Moderators: jsumali2, richierich, ua900, PanAm_DC10, hOMSaR

  • 1
  • 5
  • 6
  • 7
  • 8
  • 9
  • 12
 
User avatar
75driver
Posts: 145
Joined: Mon Jul 20, 2020 2:02 pm

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

Thu Oct 29, 2020 3:07 pm

That arm twisting is going to start breaking a few off if this madness continues. I said weeks ago both manufacturers could idle their lines for a year but I might have been too optimistic. Its been expertly pointed out in this topic and painfully obvious the number of perfectly good used, new or near new aircraft will be excessive. The number being long term parked is already excessive. The rubber band will break sooner or later. There will not be enough financing to keep either A or B’s output from getting absorbed nor airlines capable of taking on that much debt. Something has to change on the production front.
 
MIflyer12
Posts: 8798
Joined: Mon Feb 18, 2013 11:58 pm

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

Thu Oct 29, 2020 3:32 pm

Revelation wrote:
Why is he talking about "social partners" in this context?


It's French code, akin to 'social disease.' Parties we can <*>. You can't call it risk-sharing when they demand how much risk suppliers suffer.
 
frmrCapCadet
Posts: 4534
Joined: Thu May 29, 2008 8:24 pm

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

Thu Oct 29, 2020 5:24 pm

The following is a question more than speculation. Aviation executives often do things that do not seem right or even that bright. It has struck me that hindsight sometimes indicates that things seemed such to the executive that the decision was the only path open. Could Airbus have determined that keeping a path open for 47 is the easiest, or cheapest, or the only path open to prevent something worse in the future?
Buffet: the airline business...has eaten up capital...like..no other (business)
 
smartplane
Posts: 1609
Joined: Fri Aug 03, 2018 9:23 pm

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

Thu Oct 29, 2020 6:18 pm

Revelation wrote:
Seems the arm twisting is going fairly well, Airbus is down to "only" 135 undelivered aircraft:

Airbus has reduced to about 135 the number of aircraft it has been unable to deliver as a result of the air transport crisis.

The airframer insists it has managed, over the third quarter, to achieve convergence between production and deliveries.

Airbus recorded €1.2 billion ($1.4 billion) in charges over the three-month period to 30 September for its broad company restructuring, including a €981 million impact on its commercial aircraft division.

Chief executive Guillaume Faury says this provision illustrates that the airframer’s discussions with social partners have “advanced well”.

Ref: https://www.flightglobal.com/air-transp ... 60.article

Why is he talking about "social partners" in this context?

Of those technically delivered, what number have been financed differently to those delivered previously? Directly and / or indirectly financed by the OEM? Payment holidays and / or completely forgiven? Relevant to both A & B.

And of those not delivered, what is the value expressed as NB equivalents? 400-500?
 
workhorse
Posts: 849
Joined: Sun Jul 10, 2005 11:35 pm

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

Thu Oct 29, 2020 10:03 pm

Revelation wrote:
Why is he talking about "social partners" in this context?


"Social partners" is French political lingo for "stakeholders". Basically, the workers, the unions, the management, the State, the shareholders etc. According to the French tradition (and, to an extent, the law), as a CEO, you are supposed to hold talks with them all before taking big decisions impacting the company.
 
JibberJim
Posts: 165
Joined: Tue Nov 08, 2016 1:33 pm

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

Thu Oct 29, 2020 10:32 pm

lightsaber wrote:
This is propping up Airbus at the expense if airline cash.


How much is it airline cash vs leasing company cash? leasing companies as a pure equity business are the group who chose to shoulder the risk, that is their entire business model, it's also good in government economic terms - protect the jobs, let the equity take their losses.
 
User avatar
lightsaber
Moderator
Topic Author
Posts: 20958
Joined: Wed Jan 19, 2005 10:55 pm

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

Thu Oct 29, 2020 10:52 pm

JibberJim wrote:
lightsaber wrote:
This is propping up Airbus at the expense if airline cash.


How much is it airline cash vs leasing company cash? leasing companies as a pure equity business are the group who chose to shoulder the risk, that is their entire business model, it's also good in government economic terms - protect the jobs, let the equity take their losses.

Leasing companies demand some down payment, two months+ of payments in escrow.

If Leasing wasn't already signed, the terms aren't likely to favor airlines for new aircraft. Leasing companies have over a thousand to place! They're going to worry about themselves.

Lightsaber
I cannot wait to get vaccinated to live again! Warning: I simulated that it takes 50%+ vaccinated to protect the vaccinated and 75%+ vaccinated to protect the vac-hesitant.
 
JonesNL
Posts: 226
Joined: Tue Aug 06, 2019 2:40 pm

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

Fri Oct 30, 2020 10:17 am

lightsaber wrote:
JibberJim wrote:
lightsaber wrote:
This is propping up Airbus at the expense if airline cash.


How much is it airline cash vs leasing company cash? leasing companies as a pure equity business are the group who chose to shoulder the risk, that is their entire business model, it's also good in government economic terms - protect the jobs, let the equity take their losses.

Leasing companies demand some down payment, two months+ of payments in escrow.

If Leasing wasn't already signed, the terms aren't likely to favor airlines for new aircraft. Leasing companies have over a thousand to place! They're going to worry about themselves.

Lightsaber


Leeham explains the current deliveries of Airbus as being cash positive for airlines as they are mostly used for sale and leaseback structures. This would make sense as most airlines are extremely cash hungry at the moment and it will provide at least some revenue for leasing companies. But this is only applicable for airlines who did the down payments themselves and were planning to own the aircrafts. Not sure if that amounts to 40 deliveries per month, but liquidity wise it does make sense for Airlines and also lease companies...

https://leehamnews.com/2020/10/29/airbu ... in-3q2020/
 
slcdeltarumd11
Posts: 4915
Joined: Fri Jan 09, 2004 7:30 am

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

Fri Oct 30, 2020 12:43 pm

75driver wrote:
That arm twisting is going to start breaking a few off if this madness continues. I said weeks ago both manufacturers could idle their lines for a year but I might have been too optimistic. Its been expertly pointed out in this topic and painfully obvious the number of perfectly good used, new or near new aircraft will be excessive. The number being long term parked is already excessive. The rubber band will break sooner or later. There will not be enough financing to keep either A or B’s output from getting absorbed nor airlines capable of taking on that much debt. Something has to change on the production front.


100% agree something has to change. Recovery is clearly a while away still . We all had wanted it sooner ,but reality is showing , airplane travel demand is a ways away.
 
jeffrey0032j
Posts: 882
Joined: Wed Jun 15, 2016 3:11 pm

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

Fri Oct 30, 2020 1:18 pm

JonesNL wrote:
lightsaber wrote:
JibberJim wrote:

How much is it airline cash vs leasing company cash? leasing companies as a pure equity business are the group who chose to shoulder the risk, that is their entire business model, it's also good in government economic terms - protect the jobs, let the equity take their losses.

Leasing companies demand some down payment, two months+ of payments in escrow.

If Leasing wasn't already signed, the terms aren't likely to favor airlines for new aircraft. Leasing companies have over a thousand to place! They're going to worry about themselves.

Lightsaber


Leeham explains the current deliveries of Airbus as being cash positive for airlines as they are mostly used for sale and leaseback structures. This would make sense as most airlines are extremely cash hungry at the moment and it will provide at least some revenue for leasing companies. But this is only applicable for airlines who did the down payments themselves and were planning to own the aircrafts. Not sure if that amounts to 40 deliveries per month, but liquidity wise it does make sense for Airlines and also lease companies...

https://leehamnews.com/2020/10/29/airbu ... in-3q2020/

The article only states that it is cash positive for airlines, but nowhere does it state it is cash positive for the lessors. A positive spin of "as long as the lessor finds the aircraft attractive to buy and offers the airline an interesting price" suggests that the lessors are the ones paying for it and taking the risk.
 
jeffrey0032j
Posts: 882
Joined: Wed Jun 15, 2016 3:11 pm

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

Fri Oct 30, 2020 1:27 pm

Adding on, there is only so much airlines and lessors can take. Manufacturers, particularly A, have to realise the market realities.
 
JonesNL
Posts: 226
Joined: Tue Aug 06, 2019 2:40 pm

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

Fri Oct 30, 2020 2:04 pm

jeffrey0032j wrote:
Adding on, there is only so much airlines and lessors can take. Manufacturers, particularly A, have to realise the market realities.


I am on the same boat, just looking for answers for the baffling production/delivery rate and even crazier projection of 47/m...
 
Flying-Tiger
Posts: 4068
Joined: Mon Aug 23, 1999 5:35 am

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

Fri Oct 30, 2020 2:27 pm

jeffrey0032j wrote:
Adding on, there is only so much airlines and lessors can take. Manufacturers, particularly A, have to realise the market realities.


