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

Sun Nov 29, 2020 8:17 pm

Airbus has 135 built, but not delivered aircraft. Does anyone know how many whitetails? I'm confused with increasing production with over 3 months production sitting:
https://airwaysmag.com/industry/airbus/ ... roduction/

(Hattip Revelation in the A220 thread).

With the ungrounding of the MAX, there is a huge fleet to return to service, this will impact A320CEO values as well as 737NG values.

Something isn't adding up in the rate increase.

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

Sun Nov 29, 2020 8:17 pm

stranger706 wrote:
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."

Yet not confident in A220 ramp up, since Airways reports Airbus is "restricting" A220 production at YMX to 3 per month and MOB at 1 per month, whereas the pre-covid targets were 10/month at YMX and 4/month at MOB?

https://airwaysmag.com/industry/airbus/ ... -facility/
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Re: The case for more aircraft production cuts/playing chicken

Sun Nov 29, 2020 8:33 pm

PARIS (Reuters) - Airbus has found buyers for six aircraft from the A320neo family rejected by one of its main customers, Malaysia’s AirAsia, as it works off a surplus left by the coronavirus crisis, industry sources said.

Has it been discussed where these six are going?

(a.net search feature - like Ask Jeeves circa 1997)

https://www.reuters.com/article/us-airb ... SKBN287219
 
FluidFlow
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Re: The case for more aircraft production cuts/playing chicken

Mon Nov 30, 2020 8:26 am

To be fair, Airbus has a healthy market in China and domestic Travel there is almost back to pre-Pandemic levels so I can see firesale prices of Neos to Chinese carriers. This clearly helps Airbus a lot right now.
 
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Re: The case for more aircraft production cuts/playing chicken

Mon Nov 30, 2020 3:12 pm

lightsaber wrote:

Does anyone know how many whitetails?

Lightsaber


"While the planemaker has more canceled and deferred aircraft to deal with, Airbus’ Chief Financial Officer Dominik Asam said in October that the number of “white tails” stood at “very low double digits.”"

https://simpleflying.com/airbus-a320-20 ... -increase/
 
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Re: The case for more aircraft production cuts/playing chicken

Mon Nov 30, 2020 3:13 pm

FluidFlow wrote:
To be fair, Airbus has a healthy market in China and domestic Travel there is almost back to pre-Pandemic levels so I can see firesale prices of Neos to Chinese carriers. This clearly helps Airbus a lot right now.

Part of my assumptions are based upon Airbus holding pricing. I agree that China will buy. However, the market growth pre-Covid19 was slowing. Previously, 60% of aircraft purchases were for growth. (I posted links early in the thread).

As there will be little growth from prior levels, that limits new sales, even to China. e.g., big growth sales were to India and Indonesia. While I expect Indigo will honor contracts, I also expect them to carry through on dumping the 120 CEOs back onto the market (again, previously discussed, so links upthread).

Until the leasing market recovers, their demand for new will limit the market. Airbus can force contracts, but that means more A320NEO at leasors. So the question becomes, how many A32xNEO are available at leasors? How many at airlines trying to sell due to reduced demand?

Every model I create has large fleets parked until at least the start of 2023. I'd like to know whose modeling of the market shows something different and the assumptions.

I assume Allegiant, Volotea, Delta, and others will take advantage of cheap used aircraft pricing to bulk up their fleet when expansion times comes back.

New aircraft must always compete with used. Upthread I posted this link on aircraft pricing:
https://leehamnews.com/2020/11/09/ponti ... ts-plunge/

Boeing dropped MAX pricing 20%. That makes it very competitive vs. used. 15 year old aircraft, per that link, are down 20% to 28% for narrowbodies (even more for the E190LR).

So while I expect Airbus to eventually discount, I do not see so for now. But I also do not see demand for a rate increase. Heck, the current rate of 430/year is more than I see the market absorbing before 2023.

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

Mon Nov 30, 2020 3:53 pm

lightsaber wrote:
Boeing dropped MAX pricing 20%. That makes it very competitive vs. used. 15 year old aircraft, per that link, are down 20% to 28% for narrowbodies (even more for the E190LR).

So while I expect Airbus to eventually discount, I do not see so for now. But I also do not see demand for a rate increase. Heck, the current rate of 430/year is more than I see the market absorbing before 2023.

Lightsaber


I still assume you are ignoring the legal aspects too much. The topic is called "playing chicken", and Airbus and Boeing need to make sure their clients are the first ones to blink and want to have the contracts amended, not the otherway around. Otherwise they are opening the flood gates to penalty demands. Signaling to the market that Airbus will honor their delivery commitments will put them into the driver seat, not the airlines. Boeing is doing very much the same with re-instating the 737max production. As much as this forum tends to favor airlines over manufacturerers: the fleet planning was (and is) the airline´s risk, not the suppliers. Yes, I certainly see a need to both to talk - but it is the question who calls first. At at the moment it´s the airlines [and lessors] who have to call.

Even though it has been communicated via Reuters etc. I´m far from believe that this increase is set in stone already. Currently I´m under the impression that it has more to do with setting the stage for more deferrals to come and to be negotiated.
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Re: The case for more aircraft production cuts/playing chicken

Mon Nov 30, 2020 4:08 pm

Flying-Tiger wrote:
The topic is called "playing chicken", and Airbus and Boeing need to make sure their clients are the first ones to blink and want to have the contracts amended, not the otherway around. Otherwise they are opening the flood gates to penalty demands. Signaling to the market that Airbus will honor their delivery commitments will put them into the driver seat, not the airlines.


Manufacturers can't force delivery on carriers that have no money or 3rd party financing. Carrier XX can go 'Hah, hah. We just filed Chapter 11 and are going to cancel orders for 125 321Neos and dump 200 aircraft back onto lessors.'
 
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Re: The case for more aircraft production cuts/playing chicken

Mon Nov 30, 2020 4:25 pm

MIflyer12 wrote:
Flying-Tiger wrote:
The topic is called "playing chicken", and Airbus and Boeing need to make sure their clients are the first ones to blink and want to have the contracts amended, not the otherway around. Otherwise they are opening the flood gates to penalty demands. Signaling to the market that Airbus will honor their delivery commitments will put them into the driver seat, not the airlines.


Manufacturers can't force delivery on carriers that have no money or 3rd party financing. Carrier XX can go 'Hah, hah. We just filed Chapter 11 and are going to cancel orders for 125 321Neos and dump 200 aircraft back onto lessors.'

I agree with Flying-Tiger that Airbus must be in the drivers seat for renegotiations.

I also agree you "cannot push a rope." I believe some airlines cannot renegotiate as they face bankruptcy any which way. This will release quite a few aircraft back onto the market.

My posts are from a market perspective. The market doesn't need 430+ A320NEO, much less a production ramp. However, Airbus must be in the drivers seat for renegotiations. I do not believe they can receive the premium they have previously in future negotiations, so they need to hold prior pricing as long as possible.

This is playing chicken with billions of dollars/Euros and tens of thousands of jobs. To say the least, interesting.

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

Mon Nov 30, 2020 6:49 pm

lightsaber wrote:
Part of my assumptions are based upon Airbus holding pricing.

New aircraft must always compete with used. Upthread I posted this link on aircraft pricing:
https://leehamnews.com/2020/11/09/ponti ... ts-plunge/

Boeing dropped MAX pricing 20%. That makes it very competitive vs. used. 15 year old aircraft, per that link, are down 20% to 28% for narrowbodies (even more for the E190LR).

So while I expect Airbus to eventually discount, I do not see so for now. But I also do not see demand for a rate increase. Heck, the current rate of 430/year is more than I see the market absorbing before 2023.

The key is 'visible' pricing. A lot is going on below the table, like deferred delivery payments (2nd to last) interest free for a period (some based on air travel recovery expressed as a % others fixed term), inflated retrospective credits (if exercised on new orders within a specified timeframe), engine maintenance holidays / waivers, shared equity, guaranteed residuals especially for lessors and financiers.........
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Dec 01, 2020 10:45 am

lightsaber wrote:
FluidFlow wrote:
To be fair, Airbus has a healthy market in China and domestic Travel there is almost back to pre-Pandemic levels so I can see firesale prices of Neos to Chinese carriers. This clearly helps Airbus a lot right now.

Part of my assumptions are based upon Airbus holding pricing. I agree that China will buy. However, the market growth pre-Covid19 was slowing. Previously, 60% of aircraft purchases were for growth. (I posted links early in the thread).

As there will be little growth from prior levels, that limits new sales, even to China. e.g., big growth sales were to India and Indonesia. While I expect Indigo will honor contracts, I also expect them to carry through on dumping the 120 CEOs back onto the market (again, previously discussed, so links upthread).

Until the leasing market recovers, their demand for new will limit the market. Airbus can force contracts, but that means more A320NEO at leasors. So the question becomes, how many A32xNEO are available at leasors? How many at airlines trying to sell due to reduced demand?

Every model I create has large fleets parked until at least the start of 2023. I'd like to know whose modeling of the market shows something different and the assumptions.

I assume Allegiant, Volotea, Delta, and others will take advantage of cheap used aircraft pricing to bulk up their fleet when expansion times comes back.

