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jeffrey0032j
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Re: The case for more aircraft production cuts/playing chicken

Tue Nov 03, 2020 3:58 pm

smartplane 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.

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 introduces greater flexibility, so neither party needs to keep amending contracts, with multiple tiers of retrospective credits (level 1 - original contract, level 2 - level 2 contract, level 3 - level 3 contract). Level 3 credits increase for every specified period 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.

Some X customers have executed V3 style contracts, though with different accrual rates and conversion values.

In some aspects, the Max grounding has given both Boeing and their customers a much wider breathing room (at potential expense of Boeing) in negotiations than Airbus. Yes, there may be cancellations, but I would think customers will be happier with this arrangement and situation (ironically) than a hard ramming of deliveries from the other side. How this plays out with regards to airline-manufacturer relations will be seen 5 years later.
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Nov 03, 2020 4:28 pm

jeffrey0032j wrote:
In some aspects, the Max grounding has given both Boeing and their customers a much wider breathing room (at potential expense of Boeing) in negotiations than Airbus. Yes, there may be cancellations, but I would think customers will be happier with this arrangement and situation (ironically) than a hard ramming of deliveries from the other side. How this plays out with regards to airline-manufacturer relations will be seen 5 years later.

There is very little 'ramming' of deliveries by either A or B.

Some customers may have the violin out, but mostly they are fully committed, including pre-arranged finance, and / or are trying to preserve already accrued (and yet to be accrued) retrospective credits. Yes, they might like to defer, incurring no penalties, while still preserving all benefits. Welcome to the real world.

There is an enormous amount of dialogue and restraint being demonstrated by all involved, including suppliers caught in the middle, and financiers caught every which way. We have pre-shipment financiers agreeing to leave money in post-shipment, suppliers accepting cost payments and agreeing to finance their profit on terms, larger financiers increasing their exposure taking out smaller financiers to eliminate the risk of pre-emptive action.........................

Virtually everyone in the industry is working very hard to 'not rock the wings', and being extremely creative in the process. Even battle hardened enemies are talking constructively. With industry liquidity and credit capacity dwindling, how long can it last without Government intervention?
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Nov 03, 2020 4:36 pm

smartplane wrote:
Virtually everyone in the industry is working very hard to 'not rock the wings', and being extremely creative in the process. Even battle hardened enemies are talking constructively. With industry liquidity and credit capacity dwindling, how long can it last without Government intervention?

Thanks as always for your insightful comments.

It'll be interesting to see if any eventual breakdown comes from one party being seen as taking advantage of the situation for their own benefit at the expense of others. It's pretty remarkable that this hasn't happened already!
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Re: The case for more aircraft production cuts/playing chicken

Tue Nov 03, 2020 7:11 pm

Revelation wrote:
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.

Agreed, but I was actually referring to the growing inventory of not taken up aircraft delivered to leasing companies. We now have on the property NEOs and to a lesser extent MAXs that must now compete for a home.

I find it facinating that no one wants to rock the boat too much. But that is catering to the OEMs and vendors. I think everyone is too young to remember the oil crisis white tails. A different industry...

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

Tue Nov 03, 2020 7:17 pm

lightsaber wrote:
I think everyone is too young to remember the oil crisis white tails. A different industry...

Lightsaber

Can you go into that a bit?

I remember white tails being very, very bad and everyone swearing them off. But I went searching some archives and didn’t hit much on the topic.
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Nov 03, 2020 7:55 pm

ADent wrote:
lightsaber wrote:
I think everyone is too young to remember the oil crisis white tails. A different industry...

Lightsaber

Can you go into that a bit?

I remember white tails being very, very bad and everyone swearing them off. But I went searching some archives and didn’t hit much on the topic.

We are there again.

First of all, I improperly expanded the term to include aircraft delivered to leasing companies without a customer.

A long time ago there weren't these aircraft Leasing companies. In order to secure discounts on parts, for buying 1 year at a time means items cost 30% to 50% more plus OEMS had to buy tooling, OEMs started to buy 2 and even 3 years of orders (today it is a ramp up and 3 and a half years plus a tooling fee). In effect, OEMs acted as Leasing companies do now, with building aircraft on speculation.

If a downturn hit, you were selling new build aircraft while holding onto the white tail. But as production on most aircraft were dropped to the minimum production for break even, those white tails signaled discounts ahead.

Now Douglas sold tankers to the AirForce cheaper by that white tail economy of scale, they just didn't expect all the volume and Douglas had to pull in favors to bring forward tanker sales.

There were L1011, 747, 767, and other white tails. Lockheed had to cut production below where they wanted because of the quantity of whitetails so when they emerged, their skilled workers were next door at Northrop not wanting to come back.

The OEM has to sell debt to carry a significant number of white tails. That makes it more expensive to launch new programs.

With Leasing companies building up an inventory of new builds (that I improperly called white tails), they will compete for near term delivery slots. This pushes out the manufacturing recovery.

The ideal aerospace recession is old Aircraft are parked or scrapped. If they are pulled out of the desert, for example DL pulling out the NW A320s, it is for a short time until better new build aircraft can replace them It is my opinion that was DL's plan, but that the buying surge went on longer than DL anticipated.

Think of yourself as an airline executive buying, you see opportunity. You know Boeing has 60 MAX white tails and needs someone to take near term production. Will you pay a premium for near term delivery to launch your expansion? No, you will drag out negotiations and talk with Airbus and multiple Leasing companies to get a better deal. Now once the white tails are gone, if you want new and soon,, you know there is a premium to pay.

Today's downturn is of an unimaginable scope with (see prior links) of over 6,000 parked aircraft or 25% of the global inventory. Plus new. Plus two OEMs hungry to ramp production. The catch is financing.

Interesting times.

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

Tue Nov 03, 2020 8:02 pm

lightsaber wrote:
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.


Will these lease returns all be good planes though? Or will they come from bankrupt airlines with dubious paperwork, bits "missing", having been stored for a long time with the absolute lowest levels of maintenance as the leaseholders do everything to limit cash? I am sure that would be in violation of their lease agreement, but lots of the airlines will be bankrupt anyway so the lease company won't see anything anyway?

Do Lease owners get to observe the storage etc. of these frames to ensure they are being maintained?
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Nov 03, 2020 8:54 pm

JibberJim wrote:
lightsaber wrote:
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.


Will these lease returns all be good planes though? Or will they come from bankrupt airlines with dubious paperwork, bits "missing", having been stored for a long time with the absolute lowest levels of maintenance as the leaseholders do everything to limit cash? I am sure that would be in violation of their lease agreement, but lots of the airlines will be bankrupt anyway so the lease company won't see anything anyway?

Do Lease owners get to observe the storage etc. of these frames to ensure they are being maintained?

I am anticipating 1/4 get scrapped, 1/4 are parked until later in the recovery, but at least half will be good aircraft with clean paper.

Take Indigo, they are returning 120 A320CEO on good terms with the leasing companies. Counter that with Saudia in violation of leases doing what you suggest.

If the airlines go bankrupt, leasing companies will come in, quickly fix up the planes for a ferry flight, and get the aircraft to a MRO. Yes, they will be damaged and missing parts, but most aircraft are worth far more flyable. Either the leasing companies or airlines that know how to economically get aircraft back into service (Allegiant) will get the aircraft back into service.

I expect 1600 to 1800 to be scrapped. A not insignificant number and only 600 or so old enough (737 classic with poor paper for freight conversion) or undesirable enough (777-200, ER or not) to be ready to scrap.

If executives return aircraft with good paper, they will be put in the plus column by Leasing companies. If not... other column.

This is above normal lease returns. During the last boom, an unusual number of aircraft were held onto for the pre-negotiated lease extension or the lease was renewed under linger term (at a reduced rate), or bought by the airlines.

On Nov. 9th Air Lease Corporation has their quarterly result, AerCap on the 10th, and Avolon on the 12th. AirCastle didn't report 2nd quarter until August 3rd, so I expect they will be even later (I didn't see a date set yet). So soon we know much more.

If you look at the GE presentation:
https://www.ge.com/investor-relations/events-reports
Besides a drop, starting impairment losses at GECAS, only $0.2B, but significant (normally GE makes a profit selling old aircraft).

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

Tue Nov 03, 2020 9:42 pm

JibberJim wrote:
lightsaber wrote:
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.