In all fairness: as long as airlines and lessor are only defering, not cancelling, Airbus [and Boeing] have to stick to their contractual obligations, which means delivering at an agreed point of time, and have to plan for such a production. Unilateral action is not the way to go. Might be that airlines/lessor siltently hope for such a move in the expectation to take legal action and extract some money, but agin, thats a game being played.
Flown: A319/320/321,A332/3,A343/346, A359, A380,AT4,AT7,B712, B732/3/4/5/7/8/9,B742/4,B752/3, B762/763,B772/77W,CR2/7/9/K,ER3/4,E70/75/90/95, F50/70/100,M11,L15,SF3,S20, AR8/1, 142/143,... 330.860 miles and counting.
 
mjoelnir
Posts: 9411
Joined: Sun Feb 03, 2013 11:06 pm

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

Fri Oct 30, 2020 3:06 pm

Posters here should look at the delivery numbers at Airbus. Just to declare into thin air that 47 A320f family frames a month is unsustainable, because Boeing is in trouble does not make any sense.

Airbus has delivered 282 A320 family frames by end of September this year, that means contractual delivered. That may include frames delivered to leasing companies.

But 291 A320neo family frames have been flown out and gone active at the final customer this year, that includes frames contractually delivered in 2019.
A few of the already contractual delivered A320ceo and A319ceo have gone active in China. (contractual delivered in 2018 and 2019)
Deliveries the last 3 month, July, August and September average 40 A320 family frames.
Airbus has not declared they will go to 47 frames a month but expects to keep to 40 a month and is open to the possibility to increase to 47 a month.
Undelivered or stored frames below MSN10000 is down to 99. (that excludes MSN5600 to 5999, as nobody has seen a frame in that range.)

My opinion is, that operators are accepting A320neo family frames, while storing or returning older frames.
 
User avatar
Polot
Posts: 11075
Joined: Thu Jul 28, 2011 3:01 pm

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

Fri Oct 30, 2020 3:31 pm

mjoelnir wrote:
Posters here should look at the delivery numbers at Airbus. Just to declare into thin air that 47 A320f family frames a month is unsustainable, because Boeing is in trouble does not make any sense.

Airbus has delivered 282 A320 family frames by end of September this year, that means contractual delivered. That may include frames delivered to leasing companies.

But 291 A320neo family frames have been flown out and gone active at the final customer this year, that includes frames contractually delivered in 2019.
A few of the already contractual delivered A320ceo and A319ceo have gone active in China. (contractual delivered in 2018 and 2019)
Deliveries the last 3 month, July, August and September average 40 A320 family frames.
Airbus has not declared they will go to 47 frames a month but expects to keep to 40 a month and is open to the possibility to increase to 47 a month.
Undelivered or stored frames below MSN10000 is down to 99. (that excludes MSN5600 to 5999, as nobody has seen a frame in that range.)

My opinion is, that operators are accepting A320neo family frames, while storing or returning older frames.


That only works for short term as many airlines are passing passing cost to others in sale/lease back agreements and/or they are receiving bailouts to help keep them afloat and pay for their obligations (including new planes). Eventually traffic and demand has to pick up for the airlines to accept and support those higher production volumes as returning/storing older affects the leaser’s pockets and ability to fund future sale/leaseback agreements. Eventually governments are going to get tired of throwing often times free/little strings attached money at airlines and are going to expect them to get back to profitability on their own. Eventually airlines are going to run out of assets they can use as collateral to get favorable loans and will find it more difficult to get good capital. All of which means fewer expensive new toys and more working with what you already got or can get used for cheap.
 
Aither
Posts: 1302
Joined: Mon Oct 25, 2004 3:43 am

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

Fri Oct 30, 2020 4:07 pm

They probably have their reasons we don't know and certainly have figures we don't have! - in particular regarding the situation of the manufacturing supply chain.

I'm not shocked to see Airbus being not catastrophic on the A320 production rates. I know In Asia a lot of demand has switched from widebody to single aisle routes - and this will last some time even after the vaccine. When travel is allowed the passengers are back and sometime even in higher numbers than pre covid on certain markets. Airbus is I think more exposed to Asia than Boeing on the single aisle market, and should be even more following the 737max debacle.

Obviously many aircraft are parked, but many are widebody, and many will not return. Even if some are returning some airlines here are not allowed to take second hand airframes, or won't take them because of tax reasons.

Can new aircraft be financed ? yes, some airlines are doing better than others. The ones doing better (I'm not saying well) have no financing problems - these are often the ones with a strong domestic (single aisle) market , and/or a strong cargo business and these ones will increase their market shares post covid.

So with this perspective from Asia, I'm not shocked to see Airbus thinking about keeping the possibility to increase production rates of the A320 - assuming things don't get worse and we have good results from the vaccines starting to be distributed in a few weeks. We don't know what will happen and things can go either way with the same probabilities.
Never trust the obvious
 
User avatar
75driver
Posts: 145
Joined: Mon Jul 20, 2020 2:02 pm

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

Fri Oct 30, 2020 4:29 pm

Polot wrote:
mjoelnir wrote:
Posters here should look at the delivery numbers at Airbus. Just to declare into thin air that 47 A320f family frames a month is unsustainable, because Boeing is in trouble does not make any sense.

Airbus has delivered 282 A320 family frames by end of September this year, that means contractual delivered. That may include frames delivered to leasing companies.

But 291 A320neo family frames have been flown out and gone active at the final customer this year, that includes frames contractually delivered in 2019.
A few of the already contractual delivered A320ceo and A319ceo have gone active in China. (contractual delivered in 2018 and 2019)
Deliveries the last 3 month, July, August and September average 40 A320 family frames.
Airbus has not declared they will go to 47 frames a month but expects to keep to 40 a month and is open to the possibility to increase to 47 a month.
Undelivered or stored frames below MSN10000 is down to 99. (that excludes MSN5600 to 5999, as nobody has seen a frame in that range.)

My opinion is, that operators are accepting A320neo family frames, while storing or returning older frames.


That only works for short term as many airlines are passing passing cost to others in sale/lease back agreements and/or they are receiving bailouts to help keep them afloat and pay for their obligations (including new planes). Eventually traffic and demand has to pick up for the airlines to accept and support those higher production volumes as returning/storing older affects the leaser’s pockets and ability to fund future sale/leaseback agreements. Eventually governments are going to get tired of throwing often times free/little strings attached money at airlines and are going to expect them to get back to profitability on their own. Eventually airlines are going to run out of assets they can use as collateral to get favorable loans and will find it more difficult to get good capital. All of which means fewer expensive new toys and more working with what you already got or can get used for cheap.


Exactly and it’s untenable no matter how you slice and dice it. From Feury saying last month that “Airbus in danger of going under” to presenting this financial shell game is almost as laughable as Boeing’s CMO. That Q3 report is very misleading because we don’t know what interest or exposure AB might have in the leasing companies, bank partner guaranty’s, supplier guaranty’s and the huge elephant in the room of employee compensation. The government grants/loans/subsidies are conveniently glossed over in the financials as well as mentioning a little 6B in credit taken after Q3 ended. The rubber band is stretching to a breaking point and it’s just a matter of time before it snaps.
 
mjoelnir
Posts: 9411
Joined: Sun Feb 03, 2013 11:06 pm

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

Fri Oct 30, 2020 5:20 pm

75driver wrote:
Polot wrote:
mjoelnir wrote:
Posters here should look at the delivery numbers at Airbus. Just to declare into thin air that 47 A320f family frames a month is unsustainable, because Boeing is in trouble does not make any sense.

Airbus has delivered 282 A320 family frames by end of September this year, that means contractual delivered. That may include frames delivered to leasing companies.

But 291 A320neo family frames have been flown out and gone active at the final customer this year, that includes frames contractually delivered in 2019.
A few of the already contractual delivered A320ceo and A319ceo have gone active in China. (contractual delivered in 2018 and 2019)
Deliveries the last 3 month, July, August and September average 40 A320 family frames.
Airbus has not declared they will go to 47 frames a month but expects to keep to 40 a month and is open to the possibility to increase to 47 a month.
Undelivered or stored frames below MSN10000 is down to 99. (that excludes MSN5600 to 5999, as nobody has seen a frame in that range.)

My opinion is, that operators are accepting A320neo family frames, while storing or returning older frames.


That only works for short term as many airlines are passing passing cost to others in sale/lease back agreements and/or they are receiving bailouts to help keep them afloat and pay for their obligations (including new planes). Eventually traffic and demand has to pick up for the airlines to accept and support those higher production volumes as returning/storing older affects the leaser’s pockets and ability to fund future sale/leaseback agreements. Eventually governments are going to get tired of throwing often times free/little strings attached money at airlines and are going to expect them to get back to profitability on their own. Eventually airlines are going to run out of assets they can use as collateral to get favorable loans and will find it more difficult to get good capital. All of which means fewer expensive new toys and more working with what you already got or can get used for cheap.