New aircraft must always compete with used. Upthread I posted this link on aircraft pricing:
https://leehamnews.com/2020/11/09/ponti ... ts-plunge/

Boeing dropped MAX pricing 20%. That makes it very competitive vs. used. 15 year old aircraft, per that link, are down 20% to 28% for narrowbodies (even more for the E190LR).

So while I expect Airbus to eventually discount, I do not see so for now. But I also do not see demand for a rate increase. Heck, the current rate of 430/year is more than I see the market absorbing before 2023.

Lightsaber


Right now talks are, that average growth in China (Aviation) is 5.3-5.5% per year for the period 2020-2040, and 3.5-3.8% for RoW. Now I can not translate this into aircraft needs. SEA in general should also be in the 3.X-5.X% growth area, depending on the country you look at. Problem there is, the airlines are relatively unstable and often badly run, so while the market grows a lot of airlines still fold. China at least has a relatively stable aviation eco system, as it has a blanko check from the government. Of course this also translates into political motivated decisions regarding aircraft acquisitions (like forcing purchases of domestic products).
At least Airbus has local completion centres.

Also I guess Airbus right now just wants to sell NEOs and does care less (to a certain degree) about CEO pricing, because if the after sale market collapses, the vendors can scale down to only produce NEO parts. The other way around would result to holes in the NEO supply chain. But you are the real expert in this field. But solely from the Airbus perspective it must be better to protect the NEO supply chain over the CEO parts supply chain?
 
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Re: The case for more aircraft production cuts/playing chicken

Wed Dec 02, 2020 9:47 pm

lightsaber wrote:
MIflyer12 wrote:
Flying-Tiger wrote:
The topic is called "playing chicken", and Airbus and Boeing need to make sure their clients are the first ones to blink and want to have the contracts amended, not the otherway around. Otherwise they are opening the flood gates to penalty demands. Signaling to the market that Airbus will honor their delivery commitments will put them into the driver seat, not the airlines.


Manufacturers can't force delivery on carriers that have no money or 3rd party financing. Carrier XX can go 'Hah, hah. We just filed Chapter 11 and are going to cancel orders for 125 321Neos and dump 200 aircraft back onto lessors.'

I agree with Flying-Tiger that Airbus must be in the drivers seat for renegotiations.

I also agree you "cannot push a rope." I believe some airlines cannot renegotiate as they face bankruptcy any which way. This will release quite a few aircraft back onto the market.

My posts are from a market perspective. The market doesn't need 430+ A320NEO, much less a production ramp. However, Airbus must be in the drivers seat for renegotiations. I do not believe they can receive the premium they have previously in future negotiations, so they need to hold prior pricing as long as possible.

This is playing chicken with billions of dollars/Euros and tens of thousands of jobs. To say the least, interesting.

Lightsaber


The market perspective of Airbus and Boeing for 2021 deliveries tells me something different.
Airbus plans to deliver 449 NEO`s + 9 CEO`s
Boeing plans to deliver 433 MAX`s
The different of 25 frames is not big. Do they know more than we do ?
 
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Re: The case for more aircraft production cuts/playing chicken

Thu Dec 03, 2020 11:06 am

oldJoe wrote:
The market perspective of Airbus and Boeing for 2021 deliveries tells me something different.
Airbus plans to deliver 449 NEO`s + 9 CEO`s
Boeing plans to deliver 433 MAX`s
The different of 25 frames is not big. Do they know more than we do ?

Of course, those delivery slots should be spoken for because customers have expressed readiness to take delivery. Some MAX customers may be looking forward to receiving their long delayed planes. In a time when profit margins are thinning and costs are rising, it is probably better to restructure fleets and take deliveries of more efficient aircraft.

Most of Boeing's MAX deliveries should come from the inventory that was built in 2019/2020.
 
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Re: The case for more aircraft production cuts/playing chicken

Sun Dec 06, 2020 8:18 pm

oldJoe wrote:
lightsaber wrote:
MIflyer12 wrote:

Manufacturers can't force delivery on carriers that have no money or 3rd party financing. Carrier XX can go 'Hah, hah. We just filed Chapter 11 and are going to cancel orders for 125 321Neos and dump 200 aircraft back onto lessors.'

I agree with Flying-Tiger that Airbus must be in the drivers seat for renegotiations.

I also agree you "cannot push a rope." I believe some airlines cannot renegotiate as they face bankruptcy any which way. This will release quite a few aircraft back onto the market.

My posts are from a market perspective. The market doesn't need 430+ A320NEO, much less a production ramp. However, Airbus must be in the drivers seat for renegotiations. I do not believe they can receive the premium they have previously in future negotiations, so they need to hold prior pricing as long as possible.

This is playing chicken with billions of dollars/Euros and tens of thousands of jobs. To say the least, interesting.

Lightsaber


The market perspective of Airbus and Boeing for 2021 deliveries tells me something different.
Airbus plans to deliver 449 NEO`s + 9 CEO`s
Boeing plans to deliver 433 MAX`s
The different of 25 frames is not big. Do they know more than we do ?

That is interesting insight. Thank you.

With the ungrounding of the MAX, there will be a slingshot effect on deliveries. This will create extra 737NG conversion stock.

On the NEO, we will see Easyjet, Indigo, GoAir and others return as many or more CEOs as they accept NEOs.

I think the different sectors if the market are not yet accepting what the horde of returns will do to the parts market, scrap market, and used resale market.

I speculate Airbus and Boeing just need the revenue or the executive bonuses tank. Everyone who has friends with a bonus on the line knows they focus on the next milestone as they might be working elsewhere for the one after that (voluntarily or involuntarily).

E.g., I don't know if my neighbor was laid off Friday. His last bonus was dependent on laying off x number of people. Since that bonus will pay his expenses for a year, including two kids in college, he had to aim for it. I assume it is the same with airframe executives. If bringing in that revenue ensures the executives can work to the next job they will. E.g., my neighbor has been unemployed a lot over the last 15 years, but still made 8x what I have over the same timeframe.

I could pick a dozen other executives I know and few wouldn't do a really bad long term plan if it meant sacrificing a bonus. All would negotiate to align their bonus with a longer term strategy, but none would forfeit a meaningful source of income over something minor like long term market viability as they'll likely be at another company in the next 5 years.

I think the incentive system is currently weighted too much to revenue and since the executive contracts are already signed, the BoD of both Boeing and Airbus had better think hard on the smart long-term move.

The last time the industry played chicken, I was a child. Since most people do not read much, they have no clue what a market drop in demand does to the industry. We haven't had an industry wide decline if this magnitude since the 1970s oil shocks.

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

Sun Dec 06, 2020 10:10 pm

Lighsaber wrote :
The last time the industry played chicken, I was a child. Since most people do not read much, they have no clue what a market drop in demand does to the industry. We haven't had an industry wide decline if this magnitude since the 1970s oil shocks


We must be nearly in the same age. I remember very well the oil shocks when on a sunday I was walking with my parents on a freeway because nobody had money for gas !
I hope the aviation industry comes out of this actual disaster very quick.
 
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Re: The case for more aircraft production cuts/playing chicken

Sun Dec 06, 2020 11:22 pm

oldJoe wrote:
We must be nearly in the same age. I remember very well the oil shocks when on a sunday I was walking with my parents on a freeway because nobody had money for gas !
I hope the aviation industry comes out of this actual disaster very quick.

What makes you worried that the aviation industry is not going to come back? It will recover. People will always need to move so does goods. Sure we have lost jobs. The industry will be okay.
 
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Re: The case for more aircraft production cuts/playing chicken

Mon Dec 07, 2020 1:55 pm

PHLspecial wrote:
oldJoe wrote:
We must be nearly in the same age. I remember very well the oil shocks when on a sunday I was walking with my parents on a freeway because nobody had money for gas !
I hope the aviation industry comes out of this actual disaster very quick.

What makes you worried that the aviation industry is not going to come back? It will recover. People will always need to move so does goods. Sure we have lost jobs. The industry will be okay.


It will surely recover, but it may take nearly a decade to get back to 2019 levels. I was in college when the 73 oil embargo hit, max 5 gallon of gas at the pump, only on even days if your license plate was even. The line to get gas was over an hour, if they still had gas when you made the pump. I just stopped driving as I could walk or ride my bike around campus. By '78 I had my engineering degree and went to work in construction around the Auto & Steel industries. Car sales were still weak but the industry was hopp'n as many car lines were being changed to get better efficiency, my company car was an Old's 88 land yacht, the company bought for a song and was willing to pay for its guzzling of gas.

By '82, the car industry fell hard into recession, inventories crossed the 180 day line. I had left in 81 for Denver, which was booming because of the oil boom. My friends still in the company had crazy stories of our fab shop going from 70 to a dozen, two field crews made up of all of or supers and foremen in a effort to hold on. 3 of our biggest competitor's folded - quite grim. The bottom was around '84.

Denver was booming in 82 but it was clearly slowing by the time I moved to Kitsap in '84. By 85, the bottom had fallen out of the oil boom. Petro Lewis sold Oil & Gas partnerships - went from a half floor in a building in 78 to 3 big building by early 84, then failed over the next 18 months back to a very small accounting office to clean up the pieces. Prime office occupancy went from 3% vacancy rate to over 30%. We managed to convince the owner of the high rise I was on, Republic Plaza, to not cap the building but we had to cut over 10% from the price. The building opened in 85 with 1.2 MM SF, of which .1 MM was leased. It was 5 years before it made 80% occupancy. It was 12 years before real estate prices came back to the 84 levels. A long, long dismal period.

