019 levels if air travel is the same as not having a huge chunk of the global population enter the middle class or progress up the ladder.

I'm bearish, not that bearish. It will be years until pilots are needed following Boeing's chart from the CMO, so Lufthansa is being honest. Delta didn't offer a timeline, but I agree, some fraction of business traffic is lost. But growth happens.

There will be some time to recover, but never? That is saying South America, Africa, and a good part of Asia do not grow.

I will remain bearish, but not this bearish.

Lightsaber


I think it is important to differ the regions. EU and US Business-Travel will recover slow and might never return to the level before. There were so many unnecessary trips done just because. 75% of my business travel was not necessary and is definitely going to stay digital. And the companies we consult do the same. Company intern we cut travel budget by 90%. Top Execs will still meet but we in the middle management have to meet virtual. And I prefer it. So much time lost to get to London or Berlin. Now I can work untill 11am then have a meeting and then work from 2pm again. Before this was a whole day lost as the only productive time was actually 50min on the aircraft and even that is not practical especially when half the information is confidential and should not be seen by the guy sitting literally on top of me in Y.

On the other side, Asia, especially SE Asia and India will still see a massive growth. China too. Africa will grow, faster with stable governments. South America I personally can not make an assessment as we do not work in that region (yet).

I hope our competitors avoid business travel. We've quantified the productivity hit of the virtual workforce and reduction in business travel. We go off topic, but most business saw the top workers more productive, overall less productive:

https://m.washingtontimes.com/news/2020 ... er-but-ca/

So while growth will favor many of the regions you noted, I can quantify the productivity hit for my employer in reduced travel:
1. Our regulators must fly out for long periods of time. This disrupts their productivity as they are more worried about kids and stuff.
2. Sales are tougher without travel. We will use travel as a competitive advantage, once the Aerospace market is worth the travel.
3. It really helps bringing back retired Engineering specialists. We notice the mentoring isn't even 25% efficient with remote support. We have learned flying these people in for a two week period is worth every penny. We've started bringing them in. Even paying for multi day drives. Now we've learned they can support remotely a good chunk of the time, but not the current schedule.

I agree the short trips aren't worth it. We will have a new rythem for consultants. Many are not happy we've already implimented. Most I won't share as two of our competitors are being stupid; Napoleon advised to never interupt your opponent when they are making a mistake... so I shall not.

So I think part of Boeing's CMO snap back is accurate. Yet I still think the current broadcast production schedules are going to use up too much cash.

In effect, we are debating the wise level to reduce near term production levels. Variables that must be considered:.
1. Cash burn
2 Critical skill retention
3 Debt covenants
4. Vendor survival
a. Is bankruptcy the lowest cost option for certain vendors?
b. Sub-vendors, if one critical item, say a tape or an adhesive is lost, that can be brutal to industry economics.
5. The predicted production ramp during/after the recovery.
a. Return 2019 production rates are already a minimum 3 years into the future if demand somehow returned.
b. Aerospace needs to keep investing to reduce production costs (3D printing and other automation, including at vendors).

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

Thu Oct 08, 2020 6:07 pm

MIflyer12 wrote:
Sokes wrote:
All airlines need politics at the moment. If the US government asks US airlines to order MAXs, can airlines say no?
If politics asks banks to finance it, can banks say no?


Are you trolling, or are you that grossly unfamiliar with American politics and business? It's not France, nor one of those big Asian countries... U.S. politicians do not write business plans. They don't determine capital spending. They don't determine suppliers for $10 Billion contracts for private companies. They don't actively match-make. They don't tell banks to whom they should lend $ Billions.

While your points are generally valid, I wonder if they are also valid for Boeing.
-Boeing gets special tax deals.
-When Delta wanted to order CS100, Boeing made dumping charges. Early frames are always sold on loss.
"Boeing lost $30 million per 787 delivered in the first quarter of 2015, although Boeing plans to break even by the end of the year.[179] The accumulated losses for the 787 totalled almost $27 billion by May 2015."
https://en.wikipedia.org/wiki/Boeing_78 ... ction_rate
So why did the Department of Commerce impose 292% duty on the C series?
-The FAA does what Boeing demands, not the other way round.
-The military decided for an A330 based tanker. It makes sense, as the wing has more volume. Airbus offered to produce in the US in partnership with Nothrop Grumman, but Boeing had the last word.
https://archive.defense.gov/news/newsar ... x?id=49134

Similar banks get enacted a lot of regulation they desire. There is constant exchange of jobs between Wall Street and Washington.
Just like with Boeing:
"The close relationship between the Pentagon and Boeing is part of a long-standing revolving-door culture in which senior defense officials move back and forth between jobs in government and with defense contractors.
In 2004, Darleen Druyun, a high-ranking Air Force procurement official, was sentenced to prison after she admitted that she approved a purchase of 100 refueling airplanes from Boeing at an inflated price of about $20 billion to enhance her job prospects with the company. She also leaked proprietary pricing information from a competitor and helped Boeing secure a separate $4 billion as a thank you for hiring her daughter and future son-in-law."
https://www.washingtonpost.com/business ... story.html

I don't say the political relationships with Boeing are as bad as with banks. But it's not exactly free market either.
Moreover I think Boeing, just like Airbus, is considered too big to fail. But we can agree that we disagree.
Why can't the world be a little bit more autistic?
 