Exactly and it’s untenable no matter how you slice and dice it. From Feury saying last month that “Airbus in danger of going under” to presenting this financial shell game is almost as laughable as Boeing’s CMO. That Q3 report is very misleading because we don’t know what interest or exposure AB might have in the leasing companies, bank partner guaranty’s, supplier guaranty’s and the huge elephant in the room of employee compensation. The government grants/loans/subsidies are conveniently glossed over in the financials as well as mentioning a little 6B in credit taken after Q3 ended. The rubber band is stretching to a breaking point and it’s just a matter of time before it snaps.


Yes, but the way to crawl out of the hole is delivering frames. An unnecessary production and delivery cut will increase the problems at Airbus.
 
User avatar
Polot
Posts: 11075
Joined: Thu Jul 28, 2011 3:01 pm

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

Fri Oct 30, 2020 5:28 pm

mjoelnir wrote:
75driver wrote:
Polot wrote:

That only works for short term as many airlines are passing passing cost to others in sale/lease back agreements and/or they are receiving bailouts to help keep them afloat and pay for their obligations (including new planes). Eventually traffic and demand has to pick up for the airlines to accept and support those higher production volumes as returning/storing older affects the leaser’s pockets and ability to fund future sale/leaseback agreements. Eventually governments are going to get tired of throwing often times free/little strings attached money at airlines and are going to expect them to get back to profitability on their own. Eventually airlines are going to run out of assets they can use as collateral to get favorable loans and will find it more difficult to get good capital. All of which means fewer expensive new toys and more working with what you already got or can get used for cheap.


Exactly and it’s untenable no matter how you slice and dice it. From Feury saying last month that “Airbus in danger of going under” to presenting this financial shell game is almost as laughable as Boeing’s CMO. That Q3 report is very misleading because we don’t know what interest or exposure AB might have in the leasing companies, bank partner guaranty’s, supplier guaranty’s and the huge elephant in the room of employee compensation. The government grants/loans/subsidies are conveniently glossed over in the financials as well as mentioning a little 6B in credit taken after Q3 ended. The rubber band is stretching to a breaking point and it’s just a matter of time before it snaps.


Yes, but the way to crawl out of the hole is delivering frames. An unnecessary production and delivery cut will increase the problems at Airbus.

That is only looking at it purely from the OEM side. You have to be realistic about the number of frames airlines can afford to take. The fact that Airbus is currently delivering ~40 A320 a month is not an indication that sustained ~40/month production is realistic. It is just an indication that in the current climate airlines will agree and can scrap up the money to afford to take ~40 month. But that will become more difficult to achieve over time without real progress in terms of passenger demand and improvement in airline financials.

Airlines can’t just think about the OEMs, they have to remain competitive too. They don’t want to get loaded up on debt taking a bunch of new planes and suddenly have to compete against airlines with lower debt loads who snapped up gently used planes at the fraction of the price.
 
User avatar
lightsaber
Moderator
Topic Author
Posts: 20958
Joined: Wed Jan 19, 2005 10:55 pm

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

Fri Oct 30, 2020 5:52 pm

Polot wrote:
mjoelnir wrote:
75driver wrote:

Exactly and it’s untenable no matter how you slice and dice it. From Feury saying last month that “Airbus in danger of going under” to presenting this financial shell game is almost as laughable as Boeing’s CMO. That Q3 report is very misleading because we don’t know what interest or exposure AB might have in the leasing companies, bank partner guaranty’s, supplier guaranty’s and the huge elephant in the room of employee compensation. The government grants/loans/subsidies are conveniently glossed over in the financials as well as mentioning a little 6B in credit taken after Q3 ended. The rubber band is stretching to a breaking point and it’s just a matter of time before it snaps.


Yes, but the way to crawl out of the hole is delivering frames. An unnecessary production and delivery cut will increase the problems at Airbus.

That is only looking at it purely from the OEM side. You have to be realistic about the number of frames airlines can afford to take. The fact that Airbus is currently delivering ~40 A320 a month is not an indication that sustained ~40/month production is realistic. It is just an indication that in the current climate airlines will agree and can scrap up the money to afford to take ~40 month. But that will become more difficult to achieve over time without real progress in terms of passenger demand and improvement in airline financials.

Airlines can’t just think about the OEMs, they have to remain competitive too. They don’t want to get loaded up on debt taking a bunch of new planes and suddenly have to compete against airlines with lower debt loads who snapped up gently used planes at the fraction of the price.

I believe the analogy of the rubber band stretching is appropriate. The airlines that can minimize debt (Allegiant) will be at a huge advantage in the uptick. There conference call was practically gloating over the debt the competition was taking on.

There will be a snap up of used aircraft by those airlines with some cash at amazing discounts.

To others: There is too much one dimensional analysis. Thus is 3D or 4D... airlines, leasors, vendors and then Airbus vs. Boeing.

Boeing will deliver ir return to service hundreds if MAX as well as restart production. Even if Boeing were to go bankrupt, that will still happen. There are still over a thousand lease returns looking for a new home.

60% of new aircraft are for growth. Until the economy is growing again with conventions, cruises, concerts, business travel, vacation tours, and mass sporting events, it is too early to talk about growth. Since that won't happen for a long time...

I remain of the opinion Airbus must cut production further, not increase it.

I've yet to see a well done analysis that shows the rate 40 + MAX production will be absorbed before 2024. Typically aircraft demand lags airline growth by 2 years. I want growth. I just believe it is starting from a lower baseline. I believe we will have a snap back. But not too where we were. At this point my gut check analysis is back to 80% of prior narrowbody demand and about 65% of prior widebody demand. From there we can have rapid growth, but anything above 8% per year is an impossibility and there is a limited time, say a year, before growth returns to normal.

Does anyone think hotel & resort construction will return to normal soon? Cruise ship travel? Conventions? Business travel? Sports travel (for fans)?

I cannot form any analysis that requires any Aircraft production before 2022. That means current production is delaying the recovery.

Lightsaber
I cannot wait to get vaccinated to live again! Warning: I simulated that it takes 50%+ vaccinated to protect the vaccinated and 75%+ vaccinated to protect the vac-hesitant.
 
MIflyer12
Posts: 8798
Joined: Mon Feb 18, 2013 11:58 pm

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

Fri Oct 30, 2020 6:29 pm

lightsaber wrote:
I cannot form any analysis that requires any Aircraft production before 2022. That means current production is delaying the recovery.

Lightsaber


I'm not sure what you mean by 'delaying the recovery.' I might put this as 'delaying market clearing,' when the surplus of new is absorbed, most used aircraft with significant service life have found a home, and production is in line with short-term future demand. But I'm just trained in economics, not aircraft engines... ;)

It's not obvious that delaying market clearing is inherently bad. Focus on the hard opposite - shutting down production entirely. All A/B employees furloughed, all supplier contracts terminated, all supplier employees furloughed... Boeing says 'See ya in 27 months!' That just destroys the whole aircraft assembly (and service, too) ecosystem.

As for 47 vs. 40... I don't see how a higher production rate is good. We haven't see the wave of bankruptcies and liquidations yet (oh yes, they are coming). A higher rate necessarily pushes out the date for market clearing. If Airbus is demanding prep for 47 without realistic chances of using that capacity it's forcing higher costs on already embattled suppliers. Now, maybe Airbus has an analysis that shows 47 is the minimum to keep essential suppliers alive, and Airbus is just going to force lease firms and airlines into honoring contracts - taking hundreds of aircraft they don't want. I don't see how that ends well, either, frankly.
 
majano
Posts: 287
Joined: Sun Oct 14, 2018 10:45 am

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

Fri Oct 30, 2020 8:14 pm

mjoelnir wrote:
Posters here should look at the delivery numbers at Airbus. Just to declare into thin air that 47 A320f family frames a month is unsustainable, because Boeing is in trouble does not make any sense.

Airbus has delivered 282 A320 family frames by end of September this year, that means contractual delivered. That may include frames delivered to leasing companies.

But 291 A320neo family frames have been flown out and gone active at the final customer this year, that includes frames contractually delivered in 2019.
A few of the already contractual delivered A320ceo and A319ceo have gone active in China. (contractual delivered in 2018 and 2019)
Deliveries the last 3 month, July, August and September average 40 A320 family frames.
Airbus has not declared they will go to 47 frames a month but expects to keep to 40 a month and is open to the possibility to increase to 47 a month.
Undelivered or stored frames below MSN10000 is down to 99. (that excludes MSN5600 to 5999, as nobody has seen a frame in that range.)

My opinion is, that operators are accepting A320neo family frames, while storing or returning older frames.

A good few of posters claiming that the rate of 40 A320s is a disaster waiting to explode in Airbus' face were claiming just a handful of months ago that the market downturn to be brought upon by Covid-19 would be more devastating to Airbus than to Boeing. They explained that Boeing's defence business would provide some shield and the Airbus order backlog would evaporate. Although there were some level headed posters who tried to point out that Airbus came out of the September 11th airliner recession better, no level of reasoning was pursuasive enough.