This is a world wide crisis, blowing vast holes in travel, cruise, hotels and vacation, restaurants, bars, sports, music, movies, plays, orchestra, colleges, and retail stores. Part is a stop in the activity because of Covid, part is huge shifts to buying our things from Amazon et al verses the stores. Shopping isn't down, just moved to the tune that some malls on Black Friday had only 40% of the shoppers of last year, and likely those also buying less. Why buy a suit or a fancy cocktail dress when all one wears today is jeans and a tee shirt to work in the virtual office.

Business travel has not vanished permanently, but now 3 will fly out to the big sales meeting not a dozen, the other 9 will attend via Zoom. The weekly in person meeting will probably stay with Zoom for 3 out of 4 meetings. Business travel is down by about 75%, likely to return to just 25% down from before.

Leisure travel will slowly climb back, but the Cruise and far away resort vacations might not ever return to the 2019 levels. The Vegas wild convention for 4 nights running might also not return.

In summary, commercial aviation might not get back to 80% of 2019 levels in 3 year, might be 10 years before exceeding 2019 levels worldwide, some markets may recover in just 5 years. Until the aircraft utilization exceeds 80% there is no need for replacement or expansion of the fleets, as there is a lot of parked metal with far lower costs than acquiring new. If fuel prices stay low, the efficiency of the new planes will not matter as the cost to fly an already owned plane is low with fuel low.

The whirlwinds of contraction make putting off investment decisions wise, as it is difficult to predict the turbulent market. Once it is clear we have reached bottom there should be clarity on decisions, but few opportunities to invest profitably.
 
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Re: The case for more aircraft production cuts/playing chicken

Mon Dec 07, 2020 2:39 pm

JayinKitsap wrote:
PHLspecial wrote:
oldJoe wrote:
We must be nearly in the same age. I remember very well the oil shocks when on a sunday I was walking with my parents on a freeway because nobody had money for gas !
I hope the aviation industry comes out of this actual disaster very quick.

What makes you worried that the aviation industry is not going to come back? It will recover. People will always need to move so does goods. Sure we have lost jobs. The industry will be okay.


It will surely recover, but it may take nearly a decade to get back to 2019 levels. I was in college when the 73 oil embargo hit, max 5 gallon of gas at the pump, only on even days if your license plate was even. The line to get gas was over an hour, if they still had gas when you made the pump. I just stopped driving as I could walk or ride my bike around campus. By '78 I had my engineering degree and went to work in construction around the Auto & Steel industries. Car sales were still weak but the industry was hopp'n as many car lines were being changed to get better efficiency, my company car was an Old's 88 land yacht, the company bought for a song and was willing to pay for its guzzling of gas.

By '82, the car industry fell hard into recession, inventories crossed the 180 day line. I had left in 81 for Denver, which was booming because of the oil boom. My friends still in the company had crazy stories of our fab shop going from 70 to a dozen, two field crews made up of all of or supers and foremen in a effort to hold on. 3 of our biggest competitor's folded - quite grim. The bottom was around '84.

Denver was booming in 82 but it was clearly slowing by the time I moved to Kitsap in '84. By 85, the bottom had fallen out of the oil boom. Petro Lewis sold Oil & Gas partnerships - went from a half floor in a building in 78 to 3 big building by early 84, then failed over the next 18 months back to a very small accounting office to clean up the pieces. Prime office occupancy went from 3% vacancy rate to over 30%. We managed to convince the owner of the high rise I was on, Republic Plaza, to not cap the building but we had to cut over 10% from the price. The building opened in 85 with 1.2 MM SF, of which .1 MM was leased. It was 5 years before it made 80% occupancy. It was 12 years before real estate prices came back to the 84 levels. A long, long dismal period.

This is a world wide crisis, blowing vast holes in travel, cruise, hotels and vacation, restaurants, bars, sports, music, movies, plays, orchestra, colleges, and retail stores. Part is a stop in the activity because of Covid, part is huge shifts to buying our things from Amazon et al verses the stores. Shopping isn't down, just moved to the tune that some malls on Black Friday had only 40% of the shoppers of last year, and likely those also buying less. Why buy a suit or a fancy cocktail dress when all one wears today is jeans and a tee shirt to work in the virtual office.

Business travel has not vanished permanently, but now 3 will fly out to the big sales meeting not a dozen, the other 9 will attend via Zoom. The weekly in person meeting will probably stay with Zoom for 3 out of 4 meetings. Business travel is down by about 75%, likely to return to just 25% down from before.

Leisure travel will slowly climb back, but the Cruise and far away resort vacations might not ever return to the 2019 levels. The Vegas wild convention for 4 nights running might also not return.

In summary, commercial aviation might not get back to 80% of 2019 levels in 3 year, might be 10 years before exceeding 2019 levels worldwide, some markets may recover in just 5 years. Until the aircraft utilization exceeds 80% there is no need for replacement or expansion of the fleets, as there is a lot of parked metal with far lower costs than acquiring new. If fuel prices stay low, the efficiency of the new planes will not matter as the cost to fly an already owned plane is low with fuel low.

The whirlwinds of contraction make putting off investment decisions wise, as it is difficult to predict the turbulent market. Once it is clear we have reached bottom there should be clarity on decisions, but few opportunities to invest profitably.

Nice summary. To build on that:
The reason I think this is so bad and both manufacturers are playing chicken as most today cannot recall the last global recession. Most executives drink too much to recall such lessons. I'm certainly not advocating puting us cautious engineers in charge. :no: Companies just haven't hunkered down enough to survive the next two years. The problem with a global recession isn't the downturn, it is when people realize how a recovery starts at some new lower level and there is 2.5% to 5.5% real growth from there (per year).
To everyone

I started this thread thinking that new level would be 80% to 85%. I must drop that estimate. Between people accepting Zoom meetings, budgets getting cut, and in particular taxes raised. A dollar (or Euro) spent by a government produces about half the economic growth of a dollar spent by a company. See books by Adam Smith, Thomas Friedman, and Bernstein. I've also read Marx: excellent foundation on economics (he really understood how to make economics mathematical) bad conclusion and others. If anyone is going off one or two authors, I'll discuss once you have read Adam Smith's book. Read an old copy. The fact he understood labor relations so well is mind boggling (reread by substitution, use "unskilled worker" instead if slave as it is still relevant, just not as extreame of magnitude)..

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

Mon Dec 07, 2020 4:57 pm

Boeing further cuts 787 priduction to 5/month.

https://aviationweek.com/air-transport/ ... -adds-more

I remain if the opinion widebody production must be cut further.

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

Mon Dec 07, 2020 6:01 pm

lightsaber wrote:
Boeing further cuts 787 priduction to 5/month.

https://aviationweek.com/air-transport/ ... -adds-more

I remain if the opinion widebody production must be cut further.

Lightsaber


I'm going to continue with my effectively non-committal opinion that the true production rate need is a matter of balancing the costs of carrying extra debt from the expense of continuing to build and store undelivered planes, against the costs of less efficient production rates and idling, or laying off and then later hiring and training new workers.

Their cash flow was terrible the last couple of quarters, but should be noticeably better this quarter with a lot of their cost reduction efforts now realized. Next quarter should improve further as 737 deliveries resume and gradually ramp up. That should slow their cash burn enough to start to think about optimizing for the medium term, rather than just staying solvent.

So far, they have kept their layoffs significantly milder than the rate cuts. Perhaps that is a sign they prefer to sit on a backlog of undelivered frames and have a really drawn out recovery rather than lose too many experienced workers.
 
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Re: The case for more aircraft production cuts/playing chicken

Mon Dec 07, 2020 6:59 pm

lightsaber wrote:
See books by Adam Smith, Thomas Friedman, and Bernstein. I've also read Marx: excellent foundation on economics (he really understood how to make economics mathematical) bad conclusion and others.


There's been a lot of good economics work done in the last 230 years. One shouldn't be stuck with Adam Smith any more than management of the economy should be stuck with Andrew Mellon circa 1929, 'According to Herbert Hoover, Andrew Mellon, his Treasury secretary, urged him to “Liquidate labor, liquidate stocks, liquidate the farmers. … It will purge the rottenness out of the system,” just to let markets find their own equilibria . Thomas Friedman isn't an economist, nor educated as an economist.

Iamlucky13 summarizes the problem well, but leaves a very important question: Whose money will be tied up in wages, parts, and finished inventories if manufacturers keep building?

iamlucky13 wrote:

I'm going to continue with my effectively non-committal opinion that the true production rate need is a matter of balancing the costs of carrying extra debt from the expense of continuing to build and store undelivered planes, against the costs of less efficient production rates and idling, or laying off and then later hiring and training new workers.
 
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Re: The case for more aircraft production cuts/playing chicken

Mon Dec 07, 2020 7:28 pm

MIflyer12 wrote:
lightsaber wrote:
See books by Adam Smith, Thomas Friedman, and Bernstein. I've also read Marx: excellent foundation on economics (he really understood how to make economics mathematical) bad conclusion and others.