Will these lease returns all be good planes though?


Lots of firms lease - not just bottom-of-the-barrel carriers. Lots of firms will be shrinking, voluntarily or not. There may be some luckily-scheduled end of lease returns. There may be some lease repossessions. The better maintained - in service and documentation - will command a bit of a premium. As lightsaber's math suggests, there are going to be many frames ready for much more flying.
 
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Re: The case for more aircraft production cuts/playing chicken

Wed Nov 04, 2020 6:50 am

jeffrey0032j wrote:
In some aspects, the Max grounding has given both Boeing and their customers a much wider breathing room (at potential expense of Boeing) in negotiations than Airbus. Yes, there may be cancellations, but I would think customers will be happier with this arrangement and situation (ironically) than a hard ramming of deliveries from the other side. How this plays out with regards to airline-manufacturer relations will be seen 5 years later.


I think that the "breathing room" soon will be over at the beginning of 2021.

https://simpleflying.com/boeing-cuts-2021-max-deliveries/

I read somewhere numbers how many 737max aircraft Boeing plans to deliver in the next two years. It was ~420 in 2021 and ~480 in 2022 wih match the production numbers of Airbus ( +- )
Sorry no source but I try to find the article again.
 
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Re: The case for more aircraft production cuts/playing chicken

Wed Nov 04, 2020 10:40 am

Any airline in the process of returning planes in good condition will be getting fantastic terms for extending - anything to not get back a plane that must be stored.

All the players knew how to deal with a 10-15% downturn of traffic in a quarter, but this 50% for NB's and near 90% for WB's is a new world. We're going to see a lot of models disappear from service:
-Last of the MD planes except some freighters, including the B717.
-The 737 classics will be pushed out. The 757's will just be freighters. 747's being cleared out, except 748F's. The 767's are nearly out of passenger service, but doing well as freighters. The 777's before the 77W & 77L will dwindle down.
- Airbus A300 & 310's see their retirement as freighters, older A320's and A330's, the last of the A340's and A380's is in sight.

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

Wed Nov 04, 2020 2:10 pm

JayinKitsap wrote:
Any airline in the process of returning planes in good condition will be getting fantastic terms for extending - anything to not get back a plane that must be stored.

All the players knew how to deal with a 10-15% downturn of traffic in a quarter, but this 50% for NB's and near 90% for WB's is a new world. We're going to see a lot of models disappear from service:
-Last of the MD planes except some freighters, including the B717.
-The 737 classics will be pushed out. The 757's will just be freighters. 747's being cleared out, except 748F's. The 767's are nearly out of passenger service, but doing well as freighters. The 777's before the 77W & 77L will dwindle down.
- Airbus A300 & 310's see their retirement as freighters, older A320's and A330's, the last of the A340's and A380's is in sight.

Just brutal.

First, good summary. I agree with most:
Without DL, the 717 repair network for the aircraft goes into a mode of scavanged parts. That works until it doesn't. I think by 2028 all Douglas types are done.

The 737classic is still being turned into freighters. So enough parts will be available. That type has such a long proven limit of Validity, it will trudge on.

I agree 757s, except for the 753, become freighters (or parts).

There is no way to plan for this level of downturn. At the start of the year I thought GE/IAI Bedek were insanely early on the 777-300ERSF, now they are obviously a year or two late. ;)

I thought EFW's A330 conversions would suffer for lack of good conversion stock. That is no longer a problem.

I thought having EFW vs. Precision in the A321 to freight conversion market was one too many. Today that is one too few for the A32x conversion market.

What an insane switch. No one who hasn't seen the prior bad downturns can comprehend what this will do. I read all the posts on saving the supply chain. Well... unfortunately, consolidation ahead.

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

Wed Nov 04, 2020 2:12 pm

oldJoe wrote:
jeffrey0032j wrote:
In some aspects, the Max grounding has given both Boeing and their customers a much wider breathing room (at potential expense of Boeing) in negotiations than Airbus. Yes, there may be cancellations, but I would think customers will be happier with this arrangement and situation (ironically) than a hard ramming of deliveries from the other side. How this plays out with regards to airline-manufacturer relations will be seen 5 years later.


I think that the "breathing room" soon will be over at the beginning of 2021.

https://simpleflying.com/boeing-cuts-2021-max-deliveries/

I read somewhere numbers how many 737max aircraft Boeing plans to deliver in the next two years. It was ~420 in 2021 and ~480 in 2022 wih match the production numbers of Airbus ( +- )
Sorry no source but I try to find the article again.

For most MAX customers, the delays force breathing room. Boeing cannot contractually force deliveries as Airbus can. What that means is they will have to incentivise.

Oh... the coming MOL quotes.

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

Wed Nov 04, 2020 3:10 pm

lightsaber wrote:
oldJoe wrote:
jeffrey0032j wrote:
In some aspects, the Max grounding has given both Boeing and their customers a much wider breathing room (at potential expense of Boeing) in negotiations than Airbus. Yes, there may be cancellations, but I would think customers will be happier with this arrangement and situation (ironically) than a hard ramming of deliveries from the other side. How this plays out with regards to airline-manufacturer relations will be seen 5 years later.


I think that the "breathing room" soon will be over at the beginning of 2021.

https://simpleflying.com/boeing-cuts-2021-max-deliveries/

I read somewhere numbers how many 737max aircraft Boeing plans to deliver in the next two years. It was ~420 in 2021 and ~480 in 2022 wih match the production numbers of Airbus ( +- )
Sorry no source but I try to find the article again.

For most MAX customers, the delays force breathing room. Boeing cannot contractually force deliveries as Airbus can. What that means is they will have to incentivise.

Oh... the coming MOL quotes.

Lightsaber


At the day when the Max grounding is lifted any airline wich did not cancel or deffered deliveries and took compensation in any form is in no obligation or even has no valid contract ?
IMO Boeing is in the same position like Airbus to force deliveries at this day ( hope RTS to be soon )
 
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Re: The case for more aircraft production cuts/playing chicken

Wed Nov 04, 2020 3:32 pm

oldJoe wrote:
lightsaber wrote:
oldJoe wrote:

I think that the "breathing room" soon will be over at the beginning of 2021.

https://simpleflying.com/boeing-cuts-2021-max-deliveries/

I read somewhere numbers how many 737max aircraft Boeing plans to deliver in the next two years. It was ~420 in 2021 and ~480 in 2022 wih match the production numbers of Airbus ( +- )
Sorry no source but I try to find the article again.

For most MAX customers, the delays force breathing room. Boeing cannot contractually force deliveries as Airbus can. What that means is they will have to incentivise.

Oh... the coming MOL quotes.

Lightsaber


At the day when the Max grounding is lifted any airline wich did not cancel or deffered deliveries and took compensation in any form is in no obligation or even has no valid contract ?
IMO Boeing is in the same position like Airbus to force deliveries at this day ( hope RTS to be soon )

For some who took compensation, they will have to take. For many, they took compensation so long ago, it has expired (there is a one year clock).

Most want the MAXes, just not now. There are already 60+ (see prior posts for links) that are now legally white tails (built aircraft owned by the OEM, with no legally assigned airline).

Airlines didn't have to differ. The contract was broken and thus they are not obligated to receive once the one year tardy deadline was hit. Some speculate upthread this is why Airbus is going to rate 47 (about 500/year), to have the planes complete so that airlines must negotiate. Airbus doesn't want to bankrupt customers, but they are not giving any a get out of jail free card either.

I continue to believe the A320NEO rate far exceeds what the market can accept. Boeing will restart. However, they climb back to just a monthly rate of 31 (370 year) is at risk in my opinion.

This game of chicken cannot go on forever. Eventually vendors must fully downsize to the planned production rate. The ones that will hurt are the long lead time items. That capacity will either be reduced or transferred to other industries (casting (mostly the large castings like the casings and rotors), 3D printing, forging, titanium parts, turbine blades). For example, the small castings go down the same lines they might cast parts for the automotive industry. For that stuff, aerospace is small change (but high profit) for the vendor. The same with metals. Nickel alloys are high margin, but low volume. The foundries do not like to stockpile.