As it turns out, whatever cushion the defence business provides is not sufficient to turn Boeing cash positive until 2022. We hear that Airbus is risking the business of its airline customers and / or lessors. Strange place A-net is.
 
User avatar
Revelation
Posts: 25012
Joined: Wed Feb 09, 2005 9:37 pm

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

Fri Oct 30, 2020 8:20 pm

MIflyer12 wrote:
As for 47 vs. 40... I don't see how a higher production rate is good. We haven't see the wave of bankruptcies and liquidations yet (oh yes, they are coming). A higher rate necessarily pushes out the date for market clearing. If Airbus is demanding prep for 47 without realistic chances of using that capacity it's forcing higher costs on already embattled suppliers. Now, maybe Airbus has an analysis that shows 47 is the minimum to keep essential suppliers alive, and Airbus is just going to force lease firms and airlines into honoring contracts - taking hundreds of aircraft they don't want. I don't see how that ends well, either, frankly.

Makes me think of what I quoted in #300 end of last page:

Airbus has reduced to about 135 the number of aircraft it has been unable to deliver as a result of the air transport crisis.

The airframer insists it has managed, over the third quarter, to achieve convergence between production and deliveries.

Airbus recorded €1.2 billion ($1.4 billion) in charges over the three-month period to 30 September for its broad company restructuring, including a €981 million impact on its commercial aircraft division.

Chief executive Guillaume Faury says this provision illustrates that the airframer’s discussions with social partners have “advanced well”.

I don't want to overly parse words especially since this is not an exact quote, but it seems at the minimum Airbus is confident it can achieve enough deliveries to sustain the rate over the projected period which seems to be at least this year and next. Given we know the customers are in a terrible state financially it suggests they must have the leverage to force the deliveries over the projected period.
Wake up to find out that you are the eyes of the world
The heart has its beaches, its homeland and thoughts of its own
Wake now, discover that you are the song that the morning brings
The heart has its seasons, its evenings and songs of its own
 
User avatar
lightsaber
Moderator
Topic Author
Posts: 20958
Joined: Wed Jan 19, 2005 10:55 pm

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

Fri Oct 30, 2020 8:36 pm

MIflyer12 wrote:
lightsaber wrote:
I cannot form any analysis that requires any Aircraft production before 2022. That means current production is delaying the recovery.

Lightsaber


I'm not sure what you mean by 'delaying the recovery.' I might put this as 'delaying market clearing,' when the surplus of new is absorbed, most used aircraft with significant service life have found a home, and production is in line with short-term future demand. But I'm just trained in economics, not aircraft engines... ;)

It's not obvious that delaying market clearing is inherently bad. Focus on the hard opposite - shutting down production entirely. All A/B employees furloughed, all supplier contracts terminated, all supplier employees furloughed... Boeing says 'See ya in 27 months!' That just destroys the whole aircraft assembly (and service, too) ecosystem.

As for 47 vs. 40... I don't see how a higher production rate is good. We haven't see the wave of bankruptcies and liquidations yet (oh yes, they are coming). A higher rate necessarily pushes out the date for market clearing. If Airbus is demanding prep for 47 without realistic chances of using that capacity it's forcing higher costs on already embattled suppliers. Now, maybe Airbus has an analysis that shows 47 is the minimum to keep essential suppliers alive, and Airbus is just going to force lease firms and airlines into honoring contracts - taking hundreds of aircraft they don't want. I don't see how that ends well, either, frankly.

Yes, delaying market clearing when it will be healthy again to produce in volume.

I don't recommend a complete shutdown. I posted earlier rates I thought plausible, certainly not zero. Boeing will not remain at zero.

I 100% agree with you on the coming wave of bankruptcies that will have some liquidations. I also agree forcing rate 47 is increasing vendor costs.

Right now Airbus can support rate 40 because CFM and Raytheon Technologies (Pratt) will deliver engines 'at risk.' Eventually, CFM had to cut deliveries to Boeing as they couldn't take that much risk (and Boeing had to pay, some). Eventually, risk sharing partners will have to say enough.

Perhaps rate 47 is the minimum for vendors...

But I see this as a race on who forces airline liquidation. For the MAX, big orders at:

Unidentified (usually China): 785
Southwest: 280
FlyDubai: 251
LionAir: 251
VietJet: 200

For A320NEO:

Indigo: 730
Undisclosed: (usually China): 412
AirAsia: 395
Wizz air: 276
AerCap (Leasing): 261
GECAS: 220
Frontier: 214

If Airbus pushes too hard, AirAsia will topple. Indigo, Frontier, and Wizz are using up reserves. The same is true for Boeing at FlyDubai, LionAir and VietJet.

Rates must be high enough for vendors as well as low enough for airlines. I see 200/year as the minimum for vendors and Boeing will have to settle for that in my opinion. I think Airbus should maintain 300/year. Not the current rate 40 (430/year) and certainly not rate 47 (500/year).

Only Allegiant had a low enough loss to be encouraging as in, they could buy more aircraft in say six months (but new used aircraft for them).

Ghad, bankruptcies will be brutal.

Lightsaber
I cannot wait to get vaccinated to live again! Warning: I simulated that it takes 50%+ vaccinated to protect the vaccinated and 75%+ vaccinated to protect the vac-hesitant.
 
smartplane
Posts: 1609
Joined: Fri Aug 03, 2018 9:23 pm

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

Fri Oct 30, 2020 9:30 pm

OEM's, financiers and others are bending over backwards to facilitate deliveries, and to avoid snapping the rubber band. Milestone payments deferred and / or forgiven. Leases with up front deposits switched to end of lease balloon payments, so effectively zero deposit. Even shared equity for commercial aircraft!

Then we have the current fleet, with deferred or forgiven lease and installment payments approved. And incentives to rollover leases, even if it means zero / almost zero cash flow (no storage fees for the lessor / miniscule or no lease fees for the lessee).

In a zero / negative growth market, every new delivery takes out at least 1-2 existing aircraft.

A & B are fighting to protect orders. If A severely reduce production, almost every customer has a technical free exit due to failure to meet contractural delivery, and ability to avoid milestone payments (or reduced as compensation). A has identified lost causes, and are setting production levels to meet the balance.

Until customer's regularise financial arrangements in respect to cancellations, deferrals and deliveries, they won't be switching suppliers or lessors. No way do you accommodate customers, and at the same time allow them to shop elsewhere, until all your generosity has been repaid, and some.
 
User avatar
lightsaber
Moderator
Topic Author
Posts: 20958
Joined: Wed Jan 19, 2005 10:55 pm

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

Fri Oct 30, 2020 9:58 pm

smartplane wrote:
OEM's, financiers and others are bending over backwards to facilitate deliveries, and to avoid snapping the rubber band. Milestone payments deferred and / or forgiven. Leases with up front deposits switched to end of lease balloon payments, so effectively zero deposit. Even shared equity for commercial aircraft!

Then we have the current fleet, with deferred or forgiven lease and installment payments approved. And incentives to rollover leases, even if it means zero / almost zero cash flow (no storage fees for the lessor / miniscule or no lease fees for the lessee).

In a zero / negative growth market, every new delivery takes out at least 1-2 existing aircraft.

A & B are fighting to protect orders. If A severely reduce production, almost every customer has a technical free exit due to failure to meet contractural delivery, and ability to avoid milestone payments (or reduced as compensation). A has identified lost causes, and are setting production levels to meet the balance.

Until customer's regularise financial arrangements in respect to cancellations, deferrals and deliveries, they won't be switching suppliers or lessors. No way do you accommodate customers, and at the same time allow them to shop elsewhere, until all your generosity has been repaid, and some.

This makes sense. Bluff to force customers to differ orders and forfeit the free cancellation. If customers try to avoid the inevitable, force delivery.

I am always facinated to know the details of the lease market.

But as you note, every new delivery displaces more than one aircraft at the receiving airline.

Airlines are trying to sell aircraft.

Take easyJet. I expect them to take A321NEO, but to return the A319CEOs in bulk. Few of those A319s will find a home, so that depresses the values of used motors and other usable parts.

Indigo will take new A320NEO and A321NEO. With 120 used A320CEOs to be returned over 2 years (or an average of 5/month), that will hurt Leasing companies as many are young aircraft (< 6 years).

I get from the OEM perspective why Airbus will do this. However, Boeing has enough MAX customers to survive. Ironically, the MAX debacle did a healthy reset of that backlog.

But not every airline has a future stake. Allegiant, per the conference call this week, is done accepting A320CEOs on prior contracts. They are a free player.

LH had stopped ordering, so are in a fine negotiating position.

DL has orders, but not so many they cannot be flexible when they decide to order (not for a year+, IMHO).

I fully expect the contact negotiations to be facinating. That said, the market has a vanishingly small probability of being able to absorb that many aircraft in 2022.