There's been a lot of good economics work done in the last 230 years. One shouldn't be stuck with Adam Smith any more than management of the economy should be stuck with Andrew Mellon circa 1929, 'According to Herbert Hoover, Andrew Mellon, his Treasury secretary, urged him to “Liquidate labor, liquidate stocks, liquidate the farmers. … It will purge the rottenness out of the system,” just to let markets find their own equilibria . Thomas Friedman isn't an economist, nor educated as an economist.

Iamlucky13 summarizes the problem well, but leaves a very important question: Whose money will be tied up in wages, parts, and finished inventories if manufacturers keep building?

iamlucky13 wrote:

I'm going to continue with my effectively non-committal opinion that the true production rate need is a matter of balancing the costs of carrying extra debt from the expense of continuing to build and store undelivered planes, against the costs of less efficient production rates and idling, or laying off and then later hiring and training new workers.

Agreed on many new good books. Besides the authors I listed, who do you recommend? There is a start to an educated discussion. But many are stuck in the Upton Sinclair world if not understanding what is necessary to not understand for their career.

It is a question of cash flow, access to funds, risk, supply chain, and the predicted recovery transition. I am one of the bigger proponents of economy of scale in aviation.

But I also have seen the consequences of maintaining too high of production and what would consider a delayed recovery when Aerospace companies over-extend themselves. As they say "Creditors have better memories than debtors."

Whichever Company charts the better course will reap the benefits. For their will be a recovery and I still think 20 years from now we will have over twice the air travel of 2019. The question is the shape of the curve in between.

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

Mon Dec 07, 2020 8:39 pm

MIflyer12 wrote:
Iamlucky13 summarizes the problem well, but leaves a very important question: Whose money will be tied up in wages, parts, and finished inventories if manufacturers keep building?

iamlucky13 wrote:

I'm going to continue with my effectively non-committal opinion that the true production rate need is a matter of balancing the costs of carrying extra debt from the expense of continuing to build and store undelivered planes, against the costs of less efficient production rates and idling, or laying off and then later hiring and training new workers.


Good addition. My default assumption is mostly the manufacturer's. They call the shots on production, and therefore what the suppliers do as well, but as has been well discussed in this thread, they have to be careful about trying to force delivery acceptance by the customer. The manufacturers also probably have the best access to capital.

However, they will also try to "risk share" with both the customers and suppliers to the degree they are able: pressure airlines to take deliveries before they are ready, and suppliers to defer payments.
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Dec 08, 2020 12:04 am

One reason I am posting less on Boeing as I really read there CMO:
https://www.msn.com/en-us/money/markets ... r-BB1bGmVH

Boeing has virtually no path to getting back to pre-pandemic production levels during the current decade.

While I believe the A320NEO will out-deliver the MAX, I do not believe by the planned production disparity.

Since the CMO, Boeing has cut widebody production targets.

Where is the Airbus GMF? It is past due. There has never been a time it is more important to accurately predict the market.

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

Tue Dec 08, 2020 1:20 am

lightsaber wrote:
One reason I am posting less on Boeing as I really read there CMO:
https://www.msn.com/en-us/money/markets ... r-BB1bGmVH

Boeing has virtually no path to getting back to pre-pandemic production levels during the current decade.

While I believe the A320NEO will out-deliver the MAX, I do not believe by the planned production disparity.

Since the CMO, Boeing has cut widebody production targets.

Where is the Airbus GMF? It is past due. There has never been a time it is more important to accurately predict the market.

Lightsaber


I wrote in my post #412 the numbers for deliveries in 2021 for both and the difference is "only 25" and therefore peanuts. Sorry I forgot the deliver the source and here it is : https://aviationweek.com/aerospace/manufacturing-supply-chain/airbus-boeing-plans-bring-2021-deliveries-line-2019-levels

You can read in the link that Faury points out that “rate 40 is solid.” And more exciting for me is they want to deliver 60 A220`s !
The starting point for both OEM`s are a bit different.
Boeing wants to deliver half of the parked MAX`s ~ 225 plus 208 in actual production
Airbus wants to deliver 456 A320 series and reduces the parked aircraft only a bit , but should be about 90 frames at the end of 2021 ( my guess ).
Mayby this explains the planned production disparity a tiny bit !?
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Dec 08, 2020 1:54 am

lightsaber wrote:
Boeing further cuts 787 priduction to 5/month.

https://aviationweek.com/air-transport/ ... -adds-more

I remain if the opinion widebody production must be cut further.

Lightsaber

As long as international travel still means going into quarantine on arrival, travel demand will be severely cut. Therefore, long haul travel will not recover anytime soon. I suspect the current long haul fleets will be sufficient and if there is a need, aircraft in storage will be deployed before new build aircraft will be needed. I think you are right, but cut to what levels? I don't think it will be profitable for Boeing or Airbus to reduce production to 2 or 3 a month. Is it more economic to build some white tails and for how long can this go on? Then there is the ultimate question - how long can they take the losses before closing down production altogether?
 
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Re: The case for more aircraft production cuts/playing chicken

Tue Dec 08, 2020 2:35 am

Just throwing this out there - Might be time for the US Govt to buy some 787's to replace the C-32's. I realize that it's only 4 aircraft but they should be able to get great pricing. Maybe some more 767's (or 787's) to replace the non-tanker versions of the C-135's.

Biden wants less carbon emissions plus it supports the economy. It's been done before e.g. KC-10's.
    300 319 320 321 707 717 720 727 72S 737 73S 734 735 73G 738 739 747 757 762 ARJ B11 C212 CRJ CR2 CR7 CR9 CV5 D8S DC9 D9S D94 D95 D10 DH8 DTO EMB EM2 E135 E145 E190 FH7 F28 F100 FTRIMTR HRN L10 L15 M80 M90 SF3 SWM YS11
     
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    Re: The case for more aircraft production cuts/playing chicken

    Tue Dec 08, 2020 12:03 pm

    flee wrote:
    lightsaber wrote:
    Boeing further cuts 787 priduction to 5/month.

    https://aviationweek.com/air-transport/ ... -adds-more

    I remain if the opinion widebody production must be cut further.

    Lightsaber

    As long as international travel still means going into quarantine on arrival, travel demand will be severely cut. Therefore, long haul travel will not recover anytime soon. I suspect the current long haul fleets will be sufficient and if there is a need, aircraft in storage will be deployed before new build aircraft will be needed. I think you are right, but cut to what levels? I don't think it will be profitable for Boeing or Airbus to reduce production to 2 or 3 a month. Is it more economic to build some white tails and for how long can this go on? Then there is the ultimate question - how long can they take the losses before closing down production altogether?


    2-3 a month can work on old programs that do work at that rate.

    The A330 did in the 90s and early 2000s. So did the 767 (and still does now). 77W and 77F also make money at 2-3 a month. This programs could actually just function at a low rate. No big money to make but function. Other programs will struggle (787, A350) to break even and probably lose a lot of money. If they get too expensive to produce and sell, A339s become really interesting, if they are too cheap, A&B lose money. Same will be for 77X. It is a balance act to lose only so much money without making the product even more unattractive.

    Having low rates on production by default (A330, 737 Max) actually helps the manufacturer right now. Going from rate 3 to 2 on the A339 hurts way less than from rate 8 to 5 on the A350. Same position for Boeing. Delay the ramp up on the MAX is so much easier than slash the A320 rate. We will see in spring how it goes, because annual reports in January and February will be like a haunted house on Halloween. Some might have to change underwear...
    Then we will know more about the path forward, and who gambled right.
     
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    Re: The case for more aircraft production cuts/playing chicken

    Tue Dec 08, 2020 3:02 pm

    FluidFlow wrote:
    flee wrote:
    lightsaber wrote:
    Boeing further cuts 787 priduction to 5/month.

    https://aviationweek.com/air-transport/ ... -adds-more

    I remain if the opinion widebody production must be cut further.

    Lightsaber

    As long as international travel still means going into quarantine on arrival, travel demand will be severely cut. Therefore, long haul travel will not recover anytime soon. I suspect the current long haul fleets will be sufficient and if there is a need, aircraft in storage will be deployed before new build aircraft will be needed. I think you are right, but cut to what levels? I don't think it will be profitable for Boeing or Airbus to reduce production to 2 or 3 a month. Is it more economic to build some white tails and for how long can this go on? Then there is the ultimate question - how long can they take the losses before closing down production altogether?


    2-3 a month can work on old programs that do work at that rate.

    The A330 did in the 90s and early 2000s. So did the 767 (and still does now). 77W and 77F also make money at 2-3 a month. This programs could actually just function at a low rate. No big money to make but function. Other programs will struggle (787, A350) to break even and probably lose a lot of money. If they get too expensive to produce and sell, A339s become really interesting, if they are too cheap, A&B lose money. Same will be for 77X. It is a balance act to lose only so much money without making the product even more unattractive.

    Having low rates on production by default (A330, 737 Max) actually helps the manufacturer right now. Going from rate 3 to 2 on the A339 hurts way less than from rate 8 to 5 on the A350. Same position for Boeing. Delay the ramp up on the MAX is so much easier than slash the A320 rate. We will see in spring how it goes, because annual reports in January and February will be like a haunted house on Halloween. Some might have to change underwear...
    Then we will know more about the path forward, and who gambled right.