Just an example, for a Inconel 715 engine casing, that means 2 years before engine delivery, the raw material is ordered, and delivered to the casting house about 4 months later. The casting house takes about 6 weeks to prepare and then cast that batch of engine casings. Then they spend the next 8 or 9 months undergoing weld repairs (there are always voids), finish machining, and what really takes the time is the one or two heat treats to relieve stress as furnace time for large items is precious. Then the finished casing goes to the engine line and sits for a planned 2 months. That is because the first steps of engine assembly are the rotor assembly and the casing assembly. (e.g., add externals to the casing and then put in the rotors and then the final external stuff). If you lack a rotor, casing, or shaft, you cannot start assembling that engine serial number, so you want the "I cannot start without" parts on the shelf a little early. e.g, the oil sump parts go in the casing day 1, so they also must be on hand as they must be put in before any shaft/rotor.

Notice that if there is a strike, weather, or other reason production is disrupted, there are only a few months to recover on a 2 year lead time item. Other 2 year items are the landing gear, engine shafts & rotors, landing gear bays, wingbox (due to the shear amount of serial assembly time), and avionics (to get the chips from the foundries, but those are cheap enough I do not know of any company that doesn't keep a 2 year inventory just in case the next hot electronic item doesn't disrupt supply).

Interesting times ahead...

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

Wed Nov 04, 2020 3:48 pm

oldJoe wrote:
At the day when the Max grounding is lifted any airline wich did not cancel or deffered deliveries and took compensation in any form is in no obligation or even has no valid contract ?
IMO Boeing is in the same position like Airbus to force deliveries at this day ( hope RTS to be soon )

I think smartplane's posts from yesterday ( viewtopic.php?f=3&t=1451221&start=300#p22494643 and viewtopic.php?f=3&t=1451221&start=350#p22494735 ) are worth re-reading.

The industry is not just sitting around waiting for doomsday to come along and start reaping.

In particular, in the case of Boeing, they have been renegotiating contracts to new ones that have automatic changes in compensation based on how things play out, with some of the compensation in the form of credits to incentivize retention:

smartplane wrote:
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.

Note that these activities started and in many cases closed before the impact of COVID19 was known. I suppose some airlines or lessors could have just sat back and said "if I do nothing for long enough I may be able to get out of this contract" but I doubt it went down that way. Most would have had large enough deposits to make them want to engage, and pre-covid MAX would have been a large part of their fleet planning so they would have needed some firmness on exactly when they would be getting MAX and when they could retire their current aircraft, or what the consequences were if the timeline kept shifting.
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Re: The case for more aircraft production cuts/playing chicken

Wed Nov 04, 2020 4:16 pm

Is the engine casing the same as the combustion chamber plus turbines/compressor housing? I assume that is a one piece and massive. Wiki did not use that term. There illustration and comments are well done, obviously simplified.
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Re: The case for more aircraft production cuts/playing chicken

Wed Nov 04, 2020 4:22 pm

It’s rather shocking when you look at the numbers @lightsaber so meticulously pointed out. I appreciate his detail and research while putting hard numbers on what we’ve likely known for some time. It seemed there was going to be a tremendous backlog but when you start talking about the actual numbers the perspective is startling.

6000 excess planes
1500 scrapped
1500 long term parked but perfectly fine for service re-entry.
3000 grounded but ready to go at a moments notice

That’s 4500 serviceable aircraft with years and years of life left.

My biggest question is what entity takes the red ink hit for this? My next biggest question is who owns the 4500 and out of those how many are encumbered with financing? You can’t just ignore 4500 perfectly good airplanes and they can’t be scrapped if they’re financed unless the lender approves. Is it the leasing companies? Airlines? Manufacturers?

I previously used the stretched rubber band analogy but it might be like musical chairs. Someone is not going to have a seat when the music stops. This might be the industry’s equivalent of home foreclosures in 2008-2009 although the “owners” in this case have deep pockets. Im hoping it’s not John Q Public and instead banks, capital investors and the like end up writing this mess off.
 
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Re: The case for more aircraft production cuts/playing chicken

Wed Nov 04, 2020 4:32 pm

frmrCapCadet wrote:
Is the engine casing the same as the combustion chamber plus turbines/compressor housing? I assume that is a one piece and massive. Wiki did not use that term. There illustration and comments are well done, obviously simplified.

The engine casing is the part that gets cut away in the cut-away diagrams, lol. It holds the rotating parts and provides (some) containment should there be a rapid unplanned disassembly. It isn't necessarily one piece. I've watched RR engine assembly videos and it seems the HP spool has its own case, then hot and cold IP and LP sections have their own cases, with the sections all bolted together. It gets assembled vertically like a layer cake.
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Re: The case for more aircraft production cuts/playing chicken

Wed Nov 04, 2020 4:48 pm

75driver wrote:
It’s rather shocking when you look at the numbers @lightsaber so meticulously pointed out. I appreciate his detail and research while putting hard numbers on what we’ve likely known for some time. It seemed there was going to be a tremendous backlog but when you start talking about the actual numbers the perspective is startling.

6000 excess planes
1500 scrapped
1500 long term parked but perfectly fine for service re-entry.
3000 grounded but ready to go at a moments notice

That’s 4500 serviceable aircraft with years and years of life left.

My biggest question is what entity takes the red ink hit for this? My next biggest question is who owns the 4500 and out of those how many are encumbered with financing? You can’t just ignore 4500 perfectly good airplanes and they can’t be scrapped if they’re financed unless the lender approves. Is it the leasing companies? Airlines? Manufacturers?

I previously used the stretched rubber band analogy but it might be like musical chairs. Someone is not going to have a seat when the music stops. This might be the industry’s equivalent of home foreclosures in 2008-2009 although the “owners” in this case have deep pockets. Im hoping it’s not John Q Public and instead banks, capital investors and the like end up writing this mess off.

Yes, that is the most interesting part, what happens going forward?

But I tend to think of seats rather than frames, and it'd be interesting to know those numbers.

And I can't stop thinking about the ones that will never return. Perfectly viable one day, a few months later they're down to scrap value.

Above we had:

JayinKitsap wrote:
Any airline in the process of returning planes in good condition will be getting fantastic terms for extending - anything to not get back a plane that must be stored.

All the players knew how to deal with a 10-15% downturn of traffic in a quarter, but this 50% for NB's and near 90% for WB's is a new world. We're going to see a lot of models disappear from service:
-Last of the MD planes except some freighters, including the B717.
-The 737 classics will be pushed out. The 757's will just be freighters. 747's being cleared out, except 748F's. The 767's are nearly out of passenger service, but doing well as freighters. The 777's before the 77W & 77L will dwindle down.
- Airbus A300 & 310's see their retirement as freighters, older A320's and A330's, the last of the A340's and A380's is in sight.

Just brutal.

If you think of the seat count that will not return, it's huge because there were so many aging wide bodies out there that were kinda close to the edge with regard to retirement but are now firmly over the edge and aren't coming back. There are plenty of examples of fleets that just got cabin refresh that are now going to the scrapyard. This would have seemed to have been insane less than a year ago. Yet early on I pointed out how 9/11/2000 had killed off several fleet types especially the larger wide bodies like 747 classic and people didn't seem to think it'd happen this time, but now it sure has.
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Re: The case for more aircraft production cuts/playing chickenhttp://www.cdc.gov/healthyweight/assessing/bmi/childrens_b

Wed Nov 04, 2020 5:35 pm

Revelation wrote:
frmrCapCadet wrote:
Is the engine casing the same as the combustion chamber plus turbines/compressor housing? I assume that is a one piece and massive. Wiki did not use that term. There illustration and comments are well done, obviously simplified.

The engine casing is the part that gets cut away in the cut-away diagrams, lol. It holds the rotating parts and provides (some) containment should there be a rapid unplanned disassembly. It isn't necessarily one piece. I've watched RR engine assembly videos and it seems the HP spool has its own case, then hot and cold IP and LP sections have their own cases, with the sections all bolted together. It gets assembled vertically like a layer cake.

A trent (triple spool assembly).

https://www.youtube.com/watch?v=K2R6NTgvEV4

At 0:14 you see the fan casing (with fixed fan stators already installed)
At 0:21 through 0:28, you see externals being installed to what looks like the booster compressor casing (sorry, I haven't memorized every triple spool part)
At 0:33 through 0:42 you can see two of the casings being stacked on each other
At 0:48 through 0:55 lots of work on the compressor casing then stack
At 1:07 the low spool shaft being installed

Now RR, like Pratt and GE do module centers. It looks like the oil system, combustor, booster compressor, and turbines were pre-installed at another factory which is responsible for the modules being delivered.