We aren't discussing Boeing as their customers have an easy out on the MAX (although Boeing will use widebodies where they can to do as you noted and keep an airline in check).

It is early for aircraft repossessions. GE reports 29 AOG (Aircraft on Ground) "primarily due to repossessions, see presentation, slide 4. GECAS made a tiny rare loss:

https://www.ge.com/investor-relations/events-reports

This has just begun. I'm not sure how long the current situation can be maintained by the leasing companies and airlines.

I have no doubt *AirlineX" who has a cash flow problem will have to extend the order, pay for back ended leases, etc.

But I'm also certain airlines that can buy used have one great opportunity ahead (For Narrowbodies: Allegiant, Delta, Qantas, Volotea, Ryanair, SouthWest, Lufthansa). Those Airlines will be in the recovery driver's seat.

Lightsaber
I cannot wait to get vaccinated to live again! Warning: I simulated that it takes 50%+ vaccinated to protect the vaccinated and 75%+ vaccinated to protect the vac-hesitant.
 
User avatar
lightsaber
Moderator
Topic Author
Posts: 20958
Joined: Wed Jan 19, 2005 10:55 pm

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

Mon Nov 02, 2020 1:36 am

Just for reference, Boeing plans to go to 31/month (370 year vs. Rate 40 at Airbus 430/year or rate 47 of 500/year, Boeing has 12 month years with trivial rounding).

https://aviationweek.com/air-transport/ ... month-2022

This link claims on 60 max currently to be remarketed, but I suspect more of the 450 undelivered.

This is gamesmanship on a huge scale.

Lightsaber
I cannot wait to get vaccinated to live again! Warning: I simulated that it takes 50%+ vaccinated to protect the vaccinated and 75%+ vaccinated to protect the vac-hesitant.
 
oldJoe
Posts: 360
Joined: Fri Jan 10, 2020 11:04 pm

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

Mon Nov 02, 2020 4:53 am

@lightsaber

To be honest is live not a game to give and take ?
Airlines in the past took compensation moeny if the OEM could not fullill a contract , right ? Now we see the opposite. Do you know any airline in this world which is ready to pay back this compensation because they want not further delivery ? ( the OEM could deliver under contract )
The better or best way should be to find a resolution for both parties , isn`t it ?
No CEO has to fear something in the future because his pockets are overfilled. But what about a tiny worker of a small vendor who is in survival mode ?
The "golden" way to go is wanted ! Possible , I don`t know as long as we are in living in troubled water.
Stay safe !
 
Sokes
Posts: 2438
Joined: Sat Mar 09, 2019 4:48 pm

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

Mon Nov 02, 2020 11:02 am

Aither wrote:
I know In Asia a lot of demand has switched from widebody to single aisle routes.

I also believe added capability to the A321 will change the fleet compositon.

AFAIK the A330 sells well in China. Does China have an overnight cargo company like FedEx or do they work with belly cargo?
Or are A330s for rush hour and narrowbodies for the remaining day?
Why can't the world be a little bit more autistic?
 
jeffrey0032j
Posts: 882
Joined: Wed Jun 15, 2016 3:11 pm

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

Mon Nov 02, 2020 2:30 pm

Sokes wrote:
Aither wrote:
I know In Asia a lot of demand has switched from widebody to single aisle routes.

I also believe added capability to the A321 will change the fleet compositon.

AFAIK the A330 sells well in China. Does China have an overnight cargo company like FedEx or do they work with belly cargo?
Or are A330s for rush hour and narrowbodies for the remaining day?

A330s sold well, but China hasn't made any A330 orders in years. China has SF Express, which flies 757s and 767s (and 2 747s) mostly domestically but also to other cities in Asia. It has some sophiscated high tech ops in major cities but the process is not as refined as FedEx, UPS and Amazon.
 
User avatar
lightsaber
Moderator
Topic Author
Posts: 20958
Joined: Wed Jan 19, 2005 10:55 pm

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

Mon Nov 02, 2020 3:09 pm

oldJoe wrote:
@lightsaber

To be honest is live not a game to give and take ?
Airlines in the past took compensation moeny if the OEM could not fullill a contract , right ? Now we see the opposite. Do you know any airline in this world which is ready to pay back this compensation because they want not further delivery ? ( the OEM could deliver under contract )
The better or best way should be to find a resolution for both parties , isn`t it ?
No CEO has to fear something in the future because his pockets are overfilled. But what about a tiny worker of a small vendor who is in survival mode ?
The "golden" way to go is wanted ! Possible , I don`t know as long as we are in living in troubled water.
Stay safe !

Give and take implies the airlines have billions to give. The discussion on the CEO is a distraction.

Most airlines are going to be so in debt, they will struggle the next decade. That prior compensation was spent on crew salaries in 2Q2020. There is no making that money come back.

Indigo was doing well, but simply cannot take more than the contract minimum. They are returning 120 A320CEO as fast as they can. That floods the market. Their massive order for 730 must be slowed.

AirAsia, the #2 A320NEO order with 395 ordered is effectively bankrupt. They are already defaulting on leases.

Avianca with 117 ordered is bankrupt.

Azul with 63 ordered is barely surviving, making them take the aircraft just ensures bankruptcy and a cancellation if A320/330NEOs. Heck, they stopped E2 deliveries (almost, they took a few recently that were complete).

Batik air was insane ordering 178. Good luck forcing them. 'Blood from turnip' comes to mind.

AA ordered 120, but is barely surviving. Airbus' goal here should be to slow down MAX deliveries as much as possible.

DL is pushing back on all deliveries. Airbus must be careful as this is not a customer they can afford to push to the MAX. Airbus must sliw deliveries, but structure in a way to prevent a MAX order. But the relatively small order (ratio to DL's fleet) means DL remains flexible.

EasyJet is going to flood the used A319CEO market making it tough for Airbus and vendors to sell spares. They'll take the minimum they can. EasyJet alone is making the CFM-56-5 used motor market collapse to the point EasyJet will just use up the green life on some of their CFM-56-5 instead of overhauling any.

The issue for Airbus is that the airlines who can afford to buy on the other side if this crisis have relatively few (or no) incoming Airbus orders: Ryanair, SouthWest, Delta, Allegiant

I excluded the Chinese Airlines. There fine and provide a decent base delivery rate for Airbus.

There is no fair in business. Often the prior executives have moved on and the new aurline executives. Airbus paid compensation during good times when Airlines wanted aircraft and couldn't get them. The compensation is far less than the missed airline profit.

Now? Read prior posts in this thread. Airlines have over 6,000 aircraft parked.

The vendor market is in trouble for years due to low utilization and the flood if green time parts/motors.

This is the time for everyone to work for their interests. Airlines that give too much to either Boeing or Airbus won't have enough cash to expand on the other side.

The way airlines are paying for aircraft is mass layoffs/furloughs. How many more do you want laid off? At this point, shiney new aircraft are a luxury no Western airline can afford.

All from the 2019:
I'm more bearish than many as I see permanently 15% of business travel gone. I see 20% to 25% of convention travel down in 3 years (but recovering by 7 years). I see cruise ship travel down 34% in 3 years. I see mass sports attendance taking 3 years to recover on numbers, 5 for revenue.

All if that means I do not see narrowbody demand matching 2019 capacity until late 2023 which really means summer 2024.

Airbus at rate 47 (500 year) and Boeing at Rate 31 (370/year), minus narrobody scrappage of about 1400 over 2 years + 300/year after 2021... I calculate demand will not exceed supply until 2025... That assumes Boeing doesn't make some killer offers to match Airbus production (which they will, naturally). Which pushes out supply demand matching in 2027.

About when China should ramp up C919 production and I am not expecting them to play fair.

Lightsaber
I cannot wait to get vaccinated to live again! Warning: I simulated that it takes 50%+ vaccinated to protect the vaccinated and 75%+ vaccinated to protect the vac-hesitant.
 
astuteman
Posts: 7201
Joined: Mon Jan 24, 2005 7:50 pm

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

Mon Nov 02, 2020 5:11 pm

lightsaber wrote:
Indigo was doing well, but simply cannot take more than the contract minimum. They are returning 120 A320CEO as fast as they can. That floods the market. Their massive order for 730 must be slowed.


https://www.reuters.com/article/intergl ... SKBN27E1O9

Indigo posted a $160m loss, and signposted the return of older aircraft. But they did say

“We are slowly but surely stair-stepping our way back to normal capacity,” Chief Executive Officer Ronojoy Dutta said in a statement.“Once we are back at 100% capacity, we will have lower unit costs, a stronger product, more efficient fleet and a robust network,” he said.


Which implies an intent (and ability) to take their orders

lightsaber wrote:
I excluded the Chinese Airlines. There fine and provide a decent base delivery rate for Airbus.