    From an economy of scale perspective, buying the parts for 25/year is the minimum for economic production. There is a reason 747 fuesalages were stockpiled, the vendor could not economically produce down at the rate Boeing could sustain.

    The path forward will be determined by the recovery which needs the vaccines. I know doctors scheduled for vaccination on December 15th. But it takes vaccinating 3/4s of the population to matter, that will take time and it is slow season. We can only hope the US, UK, and EU are vaccinated enough by the start of the summer busy season to have some kickstart of the global air travel.

    I believe we will bounce up to a new baseline and then grow 3.5% to 5.5% from that baseline. Unfortunately, we won't know that baseline for a year.

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

    Wed Dec 09, 2020 3:54 am

    lightsaber wrote:
    The path forward will be determined by the recovery which needs the vaccines. I know doctors scheduled for vaccination on December 15th. But it takes vaccinating 3/4s of the population to matter, that will take time and it is slow season. We can only hope the US, UK, and EU are vaccinated enough by the start of the summer busy season to have some kickstart of the global air travel.

    I believe we will bounce up to a new baseline and then grow 3.5% to 5.5% from that baseline. Unfortunately, we won't know that baseline for a year.

    Lightsaber

    The way things are going, I expect 2021 to be a success if there is no further decline - growth will probably resume in 2022. I also expect that the narrow body market to lead the recovery as there are many old aircraft that will need replacement. Wide body fleets are not that old and can still soldier on with the existing inventory, plus those in storage.
     
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    Re: The case for more aircraft production cuts/playing chicken

    Wed Dec 09, 2020 4:47 am

    flee wrote:
    lightsaber wrote:
    The path forward will be determined by the recovery which needs the vaccines. I know doctors scheduled for vaccination on December 15th. But it takes vaccinating 3/4s of the population to matter, that will take time and it is slow season. We can only hope the US, UK, and EU are vaccinated enough by the start of the summer busy season to have some kickstart of the global air travel.

    I believe we will bounce up to a new baseline and then grow 3.5% to 5.5% from that baseline. Unfortunately, we won't know that baseline for a year.

    Lightsaber

    The way things are going, I expect 2021 to be a success if there is no further decline - growth will probably resume in 2022. I also expect that the narrow body market to lead the recovery as there are many old aircraft that will need replacement. Wide body fleets are not that old and can still soldier on with the existing inventory, plus those in storage.

    I see less replacement until oil spikes; I believe oil will have to rise further than before as frackers need a better business case to invest. Then we'll see replacement.

    I think growth will resume later than your estimate. I hope to be proven wrong.

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

    Wed Dec 09, 2020 6:16 am

    lightsaber wrote:
    The path forward will be determined by the recovery which needs the vaccines. I know doctors scheduled for vaccination on December 15th. But it takes vaccinating 3/4s of the population to matter, that will take time and it is slow season. We can only hope the US, UK, and EU are vaccinated enough by the start of the summer busy season to have some kickstart of the global air travel.

    I believe we will bounce up to a new baseline and then grow 3.5% to 5.5% from that baseline. Unfortunately, we won't know that baseline for a year.


    Based on the R(0) estimate, slightly under 3/4 of the population being immune should achieve herd immunity - the virus no longer being able to achieve community transmission.

    However, benefits to our activities, including travel, should occur before that level. Those who have received the vaccine will be more comfortable traveling (within the constraints of whatever restrictions are in place). As it starts to drive down infection rates (which also will probably coincide with the northern hemisphere summer, helping accelerate the process), restrictions will also start to be loosened again.

    Yet, it could indeed be a year or more before we know the new baseline. Just producing enough doses for the countries with sufficient existing distribution infrastructure could take that long, even consider that there are 10 vaccine candidates currently in Phase 3 tests, multiple of which will likely receive authorization over the next 3 months.

    Actually, the latest IATA forecast continues to show a more complex recovery - not a fast climb to the new baseline, but an asymptotic approach (slide 11):
    https://www.iata.org/en/iata-repository ... s/outlook/

    It looks like they are projecting sometime in 2022 for the world to hit 80% of 2019 RPK's, and 2019 level RPK's in 2024. They're aren't placing much faith in arguments about pent up demand. They are also more concerned about long term economic impacts than the stock market is.
     
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    Re: The case for more aircraft production cuts/playing chicken

    Wed Dec 09, 2020 9:09 am

    lightsaber wrote:
    FluidFlow wrote:
    flee wrote:
    As long as international travel still means going into quarantine on arrival, travel demand will be severely cut. Therefore, long haul travel will not recover anytime soon. I suspect the current long haul fleets will be sufficient and if there is a need, aircraft in storage will be deployed before new build aircraft will be needed. I think you are right, but cut to what levels? I don't think it will be profitable for Boeing or Airbus to reduce production to 2 or 3 a month. Is it more economic to build some white tails and for how long can this go on? Then there is the ultimate question - how long can they take the losses before closing down production altogether?


    2-3 a month can work on old programs that do work at that rate.

    The A330 did in the 90s and early 2000s. So did the 767 (and still does now). 77W and 77F also make money at 2-3 a month. This programs could actually just function at a low rate. No big money to make but function. Other programs will struggle (787, A350) to break even and probably lose a lot of money. If they get too expensive to produce and sell, A339s become really interesting, if they are too cheap, A&B lose money. Same will be for 77X. It is a balance act to lose only so much money without making the product even more unattractive.

    Having low rates on production by default (A330, 737 Max) actually helps the manufacturer right now. Going from rate 3 to 2 on the A339 hurts way less than from rate 8 to 5 on the A350. Same position for Boeing. Delay the ramp up on the MAX is so much easier than slash the A320 rate. We will see in spring how it goes, because annual reports in January and February will be like a haunted house on Halloween. Some might have to change underwear...
    Then we will know more about the path forward, and who gambled right.

    From an economy of scale perspective, buying the parts for 25/year is the minimum for economic production. There is a reason 747 fuesalages were stockpiled, the vendor could not economically produce down at the rate Boeing could sustain.

    The path forward will be determined by the recovery which needs the vaccines. I know doctors scheduled for vaccination on December 15th. But it takes vaccinating 3/4s of the population to matter, that will take time and it is slow season. We can only hope the US, UK, and EU are vaccinated enough by the start of the summer busy season to have some kickstart of the global air travel.

    I believe we will bounce up to a new baseline and then grow 3.5% to 5.5% from that baseline. Unfortunately, we won't know that baseline for a year.

    Lightsaber


    What I think is, that recovery of travel is not necessary recovery of wide body demand. There lies the real problem. I predict wide bodies will not be in demand for growth before 2026, and replacements will also happen with younger second hand models and not new builds. Total demand might be at 10 new builds a month. 3 A350, 4 787s, 2 330s and 1 77X for the next 5 years. That is brutal for A&B. Only good margins on the NBs will offset this.

    A recent estimate sees business travel reduced by up to 36%, permanently: https://www.forbes.com/sites/benbaldanza/2020/12/01/new-study-estimates-up-to-36-of-airline-business-travel-wont-return/

    This will be brutal and legacy carriers will have to make up for that revenue by either increasing economy prices or reduce frequency and premium cabins, along with product offerings and costs. This will also reduce wide body demand. 36% reduction on LHR-NY business demand will mean less frequency with more Y cabins. There will be less WBs needed. Add in the XLR and LR from Airbus and even more WBs will not need replacements.
     
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    Re: The case for more aircraft production cuts/playing chicken

    Wed Dec 09, 2020 1:54 pm

    FluidFlow wrote:
    lightsaber wrote:
    FluidFlow wrote:

    2-3 a month can work on old programs that do work at that rate.

    The A330 did in the 90s and early 2000s. So did the 767 (and still does now). 77W and 77F also make money at 2-3 a month. This programs could actually just function at a low rate. No big money to make but function. Other programs will struggle (787, A350) to break even and probably lose a lot of money. If they get too expensive to produce and sell, A339s become really interesting, if they are too cheap, A&B lose money. Same will be for 77X. It is a balance act to lose only so much money without making the product even more unattractive.

    Having low rates on production by default (A330, 737 Max) actually helps the manufacturer right now. Going from rate 3 to 2 on the A339 hurts way less than from rate 8 to 5 on the A350. Same position for Boeing. Delay the ramp up on the MAX is so much easier than slash the A320 rate. We will see in spring how it goes, because annual reports in January and February will be like a haunted house on Halloween. Some might have to change underwear...
    Then we will know more about the path forward, and who gambled right.

    From an economy of scale perspective, buying the parts for 25/year is the minimum for economic production. There is a reason 747 fuesalages were stockpiled, the vendor could not economically produce down at the rate Boeing could sustain.

    The path forward will be determined by the recovery which needs the vaccines. I know doctors scheduled for vaccination on December 15th. But it takes vaccinating 3/4s of the population to matter, that will take time and it is slow season. We can only hope the US, UK, and EU are vaccinated enough by the start of the summer busy season to have some kickstart of the global air travel.

    I believe we will bounce up to a new baseline and then grow 3.5% to 5.5% from that baseline. Unfortunately, we won't know that baseline for a year.

    Lightsaber


    What I think is, that recovery of travel is not necessary recovery of wide body demand. There lies the real problem. I predict wide bodies will not be in demand for growth before 2026, and replacements will also happen with younger second hand models and not new builds. Total demand might be at 10 new builds a month. 3 A350, 4 787s, 2 330s and 1 77X for the next 5 years. That is brutal for A&B. Only good margins on the NBs will offset this.