I work in an industry that sucks at PR videos.
Don't blink on the CFM-56
Step 1 high pressure core assembly: attach the high compressor casing to the fan casing (includes combustor)
Step 2 install the low pressure turbine and casing
And then you are to the more anxillary steps already...

https://www.youtube.com/watch?v=ZNZjPjY4bJw

Seriously, don't blink, steps 1 and 2 had all the long lead time parts...

I couldn't find a good Pratt assembly, this artsy GTF overview is the best I found:
https://www.youtube.com/watch?v=QN-wkxG1hD0

Here is an "advanced" Pratt manufacturing tech video that managed to not show one thing I consider innovative in the Pratt manufacturing
https://www.youtube.com/watch?v=zx1eoudkIG0

What I consider innovative is the engine assembly line:
https://www.wnpr.org/post/pratt-and-whi ... embly-line

Or the friction welders and how Pratt designed around them (but that makes the compressors longer lead items... cest la vie, nothing is free).

When I talk economics of scale in production, it is that engine assembly line. Yes, CFM is a powerhouse and that assembly line is just being competitive. The difference is Pratt can switch Purepower engines (PW1100/PW1400/PW1500/PW1200/PW815/PW812/PW1900/PW1700) on the same basis as a Japanese auto assembly line (1/2 shift). In fact, Pratt realized less bored technicians produce better quality, so one intentional change is switching the line more often (about 1/2 shift) to create task variety and have people rotate stations a bit.
https://www.wnpr.org/post/pratt-and-whi ... embly-line


Even though 3D printing is more efficient, it takes longer to get the raw material (the titanium must be processed 'just so' to be 3D printed). Sigh... I so wish aerospace grade aluminums could be 3D printed. While aluminums can be 3D printed, so far none of the great alloys I'm used to working with (better stress corrosion or regular corrosion, or take a thinner coating for corrosion protection, or higher strength, or crack resistant... Yea, we need the aerospace grade aluminums for 3D printing, the industry is trying...)

This is what the manufacturers are trying to preserve. Aerospace is a low volume, high precision industry. Often for the vendors (e.g., small casting shops) it is the low volume high profit side of the business. I have seen aerospace titanium parts sitting, waiting for weeks for a furnace for heat treatment, while golf clubs go through the furnace. Since titanium parts usually need 6 to 8 heat treatments in the furnace, a series of those wait times for high volume parts ensures a long lead time. The vendors would love to be paid more for priority furnace time (some of the delays are, in my opinion, a negotiating tactic).

Since engines are delivered typically at a loss (the profit comes from support and parts), the supply chain must be optimized. Since so much of aircraft profit is at delivery, Airbus and Boeing must optimize the supply chain for delivery.

The reduction in production is really mucking up the supply chain. If one can keep high production while the other cannot, that is a competitive advantage.

However, this impacts cost and weight reduction PiPs which quickly goes off thread. e.g., Pratt already owns the friction welders and the engine assembly line. It doesn't matter if volume drops (until you don't have enough volume to fill all the stations on the assembly line), you have those huge efficiency gains baked in. Same with the better multi-axis automatic machining. Or if vendor minimums cannot be met. (I'm betting lots of incoming parts to meet said minimums.)

Unfortunately, the industry has to slow down. :cry2:
Ghad... I am so anticipating the quarterly reports of the aircraft leasing companies. That is going to be eye opening, but some are a good time away (see prior post).

Lightsaber
I cannot wait to get vaccinated to live again! Warning: I simulated that it takes 50%+ vaccinated to protect the vaccinated and 75%+ vaccinated to protect the vac-hesitant.
 
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Re: The case for more aircraft production cuts/playing chickenhttp://www.cdc.gov/healthyweight/assessing/bmi/childrens_b

Wed Nov 04, 2020 7:00 pm

lightsaber wrote:
Revelation wrote:
frmrCapCadet wrote:
Is the engine casing the same as the combustion chamber plus turbines/compressor housing? I assume that is a one piece and massive. Wiki did not use that term. There illustration and comments are well done, obviously simplified.

The engine casing is the part that gets cut away in the cut-away diagrams, lol. It holds the rotating parts and provides (some) containment should there be a rapid unplanned disassembly. It isn't necessarily one piece. I've watched RR engine assembly videos and it seems the HP spool has its own case, then hot and cold IP and LP sections have their own cases, with the sections all bolted together. It gets assembled vertically like a layer cake.

A trent (triple spool assembly).

https://www.youtube.com/watch?v=K2R6NTgvEV4

At 0:14 you see the fan casing (with fixed fan stators already installed)
At 0:21 through 0:28, you see externals being installed to what looks like the booster compressor casing (sorry, I haven't memorized every triple spool part)
At 0:33 through 0:42 you can see two of the casings being stacked on each other
At 0:48 through 0:55 lots of work on the compressor casing then stack
At 1:07 the low spool shaft being installed

Now RR, like Pratt and GE do module centers. It looks like the oil system, combustor, booster compressor, and turbines were pre-installed at another factory which is responsible for the modules being delivered.

I work in an industry that sucks at PR videos.
Don't blink on the CFM-56
Step 1 high pressure core assembly: attach the high compressor casing to the fan casing (includes combustor)
Step 2 install the low pressure turbine and casing
And then you are to the more anxillary steps already...

https://www.youtube.com/watch?v=ZNZjPjY4bJw

Seriously, don't blink, steps 1 and 2 had all the long lead time parts...

I couldn't find a good Pratt assembly, this artsy GTF overview is the best I found:
https://www.youtube.com/watch?v=QN-wkxG1hD0

Here is an "advanced" Pratt manufacturing tech video that managed to not show one thing I consider innovative in the Pratt manufacturing
https://www.youtube.com/watch?v=zx1eoudkIG0

What I consider innovative is the engine assembly line:
https://www.wnpr.org/post/pratt-and-whi ... embly-line

Or the friction welders and how Pratt designed around them (but that makes the compressors longer lead items... cest la vie, nothing is free).

When I talk economics of scale in production, it is that engine assembly line. Yes, CFM is a powerhouse and that assembly line is just being competitive. The difference is Pratt can switch Purepower engines (PW1100/PW1400/PW1500/PW1200/PW815/PW812/PW1900/PW1700) on the same basis as a Japanese auto assembly line (1/2 shift). In fact, Pratt realized less bored technicians produce better quality, so one intentional change is switching the line more often (about 1/2 shift) to create task variety and have people rotate stations a bit.
https://www.wnpr.org/post/pratt-and-whi ... embly-line


Even though 3D printing is more efficient, it takes longer to get the raw material (the titanium must be processed 'just so' to be 3D printed). Sigh... I so wish aerospace grade aluminums could be 3D printed. While aluminums can be 3D printed, so far none of the great alloys I'm used to working with (better stress corrosion or regular corrosion, or take a thinner coating for corrosion protection, or higher strength, or crack resistant... Yea, we need the aerospace grade aluminums for 3D printing, the industry is trying...)

This is what the manufacturers are trying to preserve. Aerospace is a low volume, high precision industry. Often for the vendors (e.g., small casting shops) it is the low volume high profit side of the business. I have seen aerospace titanium parts sitting, waiting for weeks for a furnace for heat treatment, while golf clubs go through the furnace. Since titanium parts usually need 6 to 8 heat treatments in the furnace, a series of those wait times for high volume parts ensures a long lead time. The vendors would love to be paid more for priority furnace time (some of the delays are, in my opinion, a negotiating tactic).

Since engines are delivered typically at a loss (the profit comes from support and parts), the supply chain must be optimized. Since so much of aircraft profit is at delivery, Airbus and Boeing must optimize the supply chain for delivery.

The reduction in production is really mucking up the supply chain. If one can keep high production while the other cannot, that is a competitive advantage.

However, this impacts cost and weight reduction PiPs which quickly goes off thread. e.g., Pratt already owns the friction welders and the engine assembly line. It doesn't matter if volume drops (until you don't have enough volume to fill all the stations on the assembly line), you have those huge efficiency gains baked in. Same with the better multi-axis automatic machining. Or if vendor minimums cannot be met. (I'm betting lots of incoming parts to meet said minimums.)