I don't think I understand excluding Chinese Airlines when the very point is that they are fine, and provide a decent delivery rate for Airbus.

https://uk.reuters.com/article/china-ai ... KL4N2HI2JE

lightsaber wrote:
There is no fair in business. ..... Airlines that give too much to either Boeing or Airbus won't have enough cash to expand on the other side.


The converse side of that is that airlines that don't have the cash to invest in new and efficient equipment will be disadvantaged relative to those that DO have the cash once the rebound comes

lightsaber wrote:
I'm more bearish than many as I see permanently 15% of business travel gone. I see 20% to 25% of convention travel down in 3 years (but recovering by 7 years). I see cruise ship travel down 34% in 3 years. I see mass sports attendance taking 3 years to recover on numbers, 5 for revenue.


I certainly get and understand the bearish aspect of this thread. You yourself said upthread that the picture is not digital, and has many conflicting criteria at work.
That means that there are factors that lean towards the declared rates as well as those that lean away.
I find it difficult to believe that in the vast majority of cases, constructive, collaborative dialogue between the OEM's and airlines isn't taking place - with one or two notable exceptions, such as AirAsiaX.

historically, the longer the depression, the greater the bounce back.

We'll have to see what transpires in this case, I guess

Rgds
 
milhaus
Posts: 53
Joined: Fri Dec 10, 2010 4:19 pm

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

Mon Nov 02, 2020 8:44 pm

I think that Airbus is too optimistic with 47 monthly, 40 is more than enough for next two years. But Boeing is crazy with 31, biggest customers are from most affected countries, Europe and USA and backlog is just less than one half of NEO. Also MAX version do not include A321LR size aircraft yet.
 
JayinKitsap
Posts: 2378
Joined: Sat Nov 26, 2005 9:55 am

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

Mon Nov 02, 2020 10:57 pm

Airbus has leverage with the NEO that Boeing does not with the MAX. The grounding of the MAX for over 1.5 years basically places a large amount of MAX contracts where the customers could walk, but any shrewd negotiator would tie airline compensation as much as possible in product vs cash where the compensation only occurs if delivered.

Anyway, Airbus is probably juggling slots and setting production rates to keep their contracts 'in force' which may entail a rate 40 to cover. A lot of these contract changes have not been settled yet, might take a lot more months. So rate 40 may be the least cost choice for them right now, giving some time to get resolution. It is harder to do layoffs in the EU vs the US, they may have only done part of their layoffs, with a decision date 4 to 8 months out.

Boeing has shown in spades what happens with over production. They dialed back the MAX rate after grounding but it was in the 40's I recall. Anyway, after 8 months and taxiways everywhere filled with planes, production quickly stopped. Boeing was choking on the 400+ frames already built, with know modifications required. The cost of inventory was skyrocketing as well as all the care required.

Somewhere around 6 months production ending up in storage is where many industries it is time to idle production. The auto companies certainly do at 180 day inventory, with the target being 60-90 days. Second shifts get cancelled, 6-8 week shutdowns are common, etc.
 
CFRPwingALbody
Posts: 390
Joined: Thu Oct 19, 2017 8:13 pm

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

Mon Nov 02, 2020 11:32 pm

jeffrey0032j wrote:
Sokes wrote:
Aither wrote:
I know In Asia a lot of demand has switched from widebody to single aisle routes.

I also believe added capability to the A321 will change the fleet compositon.

AFAIK the A330 sells well in China. Does China have an overnight cargo company like FedEx or do they work with belly cargo?
Or are A330s for rush hour and narrowbodies for the remaining day?

A330s sold well, but China hasn't made any A330 orders in years. China has SF Express, which flies 757s and 767s (and 2 747s) mostly domestically but also to other cities in Asia. It has some sophiscated high tech ops in major cities but the process is not as refined as FedEx, UPS and Amazon.


The situation is even worse, even at the end of 2019 Airbus was stuck with at least 6 A330-300 NTU by Chinese airlines. I think these are white tails now. I think the A321 conversions will be popular in China.
 
CFRPwingALbody
Posts: 390
Joined: Thu Oct 19, 2017 8:13 pm

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

Tue Nov 03, 2020 12:10 am

Now a post that is fully on topic.
In my opinion nearly every one here is short to medium therm minded. nearly all are only looking several years into the future. This is also what Boeing does, with often fluctuation production output as a result. Airbus does not, they look at long term demand and match their production to it. For over a decade Airbus have been on constant undersupply, they delivered less (A32x) aircraft than there was demand for. Now they are in a over supply situation. But for how long?
How will the aviation market recover from Covid-19? We all agree the recovery is several years out (>2022). But how will the long term aviation market develop. How will the market forecast for 2030 and 2040 look like?
I think Airbus is basing it's production demand on the long term market forecasts. Boeing predicted only a minor change by 2040.
Airbus has ~6000 A32x aircraft in it's backlog. With the record high rate of 60 that's 100months (9years) of production, far to much. Let's assume ~1500 orders will be canceled because of Covid-19, that still leaves a backlog of 4500 aircraft.
With a record rate of 60 that's still 75 months (~7years) of production.
With rate 40 it's 112,5 months (>10years), with rate 47 it's ~96 months or 8 to 9 years.
And the market forecasts before Covid-19 expected higher demand towards the end of the 20year forecast period. Thus production now will reduce the rampup requirement towards the end of this decade and into the 2030s.

Airlines took these risks themselves. Didn't the manufacturers give discounts for production stability. This is the moment these discounts are repaid for the manufacturers and cost the airlines or lessors. (I'm really against these very thick orderbooks, I think 5 - 8 full production years is healthy, Let's return to that than, manufacturers are required to follow demand, now they aren't.
 
iamlucky13
Posts: 1297
Joined: Wed Aug 08, 2007 12:35 pm

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

Tue Nov 03, 2020 1:52 am

lightsaber wrote:
Just for reference, Boeing plans to go to 31/month (370 year vs. Rate 40 at Airbus 430/year or rate 47 of 500/year, Boeing has 12 month years with trivial rounding).

https://aviationweek.com/air-transport/ ... month-2022

This link claims on 60 max currently to be remarketed, but I suspect more of the 450 undelivered.

This is gamesmanship on a huge scale.

Lightsaber


Boeing's target for 31/month is the 1st quarter of 2022. I think I read somewhere else they are at around 14/month currently. Airbus' target for 47/month is 6 months earlier.

Here's the comment from last week's investor meeting:

Dave Calhoun, Boeing CEO wrote:
We still expect to produce the 737 at very low rates for the remainder of 2020 and gradually increase the rate to 31 by the beginning of 2022 and expect further gradual increases to correspond with market demand. We will continue to assess the delivery profile for 2021 as it will help inform if we need to adjust our 737 production rate ramp-up. We will continue to keep our supply chain apprised of our plan.


Although part of it is, of course, undelivered aircraft that Boeing has to deal with, overall, Boeing seems more cautious. They mention not only a lower rate target, but also an intention to re-examine that target. Airbus will have produced about 260 more narrowbodies by the end of next year than Boeing will, and don't seem to give the impression they're considering lower rates than the current goal.

lightsaber wrote:
I've yet to see a well done analysis that shows the rate 40 + MAX production will be absorbed before 2024.


I wouldn't be surprised if Airbus and Boeing have both considered that possibility and are willing to sit on excess inventory that long in order to most efficiently manage their production systems.

The highest priority is remaining solvent until their cash flow is stable. If they have a viable plan for that, then I believe they next have to look beyond the next 1-2 years and proceed as efficiently as possible to the point when demand is on a stable trend again. That could mean burning more cash in the short term, and spending some money on parked aircraft maintenance, in order to avoid adverse supplier pricing from smaller order volume, and re-hiring and re-training too many production staff.

This is just speculation on my part though. I can't quantify it analytically, much less assert any knowledge of actual plans.

Of course, even if this is their plan, it does not rule out that they might end up parking more aircraft and taking longer to deliver all of them than intended.
 
Sokes
Posts: 2438
Joined: Sat Mar 09, 2019 4:48 pm

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

Tue Nov 03, 2020 4:28 am

lightsaber wrote:
I see cruise ship travel down 34% in 3 years. I see mass sports attendance taking 3 years to recover on numbers, 5 for revenue.
Lightsaber

First it comes different, and second than one thinks.
Your prediction sounds like the Great Depression.
If optimism is gone and things turn so bad politics can use helicopter money.

What I'm more concerned about is developing countries with huge trade deficit and/ or debt.
If foreign banks decide not to renew credit, the bubble will burst.
But then where else can all the excess money be invested?
Why can't the world be a little bit more autistic?
 
MIflyer12
Posts: 8798
Joined: Mon Feb 18, 2013 11:58 pm

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

Tue Nov 03, 2020 10:59 am

CFRPwingALbody wrote:
Thus production now will reduce the rampup requirement towards the end of this decade and into the 2030s.