    A recent estimate sees business travel reduced by up to 36%, permanently: https://www.forbes.com/sites/benbaldanza/2020/12/01/new-study-estimates-up-to-36-of-airline-business-travel-wont-return/

    This will be brutal and legacy carriers will have to make up for that revenue by either increasing economy prices or reduce frequency and premium cabins, along with product offerings and costs. This will also reduce wide body demand. 36% reduction on LHR-NY business demand will mean less frequency with more Y cabins. There will be less WBs needed. Add in the XLR and LR from Airbus and even more WBs will not need replacements.

    I can believe a 36% hit from 2019, but then growth at the 2.5% to 4.5% range afterwards. Recall, much of the world is still trying to claw its way into the middle class so someone will realize if they fly to somewhere they can expand business.

    Business travel is for expanding business. That demand will be low, but unless billions of people forfeit their chance for prosperity, it will return, it is when.

    I'm more pessimistic on widebodies as P2P traffic is more popular. As airports expand, I expect more narrowbodies flying once widebody routes. I do not expect JetBlue, Southwest, Wizz, AirBaltic, VietJet or Indigo to radically change their fleet strategies. I do expect them to fly further with the latest generation if narrowbody aircraft.

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

    Wed Dec 09, 2020 2:05 pm

    lightsaber wrote:
    FluidFlow wrote:
    lightsaber wrote:
    From an economy of scale perspective, buying the parts for 25/year is the minimum for economic production. There is a reason 747 fuesalages were stockpiled, the vendor could not economically produce down at the rate Boeing could sustain.

    The path forward will be determined by the recovery which needs the vaccines. I know doctors scheduled for vaccination on December 15th. But it takes vaccinating 3/4s of the population to matter, that will take time and it is slow season. We can only hope the US, UK, and EU are vaccinated enough by the start of the summer busy season to have some kickstart of the global air travel.

    I believe we will bounce up to a new baseline and then grow 3.5% to 5.5% from that baseline. Unfortunately, we won't know that baseline for a year.

    Lightsaber


    What I think is, that recovery of travel is not necessary recovery of wide body demand. There lies the real problem. I predict wide bodies will not be in demand for growth before 2026, and replacements will also happen with younger second hand models and not new builds. Total demand might be at 10 new builds a month. 3 A350, 4 787s, 2 330s and 1 77X for the next 5 years. That is brutal for A&B. Only good margins on the NBs will offset this.

    A recent estimate sees business travel reduced by up to 36%, permanently: https://www.forbes.com/sites/benbaldanza/2020/12/01/new-study-estimates-up-to-36-of-airline-business-travel-wont-return/

    This will be brutal and legacy carriers will have to make up for that revenue by either increasing economy prices or reduce frequency and premium cabins, along with product offerings and costs. This will also reduce wide body demand. 36% reduction on LHR-NY business demand will mean less frequency with more Y cabins. There will be less WBs needed. Add in the XLR and LR from Airbus and even more WBs will not need replacements.

    I can believe a 36% hit from 2019, but then growth at the 2.5% to 4.5% range afterwards. Recall, much of the world is still trying to claw its way into the middle class so someone will realize if they fly to somewhere they can expand business.

    Business travel is for expanding business. That demand will be low, but unless billions of people forfeit their chance for prosperity, it will return, it is when.

    I'm more pessimistic on widebodies as P2P traffic is more popular. As airports expand, I expect more narrowbodies flying once widebody routes. I do not expect JetBlue, Southwest, Wizz, AirBaltic, VietJet or Indigo to radically change their fleet strategies. I do expect them to fly further with the latest generation if narrowbody aircraft.

    Lightsaber


    I agree that business travel will return in one way or another but the ratio of business travel vs rest of travel will be suppressed forever. Travel will grow again business and leisure, but leisure will go back to normal and grow from there, business travel will grow from the depressed level. Thats my prognosis. And this will hurt FSC really much.
     
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    Re: The case for more aircraft production cuts/playing chicken

    Wed Dec 09, 2020 2:08 pm

    FluidFlow wrote:
    lightsaber wrote:
    FluidFlow wrote:

    2-3 a month can work on old programs that do work at that rate.

    The A330 did in the 90s and early 2000s. So did the 767 (and still does now). 77W and 77F also make money at 2-3 a month. This programs could actually just function at a low rate. No big money to make but function. Other programs will struggle (787, A350) to break even and probably lose a lot of money. If they get too expensive to produce and sell, A339s become really interesting, if they are too cheap, A&B lose money. Same will be for 77X. It is a balance act to lose only so much money without making the product even more unattractive.

    Having low rates on production by default (A330, 737 Max) actually helps the manufacturer right now. Going from rate 3 to 2 on the A339 hurts way less than from rate 8 to 5 on the A350. Same position for Boeing. Delay the ramp up on the MAX is so much easier than slash the A320 rate. We will see in spring how it goes, because annual reports in January and February will be like a haunted house on Halloween. Some might have to change underwear...
    Then we will know more about the path forward, and who gambled right.

    From an economy of scale perspective, buying the parts for 25/year is the minimum for economic production. There is a reason 747 fuesalages were stockpiled, the vendor could not economically produce down at the rate Boeing could sustain.

    The path forward will be determined by the recovery which needs the vaccines. I know doctors scheduled for vaccination on December 15th. But it takes vaccinating 3/4s of the population to matter, that will take time and it is slow season. We can only hope the US, UK, and EU are vaccinated enough by the start of the summer busy season to have some kickstart of the global air travel.

    I believe we will bounce up to a new baseline and then grow 3.5% to 5.5% from that baseline. Unfortunately, we won't know that baseline for a year.

    Lightsaber


    What I think is, that recovery of travel is not necessary recovery of wide body demand. There lies the real problem. I predict wide bodies will not be in demand for growth before 2026, and replacements will also happen with younger second hand models and not new builds. Total demand might be at 10 new builds a month. 3 A350, 4 787s, 2 330s and 1 77X for the next 5 years. That is brutal for A&B. Only good margins on the NBs will offset this.

    A recent estimate sees business travel reduced by up to 36%, permanently: https://www.forbes.com/sites/benbaldanza/2020/12/01/new-study-estimates-up-to-36-of-airline-business-travel-wont-return/

    This will be brutal and legacy carriers will have to make up for that revenue by either increasing economy prices or reduce frequency and premium cabins, along with product offerings and costs. This will also reduce wide body demand. 36% reduction on LHR-NY business demand will mean less frequency with more Y cabins. There will be less WBs needed. Add in the XLR and LR from Airbus and even more WBs will not need replacements.


    This comment sparked my mind; can a narrowbody be created with an range of 8000nm while being more efficient than or at least as efficient per seat basis as an 787-10? Or is it necessary to have the capacity of an widebody to get the CASM down on those stages?

    Seeing that the XLR will be eating in to the WB space, the hypothetical 8000nm range NB will just kill the whole WB segment altogether...
     
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    Re: The case for more aircraft production cuts/playing chicken

    Wed Dec 09, 2020 3:13 pm

    JonesNL wrote:
    FluidFlow wrote:
    lightsaber wrote:
    From an economy of scale perspective, buying the parts for 25/year is the minimum for economic production. There is a reason 747 fuesalages were stockpiled, the vendor could not economically produce down at the rate Boeing could sustain.

    The path forward will be determined by the recovery which needs the vaccines. I know doctors scheduled for vaccination on December 15th. But it takes vaccinating 3/4s of the population to matter, that will take time and it is slow season. We can only hope the US, UK, and EU are vaccinated enough by the start of the summer busy season to have some kickstart of the global air travel.

    I believe we will bounce up to a new baseline and then grow 3.5% to 5.5% from that baseline. Unfortunately, we won't know that baseline for a year.

    Lightsaber


    What I think is, that recovery of travel is not necessary recovery of wide body demand. There lies the real problem. I predict wide bodies will not be in demand for growth before 2026, and replacements will also happen with younger second hand models and not new builds. Total demand might be at 10 new builds a month. 3 A350, 4 787s, 2 330s and 1 77X for the next 5 years. That is brutal for A&B. Only good margins on the NBs will offset this.

    A recent estimate sees business travel reduced by up to 36%, permanently: https://www.forbes.com/sites/benbaldanza/2020/12/01/new-study-estimates-up-to-36-of-airline-business-travel-wont-return/

    This will be brutal and legacy carriers will have to make up for that revenue by either increasing economy prices or reduce frequency and premium cabins, along with product offerings and costs. This will also reduce wide body demand. 36% reduction on LHR-NY business demand will mean less frequency with more Y cabins. There will be less WBs needed. Add in the XLR and LR from Airbus and even more WBs will not need replacements.


    This comment sparked my mind; can a narrowbody be created with an range of 8000nm while being more efficient than or at least as efficient per seat basis as an 787-10? Or is it necessary to have the capacity of an widebody to get the CASM down on those stages?

    Seeing that the XLR will be eating in to the WB space, the hypothetical 8000nm range NB will just kill the whole WB segment altogether...