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lightsaber
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Re: The case for more aircraft production cuts/playing chicken

Wed Oct 21, 2020 1:25 am

More information that production might be too high.

The carrier has been “inundated” with calls from airlines and aircraft lessors seeking to sell planes at deep discounts as they contend with the coronavirus pandemic, said Allegiant Chief Financial Officer Greg Anderson. The company would consider jet deals in “onesies and twosies” but would look at something larger if demand continues to grow “and we don’t go backwards,” he said.

https://www.msn.com/en-us/money/compani ... r-BB19WECj

One future (2021) buyer being inundate is a bad sign for supply/demand balance. While $16.5 million is a good price for a 2010 A320(implies price before was about $20.6 million, which sounds about right), I was thinking G4 might by newer as the small added cost would be worth the reduced cycles/hours.

Lightsaber
Winter is coming.
 
MIflyer12
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Joined: Mon Feb 18, 2013 11:58 pm

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

Fri Oct 23, 2020 12:06 am

I don't know what you think, lightsaber, but I think they're smoking weed in Toulouse.

Airbus said it had asked suppliers to “protect” a production rate of 47 A320-family jets a month, up from 40, meaning it wants suppliers to be ready to support that rate when needed.

It indicated the earliest such a switch could take place would be July 2021, adding no decision had been taken.


https://www.reuters.com/article/us-airb ... 772RS?il=0

Debt levels, financing constraints from weakened lease firms, the accumulated inventory to date... I'm not a believer. I'll be happy to revisit this at any date in 2021 and eat crow if warranted.
 
2175301
Posts: 1909
Joined: Wed May 16, 2007 11:19 am

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

Fri Oct 23, 2020 12:46 am

MIflyer12 wrote:
I don't know what you think, lightsaber, but I think they're smoking weed in Toulouse.

Airbus said it had asked suppliers to “protect” a production rate of 47 A320-family jets a month, up from 40, meaning it wants suppliers to be ready to support that rate when needed.

It indicated the earliest such a switch could take place would be July 2021, adding no decision had been taken.


https://www.reuters.com/article/us-airb ... 772RS?il=0

Debt levels, financing constraints from weakened lease firms, the accumulated inventory to date... I'm not a believer. I'll be happy to revisit this at any date in 2021 and eat crow if warranted.


I agree with your general comment, although I disagree that it's weed.

However, it does appear that Airbus does have some favorite drug of some sort. I had similar thoughts when I jointed A-Net in 2007 to comment on the A380 program after I did my analysis of the projected A380 market vs what I saw was reasonable (I was only 1 of 3 back then who raised flags and challenged assumptions - took a pounding back then too; and we all know how successful the A380 really was).

My theory is that the same "juice" was involved with the A380, A400M, and now the current production plans. At least they are consistent. It's amazing that they financially survived the A380 and A400M.... Will they survive this as well? I don't see a massive number of narrow body sales to bail them out this time.


Have a great day,
 
JonesNL
Posts: 195
Joined: Tue Aug 06, 2019 2:40 pm

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

Fri Oct 23, 2020 6:54 am

MIflyer12 wrote:
I don't know what you think, lightsaber, but I think they're smoking weed in Toulouse.

Airbus said it had asked suppliers to “protect” a production rate of 47 A320-family jets a month, up from 40, meaning it wants suppliers to be ready to support that rate when needed.

It indicated the earliest such a switch could take place would be July 2021, adding no decision had been taken.


https://www.reuters.com/article/us-airb ... 772RS?il=0

Debt levels, financing constraints from weakened lease firms, the accumulated inventory to date... I'm not a believer. I'll be happy to revisit this at any date in 2021 and eat crow if warranted.


That makes zero sense, are they expecting deliveries to Asia? Or to they believe in an miracle that an vaccine will be widely available in Q1? Maybe they are in talk with the EU to have an salvage program for old planes?

It just defies all logic...
 
yonahleung
Posts: 75
Joined: Wed Jun 15, 2016 3:55 am

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

Fri Oct 23, 2020 7:20 am

MIflyer12 wrote:
I don't know what you think, lightsaber, but I think they're smoking weed in Toulouse.

Airbus said it had asked suppliers to “protect” a production rate of 47 A320-family jets a month, up from 40, meaning it wants suppliers to be ready to support that rate when needed.

It indicated the earliest such a switch could take place would be July 2021, adding no decision had been taken.


https://www.reuters.com/article/us-airb ... 772RS?il=0

Debt levels, financing constraints from weakened lease firms, the accumulated inventory to date... I'm not a believer. I'll be happy to revisit this at any date in 2021 and eat crow if warranted.


They probably have plans to ramp this all the way up to 63 to kill Boeing. This is probably the best moment to try to srive Boeing away from civil aviation and turn a duopoly into a monopoly.
 
Sokes
Posts: 2126
Joined: Sat Mar 09, 2019 4:48 pm

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

Fri Oct 23, 2020 8:15 am

If airlines ordered Maxs because Airbus didn't have free slots, what is not to believe?
Why can't the world be a little bit more autistic?
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