Yes... and with what money will employees and suppliers be paid while Airbus is building but not delivering? How many whitetails need to be sitting before they cut production?
 
mjoelnir
Posts: 9411
Joined: Sun Feb 03, 2013 11:06 pm

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

Tue Nov 03, 2020 12:17 pm

MIflyer12 wrote:
CFRPwingALbody wrote:
Thus production now will reduce the rampup requirement towards the end of this decade and into the 2030s.


Yes... and with what money will employees and suppliers be paid while Airbus is building but not delivering? How many whitetails need to be sitting before they cut production?


Airbus is delivering at a good rate. This year should end in about 400 A320 family frames delivered, if we do not see a year end push.
It seems that Airbus has reduced current production rates down to 40 frames a month, to match the delivery rates.

As long as Airbus keeps delivering, Airlines and leasing companies have no reason to scrap contracts. They have to renegotiate. In worst case they lose the down and progress payments.

At Boeing any airline or leasing company can start of with suing for breach of contract and Boeing will be in difficulties to keep the down and progress payments.

Lightsaber came with a list of Airbus customers that are in trouble. Here is one big Boeing customer, Lion Air. They have also A320neo family frames on order.
What should stop them from canceling the 737MAX contracts and sue Boeing if down and progress payments are not returned.
The biggest Boeing problem in regards to the melting 737MAX backlog is not loosing the contracts, but the need to return the customers money.
 
oldJoe
Posts: 360
Joined: Fri Jan 10, 2020 11:04 pm

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

Tue Nov 03, 2020 2:39 pm

mjoelnir wrote:
MIflyer12 wrote:
CFRPwingALbody wrote:
Thus production now will reduce the rampup requirement towards the end of this decade and into the 2030s.


Yes... and with what money will employees and suppliers be paid while Airbus is building but not delivering? How many whitetails need to be sitting before they cut production?


Airbus is delivering at a good rate. This year should end in about 400 A320 family frames delivered, if we do not see a year end push.
It seems that Airbus has reduced current production rates down to 40 frames a month, to match the delivery rates.

As long as Airbus keeps delivering, Airlines and leasing companies have no reason to scrap contracts. They have to renegotiate. In worst case they lose the down and progress payments.

At Boeing any airline or leasing company can start of with suing for breach of contract and Boeing will be in difficulties to keep the down and progress payments.

Lightsaber came with a list of Airbus customers that are in trouble. Here is one big Boeing customer, Lion Air. They have also A320neo family frames on order.
What should stop them from canceling the 737MAX contracts and sue Boeing if down and progress payments are not returned.
The biggest Boeing problem in regards to the melting 737MAX backlog is not loosing the contracts, but the need to return the customers money.


I agree with most of you , but Lion Air does not have any A320 on order.The only buses they owns are 6 A330-300 and 4 A330-900neo plus six on order.
 
ShamrockBoi330
Posts: 367
Joined: Fri Sep 21, 2018 3:28 am

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

Tue Nov 03, 2020 2:53 pm

oldJoe wrote:


I agree with most of you , but Lion Air does not have any A320 on order.The only buses they owns are 6 A330-300 and 4 A330-900neo plus six on order.


AFAIK Lion Group still has 170+ a320 family on order from an original 230ish order in 2013.

https://centreforaviation.com/analysis/ ... egy-456693
 
oldJoe
Posts: 360
Joined: Fri Jan 10, 2020 11:04 pm

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

Tue Nov 03, 2020 3:15 pm

ShamrockBoi330 wrote:
oldJoe wrote:


I agree with most of you , but Lion Air does not have any A320 on order.The only buses they owns are 6 A330-300 and 4 A330-900neo plus six on order.


AFAIK Lion Group still has 170+ a320 family on order from an original 230ish order in 2013.

https://centreforaviation.com/analysis/ ... egy-456693


Sorry my bad. I just refered to Lion Air. All the Airbus jets are with Batik Air which is of course a member of the Lion Group.
 
User avatar
lightsaber
Moderator
Topic Author
Posts: 20958
Joined: Wed Jan 19, 2005 10:55 pm

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

Tue Nov 03, 2020 3:15 pm

ShamrockBoi330 wrote:
oldJoe wrote:
mjoelnir wrote:

Airbus is delivering at a good rate. This year should end in about 400 A320 family frames delivered, if we do not see a year end push.
It seems that Airbus has reduced current production rates down to 40 frames a month, to match the delivery rates.

As long as Airbus keeps delivering, Airlines and leasing companies have no reason to scrap contracts. They have to renegotiate. In worst case they lose the down and progress payments.

At Boeing any airline or leasing company can start of with suing for breach of contract and Boeing will be in difficulties to keep the down and progress payments.

Lightsaber came with a list of Airbus customers that are in trouble. Here is one big Boeing customer, Lion Air. They have also A320neo family frames on order.
What should stop them from canceling the 737MAX contracts and sue Boeing if down and progress payments are not returned.
The biggest Boeing problem in regards to the melting 737MAX backlog is not loosing the contracts, but the need to return the customers money.


I agree with most of you , but Lion Air does not have any A320 on order.The only buses they owns are 6 A330-300 and 4 A330-900neo plus six on order.


AFAIK Lion Group still has 170+ a320 family on order from an original 230ish order in 2013.

https://centreforaviation.com/analysis/ ... egy-456693

LionAir is in trouble. I think they are trying to get the MAX cash back:
https://uk.news.yahoo.com/lion-air-pond ... 55721.html

Here is the Airbus press release, but I am unable to find the order currently:
https://www.airbus.com/newsroom/press-r ... craft.html


Boeing renegotiated early with some airlines and thus has some customers. Some customers will stay with the MAX, but only for the business case. Boeing is ramping back up, so I have less concern. Their white tails are there for all to see and discuss.

What facinates me is the brand new A320NEOs piling up at Leasing companies as to many airlines had to forfeit the smaller Leasing company deposits as they just cannot justify a shiney new plane lease. In my opinion, 6 to 15 months of missed lease payments should be break even, so now it is the leasing company's problem. But a build up of ready inventory becomes the OEM's problem.

When RTS for the MAX occurs and that massive built backlog is delivered, we will see market clearing. That will push down 736NG values as airlines must rationalize capacity and many planned a fleet upgrade anyway. That will push down A320CEO values (if for no other reason freight stock, there are three 738 conversions certified already). I recall clearly the 1992 Boeing presentation at my graduate school where the presenter discussed how their #1 competition was their own used Aircraft. That will be true at Airbus too. A domino if effects that takes about 2 years to clear out starts with the MAX RTS.

I'm a Pratt fan. I should only be cheering on the A330NEO. But doing that would be ignoring market realities.

Demand is what it is with price elasticity. If Allegiant, Volotea, Delta, and other used aircraft buyers can stimulate demand by buying used, more power to them. At this point, we are 6 to 15 months out from the deluge of lease returns (my best estimate, yes a huge error bar), so this is a slow moving train wreck.


Lightsaber
I cannot wait to get vaccinated to live again! Warning: I simulated that it takes 50%+ vaccinated to protect the vaccinated and 75%+ vaccinated to protect the vac-hesitant.
 
jeffrey0032j
Posts: 882
Joined: Wed Jun 15, 2016 3:11 pm

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

Tue Nov 03, 2020 3:18 pm

mjoelnir wrote:
MIflyer12 wrote:
CFRPwingALbody wrote:
Thus production now will reduce the rampup requirement towards the end of this decade and into the 2030s.


Yes... and with what money will employees and suppliers be paid while Airbus is building but not delivering? How many whitetails need to be sitting before they cut production?


Airbus is delivering at a good rate. This year should end in about 400 A320 family frames delivered, if we do not see a year end push.
It seems that Airbus has reduced current production rates down to 40 frames a month, to match the delivery rates.

As long as Airbus keeps delivering, Airlines and leasing companies have no reason to scrap contracts. They have to renegotiate. In worst case they lose the down and progress payments.

At Boeing any airline or leasing company can start of with suing for breach of contract and Boeing will be in difficulties to keep the down and progress payments.

Lightsaber came with a list of Airbus customers that are in trouble. Here is one big Boeing customer, Lion Air. They have also A320neo family frames on order.
What should stop them from canceling the 737MAX contracts and sue Boeing if down and progress payments are not returned.
The biggest Boeing problem in regards to the melting 737MAX backlog is not loosing the contracts, but the need to return the customers money.

Would be stupid for them to cancel the Max contracts, especially if Airbus is chasing for deliveries and/or milestone payments. Cancelling Max will cause them to lose bargaining power against Airbus. In short, if an airline has orders from both A&B, it is in their interest to keep both orders to get the most concessions (in delaying/reducing orders) from both sides.
 
mjoelnir
Posts: 9411
Joined: Sun Feb 03, 2013 11:06 pm

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

Tue Nov 03, 2020 3:37 pm

jeffrey0032j wrote:
mjoelnir wrote:
MIflyer12 wrote:

Yes... and with what money will employees and suppliers be paid while Airbus is building but not delivering? How many whitetails need to be sitting before they cut production?