    Short answer: no

    Long answer, aircraft (and ships) have a 3 for 2 rule where doubling the weight and surface are (drag) increases the internal capacity 3x. Now, the 2nd isle of a widebidy is a cost in lost usable area, and represents a transition in weight and surface area that requires a steep jump in size. The same with a double decker (2x stairs, people and food cart elevator).

    So there is a minimum mission length for economical opperations of each type before something smaller is just too competitive.

    But look at how few missions are 8000nm.
    I'm not a fan of the site but look at these ranges for longest opperational flights pee-pandemic:
    https://simpleflying.com/worlds-longest ... y-flights/

    For reference,
    the 717 couldn't do ATL-LAX at 1691
    A320 had winter issues until Sharklets/V2500 Select One on LAX-BOS 2269nm
    738 was winter winds load limited to Hawaii (LAX-HNL) at 2,221 nm (albeit with ETOPS concerns).
    E190 longest flight 1,822nm
    E175 longest flight 1539nm

    But now with newer narrowbodies:
    A220: RIX-AUH 2359nm with 145 pax!
    MAX 8 3,300nm
    A321NEO 3371nm

    and the A321xLR will increase that range.

    I am more referring to the 2200nm to 3300 nm going to nartobodies than the ULH flights. If you notice, aircraft are limited to about 80% of brochure range during winter winds. So the A321xLR brochure eange should be about a 3760nm maximum real world mission. So DTW-BER at 3691nm might be an extreame mission.

    The new narrowbody aircraft offer 1000 to 1500nm more real work range than the prior generation of nartobodies. In the recovery, I see that range being used extensively on what were once widebody missions.

    Note: I assume once normal opperations resume freight rates return back down to normal, so once again airlines must really focus on cargo or exit the market.

    Of course premium cargo will stay widebodies, in particular the effective combis if the 789, 77W, 779, A350, and on shorter routes 787-10.

    Until business travel returns, cost per flight is going to be an important metric.

    Lightsaber
    3 months without TV. The best decision of my life.
     
    astuteman
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    Re: The case for more aircraft production cuts/playing chicken

    Wed Dec 09, 2020 4:09 pm

    FluidFlow wrote:
    lightsaber wrote:
    FluidFlow wrote:

    2-3 a month can work on old programs that do work at that rate.

    The A330 did in the 90s and early 2000s. So did the 767 (and still does now). 77W and 77F also make money at 2-3 a month. This programs could actually just function at a low rate. No big money to make but function. Other programs will struggle (787, A350) to break even and probably lose a lot of money. If they get too expensive to produce and sell, A339s become really interesting, if they are too cheap, A&B lose money. Same will be for 77X. It is a balance act to lose only so much money without making the product even more unattractive.

    Having low rates on production by default (A330, 737 Max) actually helps the manufacturer right now. Going from rate 3 to 2 on the A339 hurts way less than from rate 8 to 5 on the A350. Same position for Boeing. Delay the ramp up on the MAX is so much easier than slash the A320 rate. We will see in spring how it goes, because annual reports in January and February will be like a haunted house on Halloween. Some might have to change underwear...
    Then we will know more about the path forward, and who gambled right.

    From an economy of scale perspective, buying the parts for 25/year is the minimum for economic production. There is a reason 747 fuesalages were stockpiled, the vendor could not economically produce down at the rate Boeing could sustain.

    The path forward will be determined by the recovery which needs the vaccines. I know doctors scheduled for vaccination on December 15th. But it takes vaccinating 3/4s of the population to matter, that will take time and it is slow season. We can only hope the US, UK, and EU are vaccinated enough by the start of the summer busy season to have some kickstart of the global air travel.

    I believe we will bounce up to a new baseline and then grow 3.5% to 5.5% from that baseline. Unfortunately, we won't know that baseline for a year.

    Lightsaber


    What I think is, that recovery of travel is not necessary recovery of wide body demand. There lies the real problem. I predict wide bodies will not be in demand for growth before 2026, and replacements will also happen with younger second hand models and not new builds. Total demand might be at 10 new builds a month. 3 A350, 4 787s, 2 330s and 1 77X for the next 5 years. That is brutal for A&B. Only good margins on the NBs will offset this.

    A recent estimate sees business travel reduced by up to 36%, permanently: https://www.forbes.com/sites/benbaldanza/2020/12/01/new-study-estimates-up-to-36-of-airline-business-travel-wont-return/

    This will be brutal and legacy carriers will have to make up for that revenue by either increasing economy prices or reduce frequency and premium cabins, along with product offerings and costs. This will also reduce wide body demand. 36% reduction on LHR-NY business demand will mean less frequency with more Y cabins. There will be less WBs needed. Add in the XLR and LR from Airbus and even more WBs will not need replacements.


    I tend to agree that the recovery will not be linear, but is likely to be led "from the bottom", (shorter haul, LCC, less business) meaning widebody market is going to hurt.
    But we have seen both for A320 customers and 737MAX customers, that enough of them are prepared to continue to take new-builds at the expense of dropping off older stock.
    e.g. Indigo, Chinese carriers, WN etc
    I believe Faury when he says rate 40 on the A320NEO is solid

    I still don't believe that the meme of "Airbus forcing customers to take new deliveries against their will" is really reflective of what is happening in the market, any more than I would if it were said of Boeing. I suspect there are some phenomenally complex discussions going on right now, but that there are some big customers out there prepared to continue to take new-builds

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

    Wed Dec 09, 2020 7:42 pm

    FluidFlow wrote:


    Thanks for the link. That seems like a more rationale assessment than most of the discussions I see about the future state of business travel. The ranges they estimate seem credible since they are based on understanding the purposes of current trips.

    I see other sources indicating that business travel comprised 12% of passenger volume, so combined, the expectation would be an overall decrease of 2-4% in passenger volume, but a bigger drop in revenue due to the higher yield of business travel compared to personal travel.

    That revenue will have to be made up from a mix of cost reductions and higher fares from other travelers, which will be a headwind on personal travel growth.

    I wonder, though, if there might be a slight offset in business travel they don't account for due to increased remote work flexibility. What I mean is, if your company allows you to work from anywhere, why work from home? This is a sentiment I've heard recounted endlessly for the last 6+ months. A lot of people in technology and certain office-based lines of work are expressing hopes to start spending weeks or even months in different locations, simply because they don't expect in the future to need to be in the office as much on days they're not using vacation. I hardly think this would offset the drop in business travel entirely, but it could cushion the long term impact some.
     
    JonesNL
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    Re: The case for more aircraft production cuts/playing chicken

    Wed Dec 09, 2020 8:39 pm

    lightsaber wrote:
    JonesNL wrote:
    FluidFlow wrote:

    What I think is, that recovery of travel is not necessary recovery of wide body demand. There lies the real problem. I predict wide bodies will not be in demand for growth before 2026, and replacements will also happen with younger second hand models and not new builds. Total demand might be at 10 new builds a month. 3 A350, 4 787s, 2 330s and 1 77X for the next 5 years. That is brutal for A&B. Only good margins on the NBs will offset this.

    A recent estimate sees business travel reduced by up to 36%, permanently: https://www.forbes.com/sites/benbaldanza/2020/12/01/new-study-estimates-up-to-36-of-airline-business-travel-wont-return/

    This will be brutal and legacy carriers will have to make up for that revenue by either increasing economy prices or reduce frequency and premium cabins, along with product offerings and costs. This will also reduce wide body demand. 36% reduction on LHR-NY business demand will mean less frequency with more Y cabins. There will be less WBs needed. Add in the XLR and LR from Airbus and even more WBs will not need replacements.


    This comment sparked my mind; can a narrowbody be created with an range of 8000nm while being more efficient than or at least as efficient per seat basis as an 787-10? Or is it necessary to have the capacity of an widebody to get the CASM down on those stages?

    Seeing that the XLR will be eating in to the WB space, the hypothetical 8000nm range NB will just kill the whole WB segment altogether...

    Short answer: no

    Long answer, aircraft (and ships) have a 3 for 2 rule where doubling the weight and surface are (drag) increases the internal capacity 3x. Now, the 2nd isle of a widebidy is a cost in lost usable area, and represents a transition in weight and surface area that requires a steep jump in size. The same with a double decker (2x stairs, people and food cart elevator).

    So there is a minimum mission length for economical opperations of each type before something smaller is just too competitive.

    But look at how few missions are 8000nm.
    I'm not a fan of the site but look at these ranges for longest opperational flights pee-pandemic:
    https://simpleflying.com/worlds-longest ... y-flights/

    For reference,
    the 717 couldn't do ATL-LAX at 1691
    A320 had winter issues until Sharklets/V2500 Select One on LAX-BOS 2269nm
    738 was winter winds load limited to Hawaii (LAX-HNL) at 2,221 nm (albeit with ETOPS concerns).
    E190 longest flight 1,822nm
    E175 longest flight 1539nm

    But now with newer narrowbodies:
    A220: RIX-AUH 2359nm with 145 pax!
    MAX 8 3,300nm
    A321NEO 3371nm

    and the A321xLR will increase that range.

    I am more referring to the 2200nm to 3300 nm going to nartobodies than the ULH flights. If you notice, aircraft are limited to about 80% of brochure range during winter winds. So the A321xLR brochure eange should be about a 3760nm maximum real world mission. So DTW-BER at 3691nm might be an extreame mission.