Unfortunately, the industry has to slow down. :cry2:
Ghad... I am so anticipating the quarterly reports of the aircraft leasing companies. That is going to be eye opening, but some are a good time away (see prior post).

Lightsaber

Thanks for the links. All very interesting stuff. I had seen the RR one before but not the GTF one. I had forgotten how big the gears are on the GTF. It's funny now how they are proud of all the applications for the GTF. I'm sure each was important in its time but the A320 family is going to be the cash cow and the rest will end up being seen as inconvenient burdens in the long run I would think. Funny again that MRJ was the launch customer and is now on ice.
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VictorKilo
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Re: The case for more aircraft production cuts/playing chicken

Thu Nov 05, 2020 2:23 am

lightsaber wrote:

The ideal aerospace recession is old Aircraft are parked or scrapped. If they are pulled out of the desert, for example DL pulling out the NW A320s, it is for a short time until better new build aircraft can replace them It is my opinion that was DL's plan, but that the buying surge went on longer than DL anticipated.



Delta is an airline that does have High/Medium/Low Utilization Fleets, and it is also an airline that places a priority on having all of the aircraft in their fleet look and feel roughly similar from an interior standpoint. Since Delta would have to spend money to configure any used, new-to-them aircraft to a DL interior package, it is the cash preserving option to have the low utilization portion of their fleet be A320s and B752s that were already in their fleet and are already configured to DL specs, even if they have to spend some money to maintain and check the aircraft.

And this is with a narrowbody fleet, whose interiors cost less to refresh than a widebody fleet. We've already seen retrofit costs help influence fleet decisions - pre-COVID Air France cited interior refresh costs as one of the items that prevented further profitable operation of the A380. My gut feel is that, given a relatively higher cost to retrofit, for planes of the same age there will be a more robust used market for narrowbodies than widebodies. Whitetails and the newest examples (787s and 350s rejected in the LATAM bankruptcy for example) may find a new home, and 763 and 77W may be supported by a robust P2F market, but 772 and older A330s are likely to be scrapped.
 
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Re: The case for more aircraft production cuts/playing chicken

Thu Nov 05, 2020 8:39 am

Airbus is planning to increase the prod rate of the A350 average production volume of 3.5 APM in 2020, to 5 APM end of 2021 :spin:

What the hell are they smoking???

https://leehamnews.com/2020/11/05/hotr- ... s-decline/
 
mjoelnir
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Re: The case for more aircraft production cuts/playing chicken

Thu Nov 05, 2020 10:53 am

JonesNL wrote:
Airbus is planning to increase the prod rate of the A350 average production volume of 3.5 APM in 2020, to 5 APM end of 2021 :spin:

What the hell are they smoking???

https://leehamnews.com/2020/11/05/hotr- ... s-decline/


I assume that Airbus has to fulfill contracts.
 
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Re: The case for more aircraft production cuts/playing chicken

Thu Nov 05, 2020 1:19 pm

JonesNL wrote:
Airbus is planning to increase the prod rate of the A350 average production volume of 3.5 APM in 2020, to 5 APM end of 2021 :spin:

What the hell are they smoking???

https://leehamnews.com/2020/11/05/hotr- ... s-decline/


Presumably just trying to wind A-net up by having no underlying logic to the rate :)

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

Thu Nov 05, 2020 1:45 pm

astuteman wrote:
JonesNL wrote:
Airbus is planning to increase the prod rate of the A350 average production volume of 3.5 APM in 2020, to 5 APM end of 2021 :spin:

What the hell are they smoking???

https://leehamnews.com/2020/11/05/hotr- ... s-decline/


Presumably just trying to wind A-net up by having no underlying logic to the rate :)

Rgds

I just figured they opened an office in a state where that stuff is legal. ;)

If airlines aren't differing, then Airbus must meet contract. We'll just say I think airlines need to fire a large block of executives who seem to be deer in the headlights...

There will be growth later. I'm just very bearish on narrowbodies until 2023 and widebodies until 2026. It is getting through that period; or whatever the real time frame is, I'm an engineer, I'm supposed to find all the problems... I accept my estimates will naturally be low, so I always multiply by a bit and add a mystery growth factor because there are smart people out there who find opportunities I miss. I just see a bad aerospace recession. The worst of my career. :cry2: I'm angling to get into R&D of a type I'm not an expert on, but the experts there would be very happy to have me manage them for job security.

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

Mon Nov 09, 2020 2:22 pm

Leeham has a new article on record low lease rates and Boeing offering the MAX at much lower margins (still a profit):

https://leehamnews.com/2020/11/09/ponti ... ts-plunge/


If the price of $38M for a -8 and $41 for a -9 is accurate, it means new MAX are trading at the price at which the last 738/739 should be trading at.

Lease rates at $43,600 usd per month is... unprecedented. Yes, I saw it goes up to $72,700 after a year. That is still very cheap.

I hope no one gloats because the example was Boeing. With Indigo returning 120 A320CEOs, that market will be impacted too.

Boeing had high margins on the MAX and now we can debate if the cover all overhead or not (if not, how much will overhead be reduced?).

In this low volume era, it will only take a few transactions to reset the pricing.

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

Mon Nov 09, 2020 3:06 pm

lightsaber wrote:
Leeham has a new article on record low lease rates and Boeing offering the MAX at much lower margins (still a profit):

https://leehamnews.com/2020/11/09/ponti ... ts-plunge/


If the price of $38M for a -8 and $41 for a -9 is accurate, it means new MAX are trading at the price at which the last 738/739 should be trading at.

Lease rates at $43,600 usd per month is... unprecedented. Yes, I saw it goes up to $72,700 after a year. That is still very cheap.

I hope no one gloats because the example was Boeing. With Indigo returning 120 A320CEOs, that market will be impacted too.

Boeing had high margins on the MAX and now we can debate if the cover all overhead or not (if not, how much will overhead be reduced?).

In this low volume era, it will only take a few transactions to reset the pricing.

Lightsaber

Great time to be a buyer with 65-70% discounts in the realm of possibility especially if you are a split fleet operator and can play A vs B off each other.

One issue: Don't some other customers have 'most favored nation' clauses that will mean they get $millions in rebates once a new low price is established?
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
 
mjoelnir
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Re: The case for more aircraft production cuts/playing chicken

Mon Nov 09, 2020 3:17 pm

lightsaber wrote:
Leeham has a new article on record low lease rates and Boeing offering the MAX at much lower margins (still a profit):

https://leehamnews.com/2020/11/09/ponti ... ts-plunge/


If the price of $38M for a -8 and $41 for a -9 is accurate, it means new MAX are trading at the price at which the last 738/739 should be trading at.

Lease rates at $43,600 usd per month is... unprecedented. Yes, I saw it goes up to $72,700 after a year. That is still very cheap.

I hope no one gloats because the example was Boeing. With Indigo returning 120 A320CEOs, that market will be impacted too.

Boeing had high margins on the MAX and now we can debate if the cover all overhead or not (if not, how much will overhead be reduced?).

In this low volume era, it will only take a few transactions to reset the pricing.

Lightsaber


This thread talks about the need for both producers to cut their aircraft production. Talking about the price of rather new used frames is a point, but I think many posters forget the main points.

A look at Airbus. Airbus has contracts to deliver certain frames on certain dates. If Airbus one sided delays or cancels those contracts Airbus incurs financial losses. If Airbus cancels outstanding contracts, Airbus will have to return at least the prepayments and and progress payments. If Airbus defers by itself the delivery of contracted frames, they will be breaking contracts and be most likely pay penalties for late delivery.
Airbus has simply to deliver the contracted frames on the contracted dates.

It is a completely different think when the customer wants to cancel frames or defer deliveries. In the case the customer cancels, Airbus should be able to keep most of the order and progress payments. In the case the customer defers the frames, Airbus and the customer will usually come to an agreement.

In case of widebodies, Airbus and Boeing will be in a similar situation, both delivering contracted frames and accepting deferrals when the customer requests them. In the short and medium time frame production will adjust to this numbers and not to prognosis how future orders will appear.

In the case of narrow bodies the situation is completely different for Boeing and Airbus. In the case of the 737MAX, Boeing is in breach of contract regarding delivery time at most of their customers. Airlines will be able to cancel contracts without penalty.