Airbus is delivering at a good rate. This year should end in about 400 A320 family frames delivered, if we do not see a year end push.
It seems that Airbus has reduced current production rates down to 40 frames a month, to match the delivery rates.

As long as Airbus keeps delivering, Airlines and leasing companies have no reason to scrap contracts. They have to renegotiate. In worst case they lose the down and progress payments.

At Boeing any airline or leasing company can start of with suing for breach of contract and Boeing will be in difficulties to keep the down and progress payments.

Lightsaber came with a list of Airbus customers that are in trouble. Here is one big Boeing customer, Lion Air. They have also A320neo family frames on order.
What should stop them from canceling the 737MAX contracts and sue Boeing if down and progress payments are not returned.
The biggest Boeing problem in regards to the melting 737MAX backlog is not loosing the contracts, but the need to return the customers money.

Would be stupid for them to cancel the Max contracts, especially if Airbus is chasing for deliveries and/or milestone payments. Cancelling Max will cause them to lose bargaining power against Airbus. In short, if an airline has orders from both A&B, it is in their interest to keep both orders to get the most concessions (in delaying/reducing orders) from both sides.


If they have to many airframes on order, than canceling the 737MAX makes a lot of sense. The A320neo family frames on order, 112 A320neo and 65 A321neo, are already contracted, so what should they bargain about?
If you need to have the other guys frames to be able to bargain, how did Southwest ever exist?
 
Capricorn
Posts: 113
Joined: Mon Jul 27, 2020 1:11 pm

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

Tue Nov 03, 2020 3:39 pm

How easy is it really to "walk" from a 737 order? If that is indeed as easy as implied by certain A-netters here, I can definitely see some airlines making use of that and changing the dynamic. Especially airlines that have no Boeing WB on order might make use of that. Although I still think most airlines would likely settle for a deferral as at one point or another they would likely need their MAX planes. Maybe that's why Boeing should ramp up production more cautiously, because if the exert too much pressure and coerce their customers too strongly, "walking away" will become the default option. And China is unfortunately another factor, as in China's case it might broil down to politics as well, instead of only looking at the safety improvements. (China and MAX, I have unfortunately not found anything more up to date) https://www.reuters.com/article/us-chin ... SKBN27715V

IMO the orders of following MAX customers can be questioned, at least in size: AM (CH11), UX (financial problems, merger), ET (didn't they say after the crash they don't want them any longer), GOL/MAS (financial), VA (after reorganisation do they still want them?) and as mentioned Lion. But the MAX has some strong customers in WN, FR. (and potentially China).
 
smartplane
Posts: 1609
Joined: Fri Aug 03, 2018 9:23 pm

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

Tue Nov 03, 2020 3:48 pm

mjoelnir wrote:
Airbus is delivering at a good rate. This year should end in about 400 A320 family frames delivered, if we do not see a year end push.
It seems that Airbus has reduced current production rates down to 40 frames a month, to match the delivery rates.

As long as Airbus keeps delivering, Airlines and leasing companies have no reason to scrap contracts. They have to renegotiate. In worst case they lose the down and progress payments.

At Boeing any airline or leasing company can start of with suing for breach of contract and Boeing will be in difficulties to keep the down and progress payments.

Lightsaber came with a list of Airbus customers that are in trouble. Here is one big Boeing customer, Lion Air. They have also A320neo family frames on order.
What should stop them from canceling the 737MAX contracts and sue Boeing if down and progress payments are not returned.
The biggest Boeing problem in regards to the melting 737MAX backlog is not loosing the contracts, but the need to return the customers money.

You underestimate Boeing.

With the extended MAX grounding, Boeing found themselves with a largely generic contract template for smaller / medium customers, and corporate one-off contracts for the big players, none of which (on either side), envisaged a protracted global model grounding.

This triggered a replacement generic Mk2 contract for smaller customers, and largely generic in respect to compensation for the larger, which in hindsight still under-estimated the grounding. Most compensation was in the form of retrospective credit top-ups. Not all customers executed this contract - probably the ones which have since announced cancellations.

Version 2.1 was in development / discussion late 2019 / early 2020, quickly replaced by Version 3 to account for the even longer grounding and largely by good fortune COVID impact.

Version 3 purportedly introduces greater flexibility, so neither party needs to keep amending contracts, with multiple tiers of retrospective credits. Level 3 credits increase for specified periods of delay. Accrued credits decrease from the moment Boeing advise the customer their aircraft is ready for delivery (or earlier if the customer delays the delivery process). Conversion values to cash, other services, additional MAX orders, 787 and 777 orders have been adjusted.

The result, with some tweaking, is a very nimble contract, parts of which we will probably see incorporated in future contracts for all new aircraft, and not just at Boeing.

If MAX customers can use the capacity (and / or quit older aircraft cheaply), they have powerful reasons to follow through on their orders, and top up. For Boeing, the MAX generates positive cash flow, the parked fleet finds homes and new new sales, and ultimately revenue from services and parts, all of which buys time for a 737 replacement.

Some X customers have executed V3 style contracts, though with different accrual rates and conversion values.
Last edited by smartplane on Tue Nov 03, 2020 4:07 pm, edited 2 times in total.
 
jeffrey0032j
Posts: 882
Joined: Wed Jun 15, 2016 3:11 pm

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

Tue Nov 03, 2020 3:49 pm

mjoelnir wrote:
jeffrey0032j wrote:
mjoelnir wrote:

Airbus is delivering at a good rate. This year should end in about 400 A320 family frames delivered, if we do not see a year end push.
It seems that Airbus has reduced current production rates down to 40 frames a month, to match the delivery rates.

As long as Airbus keeps delivering, Airlines and leasing companies have no reason to scrap contracts. They have to renegotiate. In worst case they lose the down and progress payments.

At Boeing any airline or leasing company can start of with suing for breach of contract and Boeing will be in difficulties to keep the down and progress payments.

Lightsaber came with a list of Airbus customers that are in trouble. Here is one big Boeing customer, Lion Air. They have also A320neo family frames on order.
What should stop them from canceling the 737MAX contracts and sue Boeing if down and progress payments are not returned.
The biggest Boeing problem in regards to the melting 737MAX backlog is not loosing the contracts, but the need to return the customers money.

Would be stupid for them to cancel the Max contracts, especially if Airbus is chasing for deliveries and/or milestone payments. Cancelling Max will cause them to lose bargaining power against Airbus. In short, if an airline has orders from both A&B, it is in their interest to keep both orders to get the most concessions (in delaying/reducing orders) from both sides.


If they have to many airframes on order, than canceling the 737MAX makes a lot of sense. The A320neo family frames on order, 112 A320neo and 65 A321neo, are already contracted, so what should they bargain about?
If you need to have the other guys frames to be able to bargain, how did Southwest ever exist?

In normal times, you don't need it. But in these times, I would think some airlines would had preferred having a tool to pressure their sole supplier. Contracts are probably less of a worry than survival for airlines now, hence if airlines could negotiate their way to a more moderate delivery schedule, they would do so.
 
User avatar
Revelation
Posts: 25012
Joined: Wed Feb 09, 2005 9:37 pm

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

Tue Nov 03, 2020 3:54 pm

lightsaber wrote:
But a build up of ready inventory becomes the OEM's problem.

I think this is a point the people emphasizing the OEM's backlog are missing. Sure the eventual decades long trend line suggests the frames will eventually find a home, but in the mean time the OEMs will face the cost of building and storing $billions of unsold inventory whose value is being beat down via competition from gently used frames and new frames the competition is anxious to sell to a customer base that has little revenue and little cash and little access to financing.
Wake up to find out that you are the eyes of the world
The heart has its beaches, its homeland and thoughts of its own
Wake now, discover that you are the song that the morning brings
The heart has its seasons, its evenings and songs of its own
  • 1
  • 5
  • 6
  • 7
  • 8
  • 9
  • 12

Popular Searches On Airliners.net

Top Photos of Last:   24 Hours  •  48 Hours  •  7 Days  •  30 Days  •  180 Days  •  365 Days  •  All Time

Military Aircraft Every type from fighters to helicopters from air forces around the globe

Classic Airliners Props and jets from the good old days

Flight Decks Views from inside the cockpit

Aircraft Cabins Passenger cabin shots showing seat arrangements as well as cargo aircraft interior

Cargo Aircraft Pictures of great freighter aircraft

Government Aircraft Aircraft flying government officials

Helicopters Our large helicopter section. Both military and civil versions

Blimps / Airships Everything from the Goodyear blimp to the Zeppelin

Night Photos Beautiful shots taken while the sun is below the horizon

Accidents Accident, incident and crash related photos

Air to Air Photos taken by airborne photographers of airborne aircraft

Special Paint Schemes Aircraft painted in beautiful and original liveries

Airport Overviews Airport overviews from the air or ground

Tails and Winglets Tail and Winglet closeups with beautiful airline logos