    The new narrowbody aircraft offer 1000 to 1500nm more real work range than the prior generation of nartobodies. In the recovery, I see that range being used extensively on what were once widebody missions.

    Note: I assume once normal opperations resume freight rates return back down to normal, so once again airlines must really focus on cargo or exit the market.

    Of course premium cargo will stay widebodies, in particular the effective combis if the 789, 77W, 779, A350, and on shorter routes 787-10.

    Until business travel returns, cost per flight is going to be an important metric.

    Lightsaber

    8000nm was just an figurative number, I should have been more precise. 6000nm real world range would be enough. Like you said; trip cost will probably be even more important than before and WB’s can’t match the scale of an NB derivative. I am seeing an comparable situation with the modern quads. Before you needed an quad to have the range, later WB twins matched the range and quads ran out of favor. Today you need an WB to have the range, when NB can match the range WB’s might fall out of favor as well...
     
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    Re: The case for more aircraft production cuts/playing chicken

    Wed Dec 09, 2020 8:55 pm

    iamlucky13 wrote:
    That revenue will have to be made up from a mix of cost reductions and higher fares from other travelers, which will be a headwind on personal travel growth.

    I agree with your well thought out post.

    I would add another set of options for revenue snd cost reduction:
    1. Increase density (fewer J seats).
    2. More fees or a more strict application of fees.
    3. Dropping unprofitable routes unlikely to be profitable soon.

    Supply and demand always plays a role in pricing if a perishable product. If higher fares are the answer, that will drive business to those airlines who have costs better in control and were less dependent on the business revenue.

    Sadly, this favors those airlines who didn't have a large order backlog...

    Lightsaber
    3 months without TV. The best decision of my life.
     
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    Re: The case for more aircraft production cuts/playing chicken

    Wed Dec 09, 2020 9:22 pm

    iamlucky13 wrote:
    FluidFlow wrote:


    Thanks for the link. That seems like a more rationale assessment than most of the discussions I see about the future state of business travel. The ranges they estimate seem credible since they are based on understanding the purposes of current trips.

    I see other sources indicating that business travel comprised 12% of passenger volume, so combined, the expectation would be an overall decrease of 2-4% in passenger volume, but a bigger drop in revenue due to the higher yield of business travel compared to personal travel.

    That revenue will have to be made up from a mix of cost reductions and higher fares from other travelers, which will be a headwind on personal travel growth.

    I wonder, though, if there might be a slight offset in business travel they don't account for due to increased remote work flexibility. What I mean is, if your company allows you to work from anywhere, why work from home? This is a sentiment I've heard recounted endlessly for the last 6+ months. A lot of people in technology and certain office-based lines of work are expressing hopes to start spending weeks or even months in different locations, simply because they don't expect in the future to need to be in the office as much on days they're not using vacation. I hardly think this would offset the drop in business travel entirely, but it could cushion the long term impact some.

    To you last point, yes, but I question truly how big the market is for those type of people with pure wanderlust and/or living a nomadic lifestyle truly is that are suddenly going become unshackled from the constraints of an office. If you really wanted to live that lifestyle previously, you probably found a way to do it and weren't going down the path of a white collar office job.

    The demographic that hits requires a whole bunch of things:
    - Generally younger, under 35 singles and couples without children, especially school-aged children
    - Empty nesters, that have not yet retired
    - Less likely to own property, especially not own a house that requires a significant amount of maintenance, upkeep, yardwork
    - Professions that pay higher-than-average incomes, with large amounts of discretionary and disposal income
    - A spouse or partner that also has a similar working arrangement; doesn't work if one is a remote worker and the other is a teacher

    There is a bit of novelty in doing it but when the practicality comes out of it I think people realize its not that sustainable a lifestyle for a long-term.
    In some circles people will do this in some capacity, but it won't offset business travel.
     
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    Re: The case for more aircraft production cuts/playing chicken

    Thu Dec 10, 2020 2:19 am

    lightsaber wrote:
    I see less replacement until oil spikes; I believe oil will have to rise further than before as frackers need a better business case to invest. Then we'll see replacement.

    I think growth will resume later than your estimate. I hope to be proven wrong.

    . Lightsaber

    Yes, I remember that when oil was over USD100, airlines were very quick to order new fuel efficient aircraft and ditching their gas guzzlers. Now that most airlines have cut their fixed overheads, fuel will represent a larger proportion of operating costs. Therefore, RoI simulations will be more sensitive to oil price increases.

    I sure hope our estimates will be wrong - it would be really disastrous if the aviation industry becomes a major casualty of the pandemic.
     
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    Re: The case for more aircraft production cuts/playing chicken

    Thu Dec 10, 2020 6:29 am

    Business travellers pay for frequency and direct flights. I don't.
    Makes me wonder how the route networks are going to change

    It sounds like Emirates and their A380 will have a bright future.
    It also sounds promising for B787.

    Edit:
    Is this the reason Lufthansa retired a lot of widebodies?
    Why can't the world be a little bit more autistic?
     
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    Re: The case for more aircraft production cuts/playing chicken

    Thu Dec 10, 2020 8:56 am

    Sokes wrote:
    Business travellers pay for frequency and direct flights. I don't.
    Makes me wonder how the route networks are going to change

    It sounds like Emirates and their A380 will have a bright future.
    It also sounds promising for B787.

    Edit:
    Is this the reason Lufthansa retired a lot of widebodies?


    IRC BA retired the high J 747s but Lufthansa kept their high J?

    But I think most airlines retired a lot of widebodies because frequency will go down and cabins will become more Y focused. Small Widebodies will see even more demand (relatively) compared to big ones. 787-9s and maybe even 338s will be in relatively higher demand compared to A350-1000s. The A350-900 will be the "largest" aircraft that is sold in somewhat economical numbers. It will be really hard for the 77X to become successful. It might end up like the A380. To big, to heavy and not efficient for most routes, so it will not be sold in big enough numbers to somewhat reach a good economy of scale.
     
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    Re: The case for more aircraft production cuts/playing chicken

    Tue Dec 15, 2020 2:35 pm

    Leeham has a new article on estimated deliveries for Boeing and Airbus (includes A220):

    https://leehamnews.com/2020/12/15/hotr- ... y-in-2025/

    Fairly robust narrowbody recovery, except for A220 ramp... isn't much of a ramp with the ratio of A320NEO to MAX quite plausible.

    The article goes into the chargeoffs for widebodies. That is a brutal acceptance of reality that hasn't yet happened.

    Lightsaber
    3 months without TV. The best decision of my life.
     
    StTim
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    Re: The case for more aircraft production cuts/playing chicken

    Tue Dec 15, 2020 2:49 pm

    Seems quite bullish about the 777X for what I see as a niche product. 50 frames in 2025 yet only 86 for the much more versatile 787. Doesn't feel right to me.
     
    morrisond
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    Re: The case for more aircraft production cuts/playing chicken

    Tue Dec 15, 2020 3:05 pm

    lightsaber wrote:
    Leeham has a new article on estimated deliveries for Boeing and Airbus (includes A220):

    https://leehamnews.com/2020/12/15/hotr- ... y-in-2025/

    Fairly robust narrowbody recovery, except for A220 ramp... isn't much of a ramp with the ratio of A320NEO to MAX quite plausible.

    The article goes into the chargeoffs for widebodies. That is a brutal acceptance of reality that hasn't yet happened.

    Lightsaber


    It forecasts Boeing delivering more units than Airbus the next 4 years and significantly more by value due to its lead in Widebodies. Interesting.
     
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    Re: The case for more aircraft production cuts/playing chicken

    Tue Dec 15, 2020 5:23 pm

    StTim wrote:
    Seems quite bullish about the 777X for what I see as a niche product. 50 frames in 2025 yet only 86 for the much more versatile 787. Doesn't feel right to me.

    I believe this is based on a freighter being offered. With that assumption, plausible. I also have seen data on 779 efficiency. While I haven't seen overall costs, I believe it will be the lowest cost way to transit passengers for flights over 3000nm.

    Lightsaber
    3 months without TV. The best decision of my life.
     
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    Re: The case for more aircraft production cuts/playing chicken

    Tue Dec 15, 2020 5:31 pm

    More on widebody demand or lack of demand:
    https://aviationweek.com/special-topics ... -long-haul

    Airline entrepreneur David Neeleman appears to be taking the idea one step further. His latest venture, Breeze, has ordered 60 Airbus A220s. Neeleman has been pushing Airbus to release design buffers in the aircraft, increase maximum takeoff weight and range to allow transatlantic flights and service deep into Latin America.

    Now, I just quoted the A220 portion (I'm a fan and thanks to the CFRP wing and modern subsystems, an ideal long thin plane), the article notes A321xLR opportunities.

    I also see Boeing having no choice but to extend the range if the -10 MAX and offer a -9ER. As someone who prefers P2P and will spend a reasonable amount to avoid connections pre-Covid19 (more now), I see this happening. A crisis only accelerates a trend and DUB, DEN, SLC, TPA, CLT, and quite a few other major airports will emerge from this crisis ready to serve more destinations.

    I actually really like the idea of available long haul, perhaps with just a few flights per week, to new destinations. Once I am vaccinated, I am ready to travel.

    Lightsaber
    3 months without TV. The best decision of my life.

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