It is well possible that Airbus has to produce and deliver numbers that seem excessive today, just to fulfill the current contracts, whereas Boeing already sees the meltdown of the backlog. I do not want to say, that Airbus does not see deferrals. Production and deliveries of A320 family frames are down to 40 frames a month (from 60+), but we would need to see huge additional deferrals for Airbus to be able to cut production further.
 
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Re: The case for more aircraft production cuts/playing chicken

Mon Nov 09, 2020 3:35 pm

Revelation wrote:
One issue: Don't some other customers have 'most favored nation' clauses that will mean they get $millions in rebates once a new low price is established?


One can wonder if such clauses are current fact or part of a.net lore, never adequately substantiated. Across a very large customer base and a long product cycle such a clause would have real risk.
 
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Re: The case for more aircraft production cuts/playing chicken

Mon Nov 09, 2020 3:59 pm

mjoelnir wrote:
lightsaber wrote:
Leeham has a new article on record low lease rates and Boeing offering the MAX at much lower margins (still a profit):

https://leehamnews.com/2020/11/09/ponti ... ts-plunge/


If the price of $38M for a -8 and $41 for a -9 is accurate, it means new MAX are trading at the price at which the last 738/739 should be trading at.

Lease rates at $43,600 usd per month is... unprecedented. Yes, I saw it goes up to $72,700 after a year. That is still very cheap.

I hope no one gloats because the example was Boeing. With Indigo returning 120 A320CEOs, that market will be impacted too.

Boeing had high margins on the MAX and now we can debate if the cover all overhead or not (if not, how much will overhead be reduced?).

In this low volume era, it will only take a few transactions to reset the pricing.

Lightsaber


This thread talks about the need for both producers to cut their aircraft production. Talking about the price of rather new used frames is a point, but I think many posters forget the main points.

A look at Airbus. Airbus has contracts to deliver certain frames on certain dates. If Airbus one sided delays or cancels those contracts Airbus incurs financial losses. If Airbus cancels outstanding contracts, Airbus will have to return at least the prepayments and and progress payments. If Airbus defers by itself the delivery of contracted frames, they will be breaking contracts and be most likely pay penalties for late delivery.
Airbus has simply to deliver the contracted frames on the contracted dates.

It is a completely different think when the customer wants to cancel frames or defer deliveries. In the case the customer cancels, Airbus should be able to keep most of the order and progress payments. In the case the customer defers the frames, Airbus and the customer will usually come to an agreement.

In case of widebodies, Airbus and Boeing will be in a similar situation, both delivering contracted frames and accepting deferrals when the customer requests them. In the short and medium time frame production will adjust to this numbers and not to prognosis how future orders will appear.

In the case of narrow bodies the situation is completely different for Boeing and Airbus. In the case of the 737MAX, Boeing is in breach of contract regarding delivery time at most of their customers. Airlines will be able to cancel contracts without penalty.

It is well possible that Airbus has to produce and deliver numbers that seem excessive today, just to fulfill the current contracts, whereas Boeing already sees the meltdown of the backlog. I do not want to say, that Airbus does not see deferrals. Production and deliveries of A320 family frames are down to 40 frames a month (from 60+), but we would need to see huge additional deferrals for Airbus to be able to cut production further.

New competes with used. There are contracts. Customers accepting new must compete with another airline flying used. The more new aircraft pushed into the market, the cheaper the used aircraft.

I understand there are contracts and obligations. However, my post is to show how unhealthy the market is.

Yes, Airbus can enforce more deliveries. That just means more available used examples. Enough of the healthier airlines were on the sidelines. Ryanair and Southwest will take advantage if discounted MAX as well as this competition.

In the shirt to medium timeframe, production far exceeds market demand. That will drive down pricing. Airlines with large orders at prior pricing will be at a disadvantage. Financing will have to be at the new pricing, which will directly impact Airbus; Boeing has taken (mostly) their medicine due to all the credits Boeing has already issued.

There is no discussing new aircraft being in surplus without discussing the used market. The 737 and A320 markets are not independent as many airlines opperate both.

Revelation wrote:
lightsaber wrote:
Leeham has a new article on record low lease rates and Boeing offering the MAX at much lower margins (still a profit):

https://leehamnews.com/2020/11/09/ponti ... ts-plunge/


If the price of $38M for a -8 and $41 for a -9 is accurate, it means new MAX are trading at the price at which the last 738/739 should be trading at.

Lease rates at $43,600 usd per month is... unprecedented. Yes, I saw it goes up to $72,700 after a year. That is still very cheap.

I hope no one gloats because the example was Boeing. With Indigo returning 120 A320CEOs, that market will be impacted too.

Boeing had high margins on the MAX and now we can debate if the cover all overhead or not (if not, how much will overhead be reduced?).

In this low volume era, it will only take a few transactions to reset the pricing.

Lightsaber

Great time to be a buyer with 65-70% discounts in the realm of possibility especially if you are a split fleet operator and can play A vs B off each other.

One issue: Don't some other customers have 'most favored nation' clauses that will mean they get $millions in rebates once a new low price is established?

For Boeing, I speculate the credits are already bringing prices down, clause or no clause.

Reality has to be accepted. If the only way for Boeing to sell MAX is discounts, they will discount. There are numerous airlines who hadn't committed to fleet replacement who will be in play: Southwest (A220 vs. -7), Delta, IAG, Lufthansa, and Qantas come to mind.

Airbus is in a better position due to backlog and the A321xLR (no direct competition). Airlines need a competitive advantage. If that is cheap MAXs, per the link about $5 million cheaper than pre-Covid19/grounding, that is an option.

I believe the production rates far exceed what airlines can viably accept. I believe this will put Frontier and Spirit at a disadvantage to Allegiant and Southwest. I believe this puts Easyjet and Wizz at a disadvantage to Ryanair and possibly IAG.

Normally, the aircraft ownership/finance costs are about 15% of opperating costs or 10% of total costs. A roughly 12% to 15% drop in ownership costs should improve the airline profit margin just over 1%. I think that us helpful (but also puts this into perspective).

For airlines as in the example link, used is so cheap, buying new cannot be considered. In particular for low utilization duty (Volotea, Allegiant). This will help those airlines expand quickly once demand starts to return.

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

Mon Nov 09, 2020 4:31 pm

It looks like A220 is being caught up in the numbers game:

Airbus SE’s A220 jetliner program suffered the biggest setback since the start of the coronavirus crisis as Air Canada canceled orders for 12 aircraft to conserve cash.

The carrier will also defer the handover of the remaining 18 A220s it had been due to receive in 2021 and 2022, according to an earnings filing Monday, though it expects to take delivery of five of the type this quarter.

Ref: https://www.bloomberg.com/news/articles ... ncellation
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jeffrey0032j
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Re: The case for more aircraft production cuts/playing chicken

Mon Nov 09, 2020 4:44 pm

Revelation wrote:
It looks like A220 is being caught up in the numbers game:

Airbus SE’s A220 jetliner program suffered the biggest setback since the start of the coronavirus crisis as Air Canada canceled orders for 12 aircraft to conserve cash.

The carrier will also defer the handover of the remaining 18 A220s it had been due to receive in 2021 and 2022, according to an earnings filing Monday, though it expects to take delivery of five of the type this quarter.

Ref: https://www.bloomberg.com/news/articles ... ncellation

Looks like its a game of blink, not between A and B but between Airbus and their customers. Boeing's customers started earlier with the Max crisis.
 
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lightsaber
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Re: The case for more aircraft production cuts/playing chicken

Mon Nov 09, 2020 4:50 pm

Revelation wrote:
It looks like A220 is being caught up in the numbers game:

Airbus SE’s A220 jetliner program suffered the biggest setback since the start of the coronavirus crisis as Air Canada canceled orders for 12 aircraft to conserve cash.

The carrier will also defer the handover of the remaining 18 A220s it had been due to receive in 2021 and 2022, according to an earnings filing Monday, though it expects to take delivery of five of the type this quarter.

Ref: https://www.bloomberg.com/news/articles ... ncellation

Sad, but 45 orders to 33 isn't the end of the world. More concerning is the lack of 2021/2022 deliveries. The A220 is still establishing economics of scale (parts production, MRO support), so these differals hurt it more. It means that after an overhaul, there will be a long wait for part refurbishment, which hurts overhaul costs (too many new parts required due to lag rebuilding used parts).

Note: The same is true of the competition. I might complain that rate 40 is too might, but that ensures a heady flow if parts. No one will wonder on the A32xNEO or MAX if rebuilds will take over a year. Those will be at most a six month wait and eventually will be like CFM-56 parts where the batches of rebuilds are often quarterly just to clear out the volume of parts building up (it takes 8,000+ in service of something for quarterly overhauls).

The A220 production ramp was basically aborted. JetBlue, Breeze, and a few other deliveries will keep the line alive during the downturn.

The issue is getting 400+ in service to stimulate the part overhaul market.

Lightsaber

Late edit: I do note AC cancelled MAXes. I do believe this us cash conservation.
I cannot wait to get vaccinated to live again! Warning: I simulated that it takes 50%+ vaccinated to protect the vaccinated and 75%+ vaccinated to protect the vac-hesitant.
 
Sokes
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Re: The case for more aircraft production cuts/playing chicken

Mon Nov 09, 2020 5:40 pm

How should airlines defer planes?
If Airbus was sold out for years at a production rate of 60/ month and now we are at 40/ month, how could an airline defer deliveries from 2021 to e.g. 2022?
The airline would have to defer to the end of the queue. Anybody knows how long production slots are sold out?
Why can't the world be a little bit more autistic?
 
astuteman
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Re: The case for more aircraft production cuts/playing chicken

Mon Nov 09, 2020 5:45 pm

lightsaber wrote:
Yes, Airbus can enforce more deliveries.


I must confess that I still haven't quite got my head around the notion of Airbus as "The Bad Guy", "forcing" production onto airlines as a blanket policy in order to secure an "artificially high" production rate of 40 per month, irrespective of reality.
In these difficult times I have to believe that serious, constructive and collaborative conversations are being had between all parties.
We know the Chinese are still taking.
The link I posted previously shows that Indigo's approach is to use the Covid demand hit to get rid of the old A320's and concentrate the fleet all around new, efficient NEO's to give them an advantage when the uptick finally comes. I'm sure if I can find them as an example, they are not going to be alone.

The Airbus rate dropping from 60+ tending towards 70, down to 40 clearly shows that LOTS OF DEFERRALS are already happening.
As Mjoelnir points out, if an airline contractually wants a delivery, Airbus are contractually obliged to deliver - they don't really have a choice.

We can debate ad-nauseam whether or not the individual behaviours of the entities in the industry collectively amounts to a coherent strategy.
I've yet to see the real evidence that puts the blame for a non-coherent strategy on Airbus "forcing" deliveries, and not on individual airlines trying out strategies which collectively lead to gross oversupply. It wouldn't be the first time.

I don't know if Airbus were outside contract terms with AC for their A220's, but the cancellation of 12 suggests that Airbus will play ball when needed.
As does this.....

https://www.flightglobal.com/fleets/sia ... 2009112020

So SIA have reached agreement with Airbus on deferrals - clearly an "agreement" and not a "forcing".
Notably, at the risk of being partisan, an agreement with Boeing has not yet been sealed. :scratchchin:

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

Mon Nov 09, 2020 5:55 pm

Breaking news: the BBC is reporting that Pfizer has announced that its Covid-19 vaccine has achieved >90% protection against infection from a trial of some 44K people in a number of different countries. It claims it will have 50M vaccines by year end, and 1.3B next year
https://www.bbc.com/news/health-54873105

Based in that, the world's stock markets are surging, and I heard on BBC that IAG is up 25%, AF/KLM even more at 27%
https://www.lse.co.uk/SharePrice.asp?sh ... l-Airlines

RR is up over 40%
https://www.lse.co.uk/SharePrice.asp?sh ... e-Holdings

You can all check other companies as you like.

Anecdotally, I heard on the same BBC news but don't find anything written that airline bookings (for next year????) have also exploded

Light at the end of this particularly dark tunnel?
 
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NeBaNi
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Re: The case for more aircraft production cuts/playing chicken

Mon Nov 09, 2020 6:33 pm

Revelation wrote:
It looks like A220 is being caught up in the numbers game:

Airbus SE’s A220 jetliner program suffered the biggest setback since the start of the coronavirus crisis as Air Canada canceled orders for 12 aircraft to conserve cash.

The carrier will also defer the handover of the remaining 18 A220s it had been due to receive in 2021 and 2022, according to an earnings filing Monday, though it expects to take delivery of five of the type this quarter.

Ref: https://www.bloomberg.com/news/articles ... ncellation

Just to present a more complete picture, Air Canada canceled 10 MAXes as well.
 
MIflyer12
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Re: The case for more aircraft production cuts/playing chicken

Mon Nov 09, 2020 6:36 pm

Sokes wrote:
How should airlines defer planes?
If Airbus was sold out for years at a production rate of 60/ month and now we are at 40/ month, how could an airline defer deliveries from 2021 to e.g. 2022?
The airline would have to defer to the end of the queue. Anybody knows how long production slots are sold out?


Sokes wrote:
The airline would have to defer to the end of the queue.


Why do you assert that? Some carrier XX defers 2020 deliveries into 2021, some other carrier defers 2021 into 2022, and so on. It's a big game of delivery Tetris for MAX and A32X with their large customer bases and higher production rates. A220, maybe not so much, but some.

Sokes wrote:
Anybody knows how long production slots are sold out?


Broadly speaking, no manufacturer is old out of anything any more. Boeing and Airbus backlogs have more holes than a big block of Emmentaler Swiss cheese! Deferments will open up near-term slots for opportunistic buyers with strong financing. Some carriers won't have money and will be forced to defer irrespective of financial penalties. Some carriers will go the bankruptcy restructuring route, enabling them to cancel purchase and lease commitments. Some carriers (and maybe a leasing company or two) will be liquidated. If demand comes back strongly Boeing and Airbus will be happy to return to previous production rates on MAX and 32X. Any carrier with money will have no difficulty buying or leasing new aircraft for several years to come. (Further, see lightsaber's remarks about used competing with new.)

Set a Google Calendar reminder for late February 2025, when Boeing and Airbus' financial results for 2024 will be released. Compare the sum of deliveries they will have made 2020-2024 with the backlogs and production rates of December 2019. This is a multi-year industry recession - the absence of 2020 profits and sharp rise in carrier debt guarantee it, no matter what happens with COVID vaccines. IATA in late December 2019 was forecasting a worldwide industry profit of $29.3 Billion for 2020; a few weeks ago they predicted 2021 (repeat, 2021) revenues to be off 46% from 2019 levels.
 
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lightsaber
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Re: The case for more aircraft production cuts/playing chicken

Mon Nov 09, 2020 6:37 pm

astuteman wrote:
lightsaber wrote:
Yes, Airbus can enforce more deliveries.


I must confess that I still haven't quite got my head around the notion of Airbus as "The Bad Guy", "forcing" production onto airlines as a blanket policy in order to secure an "artificially high" production rate of 40 per month, irrespective of reality.
In these difficult times I have to believe that serious, constructive and collaborative conversations are being had between all parties.
We know the Chinese are still taking.
The link I posted previously shows that Indigo's approach is to use the Covid demand hit to get rid of the old A320's and concentrate the fleet all around new, efficient NEO's to give them an advantage when the uptick finally comes. I'm sure if I can find them as an example, they are not going to be alone.

The Airbus rate dropping from 60+ tending towards 70, down to 40 clearly shows that LOTS OF DEFERRALS are already happening.
As Mjoelnir points out, if an airline contractually wants a delivery, Airbus are contractually obliged to deliver - they don't really have a choice.

We can debate ad-nauseam whether or not the individual behaviours of the entities in the industry collectively amounts to a coherent strategy.
I've yet to see the real evidence that puts the blame for a non-coherent strategy on Airbus "forcing" deliveries, and not on individual airlines trying out strategies which collectively lead to gross oversupply. It wouldn't be the first time.

I don't know if Airbus were outside contract terms with AC for their A220's, but the cancellation of 12 suggests that Airbus will play ball when needed.
As does this.....

https://www.flightglobal.com/fleets/sia ... 2009112020

So SIA have reached agreement with Airbus on deferrals - clearly an "agreement" and not a "forcing".
Notably, at the risk of being partisan, an agreement with Boeing has not yet been sealed. :scratchchin:

Rgds

Most airlines have contractually committed to take aircraft, but really cannot afford them.

Most will reach agreements, hopefully.

I am more bearish than many even with the amazing vaccine news released today. People must repay owed rent and mortgages. While good news, we need to see what level the economy resets and the timeline for vaccine distro.

I am looking more at the big picture, there isn't overall demand for rate 40 combined with others that must be delivered.

I meant enforce as in the legal term to enforce the contract. Airlines must renegotiate. I respect it is a two way street. No where did I call Aurbus as being the bad guy, but it is putting their customers at a disadvantage.

We've seen over-supply, but not since the 1970s on anything analogous. That is the last time we had a global shock. I personally believe this is a greater shock and the market is fundamentally over-supplied.

I haven't bothered to discuss widebodies as that market just depresses me.

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.
 
iamlucky13
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Re: The case for more aircraft production cuts/playing chicken

Mon Nov 09, 2020 7:41 pm

sassiciai wrote:
Breaking news: the BBC is reporting that Pfizer has announced that its Covid-19 vaccine has achieved >90% protection against infection from a trial of some 44K people in a number of different countries. It claims it will have 50M vaccines by year end, and 1.3B next year
https://www.bbc.com/news/health-54873105

Based in that, the world's stock markets are surging, and I heard on BBC that IAG is up 25%, AF/KLM even more at 27%
https://www.lse.co.uk/SharePrice.asp?sh ... l-Airlines

RR is up over 40%
https://www.lse.co.uk/SharePrice.asp?sh ... e-Holdings

You can all check other companies as you like.

Anecdotally, I heard on the same BBC news but don't find anything written that airline bookings (for next year????) have also exploded

Light at the end of this particularly dark tunnel?


The light is getting brighter, but it's been visible for a while.

This is a continuation of the trend of promising results that have been coming out for months. 90% effectiveness is very good, but definitely within the range of credible expectations.

As far as I understood it, the airline industry forecasts that many here are concerned may be too optimistic have been based on the assumption an effective vaccine is approved in early 2021, followed very shortly by travel returning to approximately 80% of 2019 levels, and then more gradually recovering the rest of the way and resuming a more modest long term growth trend around 2023-2024.

My view is today's news from Pfizer means airlines don't need to adjust their projections downward yet another time, not that it means they can adjust them upward.

Keep in mind, we already know it gets worse again before it gets better. Much of Europe just enacted new restrictions in response to massive growth in infection rates (6x approximately 2 months). This may happen elsewhere, as well. The restrictions are better targeted and will likely be better mitigated this time than last spring, but it's still another setback the industry has to get past.
 
Sokes
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Re: The case for more aircraft production cuts/playing chicken

Tue Nov 10, 2020 1:35 am

MIflyer12 wrote:
Broadly speaking, no manufacturer is old out of anything any more.

If an airline goes bankrupt slots may become free. What if a new investor buys the airline and still wants the 2023 delivery slot?
I admit that doesn't account for US type of bankruptcies.

Otherwise did airlines really cancel 2023 or 2024 delivery slots?
Five years or so backlog suggests to me that airlines were forced to fly frames they would prefer to retire. I believe by 2022 traffic will be normal again. Covid 19 relaxes the situation by whatever was produced from March 2020 to maybe August 2021.
How many frames are these and how many narrowbodies exist?
Why can't the world be a little bit more autistic?
 
smartplane
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Re: The case for more aircraft production cuts/playing chicken

Tue Nov 10, 2020 9:44 am

mjoelnir wrote:
In the case of narrow bodies the situation is completely different for Boeing and Airbus. In the case of the 737MAX, Boeing is in breach of contract regarding delivery time at most of their customers. Airlines will be able to cancel contracts without penalty.

You are assuming Boeing's sales and legal teams have been sitting on their hands since the grounding. While the RTS has been snail like, the re-negotiation of contracts has been at the other end of the spectrum, especially from 1Q20.

Many MAX customers are on contract V3.0 which introduces additional, flexible retrospective credits - increase for delay, decrease once Boeing advise a delivery date and re-start of milestone payments.

Most customers keen to accept delivery, have executed V3.0. We are mostly aware of those who can't / haven't.
 
smartplane
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Re: The case for more aircraft production cuts/playing chicken

Tue Nov 10, 2020 9:58 am

[quote="lightsaber"]I meant enforce as in the legal term to enforce the contract. Airlines must renegotiate. I respect it is a two way street. No where did I call Aurbus as being the bad guy, but it is putting their customers at a disadvantage.[quote]
The only 'disadvantage' of being an Airbus NB customer, is they are building aircraft which can be delivered and operated today.

When the MAX RTS is approved, and new build and built but undelivered are available for delivery, Airbus and Boeing customers will be on a similar footing, though Boeing customers with the added benefit of having negotiated compensation / re-negotiated credits making the already lower cost (to buy) aircraft even cheaper, while for most Airbus customers this dialogue is in progress.
 
mjoelnir
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Re: The case for more aircraft production cuts/playing chicken

Tue Nov 10, 2020 11:05 am

smartplane wrote:
mjoelnir wrote:
In the case of narrow bodies the situation is completely different for Boeing and Airbus. In the case of the 737MAX, Boeing is in breach of contract regarding delivery time at most of their customers. Airlines will be able to cancel contracts without penalty.

You are assuming Boeing's sales and legal teams have been sitting on their hands since the grounding. While the RTS has been snail like, the re-negotiation of contracts has been at the other end of the spectrum, especially from 1Q20.

Many MAX customers are on contract V3.0 which introduces additional, flexible retrospective credits - increase for delay, decrease once Boeing advise a delivery date and re-start of milestone payments.

Most customers keen to accept delivery, have executed V3.0. We are mostly aware of those who can't / haven't.


Nowhere I have assumed that the the Boeing sales team has been sitting on their hands. But in regards to contracts regarding their narrowbody sales, Boeing is in a completely different place than Airbus.

We can assume that in most cases Airbus is in compliance in regards to current contracts, that does set them in a different position in regards to customers. I assume the usual solution for Airbus narrow body customers are deferrals. Cancellations by customers will lead to loss of part or all of the prepayments by the customer.

We can also assume that in many cases Boeing is not in compliance with the original contracts and dates, so some Boeing customers can cancel without incurring loss of deposits. I assume that even Boeing contracts did not anticipate the actual delivery delays.
That is why you see the 737MAX backlog melting away.
 
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lightsaber
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Re: The case for more aircraft production cuts/playing chicken

Fri Nov 20, 2020 3:11 pm

Lessors having issues:
https://aviationweek.com/air-transport- ... ty-lessors

“The fall in passenger demand caused by COVID-19 is driving a dramatic fall in new aircraft commitments, with lease starts down 57% on 2019 levels,” consultancy firm IBA said.

These aircraft, returning off lease with no onward placement, are creating “significant costs” for lessors, according to IBA. Oversupply is also pushing market values down as much as 40% for some aircraft, to “distressed levels,” compared with their base values in more stable times.


We will know more after this winter.

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

Fri Nov 20, 2020 3:34 pm

this is definitely not looking good

lightsaber wrote:
Lessors having issues:
https://aviationweek.com/air-transport- ... ty-lessors

“The fall in passenger demand caused by COVID-19 is driving a dramatic fall in new aircraft commitments, with lease starts down 57% on 2019 levels,” consultancy firm IBA said.

These aircraft, returning off lease with no onward placement, are creating “significant costs” for lessors, according to IBA. Oversupply is also pushing market values down as much as 40% for some aircraft, to “distressed levels,” compared with their base values in more stable times.


We will know more after this winter.

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

Thu Nov 26, 2020 1:50 pm

I'm trying to estimate when the MAX RTS really impacts the resale market. To do so requires a substantial quantity to return to service.

I estimate the jolt happens 3Q2021. This will also impact the lower end of widebodies due to the narrowbody substantial range improvement.

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.
 
stranger706
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Re: The case for more aircraft production cuts/playing chicken

Sun Nov 29, 2020 8:07 pm

Airbus confident in A320 ramp-up

https://www.bloomberg.com/news/articles ... lines-woes

https://simpleflying.com/airbus-a320-20 ... -increase/

Backlog stress-tested
"The anonymous source also tells Bloomberg that the company has “extensively stress-tested its backlog of orders” for the A320 family. Indeed, after this examination of orders, Airbus remains comfortable with its strategy to bump up production."

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