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Analysis
Dec. 22, 2017, © Leeham Co.: Boeing blames a subsidized, price-dumped Bombardier C Series for the poor sales of the smallest member of the 737 family, the -700 and the 7 MAX, but history doesn’t support the claim.
The US Department of Commerce clearly ignored sales evidence that the 737-700 has been “done” for many years and the 737-7 MAX was an unattractive design
Boeing 737-7 MAX. Rendering via Google images.
that hasn’t been fixed with a redesign; airlines simply don’t want the airplane. Commerce levied tariffs amounting to 292% on C Series imported into the United States in the future.
The US International Trade Commission is currently awaiting post-hearing briefs from Dec. 18 testimony from Boeing, Bombardier, Delta Air Lines and other parties to determine whether Boeing suffered “harm” by the C Series deal with Delta and a near-miss with United Airlines.
If the ITC concludes Boeing suffered harm, the DOC tariffs stand. If not, the DOC action is moot. The loser at ITC is expected to appeal.
Boeing, which did not respond to questions for this article, advanced the theory of “commercial momentum” in its filings at the DOC and ITC. Officials argued that the Bombardier-Delta deal provided commercial momentum for the C Series. However, in the nearly a year between Delta’s deal and the filing of the complaint, Bombardier failed to record any new sale in the US—or anywhere else in the world.
Talks do not make commercial momentum; sales do, and there simply wasn’t any commercial momentum generated by the Delta transaction for the period in question.
On the other hand, commercial momentum was clear for Boeing—away from the 737-700 and 7 MAX to its own product line in the larger 737-8.
There are plenty of news articles discussing the up-gauging of the 737-700 to the 737-800, but this one nicely suffices, from the Motley Fool in May 2015: Southwest Airlines dropped its remaining backlog for the -700 and chose the -800. Southwest at the time had Boeing’s largest backlog for the 737-700. It swapped 31 orders for the larger -800, and paid more money to do so. Why? The -800 had 32 more seats in WN’s configuration and operating costs were about the same.
The same issue exists with the 737-7.
At first, the 737-7 was merely a reengined 737-700. The airplane was the same size. Ditto for the MAX 8.
Southwest, which in 2011 (as it does today) has the world’s largest fleet of 737-700s, more than 500, ordered only 30 MAX 7s because it needs the small airplane for difficult airports with short runways or hot/high issues (the latter was discussed by Delta and Boeing at the DOC and ITC).
It left the need for more than 500 replacements for the -700 on the table. Southwest instead opted to order 170 of the larger 737-8 MAXes. It’s also ordered more than 200 737800s, none of which will need replacement for at least 15-20 years. Clearly the MAX 7 won’t be replacing the larger MAX 8.
Southwest’s trend is up.
Other than an order for five 7 MAXes from a start-up airline, the only other identified customer is Canada’s WestJet, which ordered 25. Two of these orders were swapped for the larger MAX 8.
It’s believed there are about 70 orders in total for the 7 MAX.
Market interest was so poor for the MAX 7 that in 2014, observers, including LNC doubted whether the 7 MAX would ever be built. Boeing itself called the 100-150 seat sector a Bermuda Triangle, where airplanes in this sector simply disappeared.
An analysis by LNC indicated the airplanes “disappeared” because for the most part they were derivatives, typically “shrinks,” whose economics were questionable.
Boeing itself began efforts to prompt Southwest and WestJet to up-gauge to the MAX 8, sources told LNC. But by February 2016, Boeing switched strategies and decided to support the MAX 7 after all.
Redesigning the MAX 7
Boeing announced at the 2016 Farnborough Air Show it was redesigning the 7 MAX. It added two rows (12 seats) and made it a straight-forward shrink of the MAX 8, rather than a more individual design.
Flight International reported something that, today, has relevancy to the Boeing trade complaint.
“Boeing does not expect the addition of up to 12 more seats in a typical two-class seating configuration to significantly drive new demand into the low end of the single-aisle sector. The move appears to be driven by Boeing’s attempt to satisfy new requirements imposed by the 737-7’s two largest customers: Southwest and WestJet,” Flight wrote.
“We have now assessed the market. The customers have said that a bigger airplane is something we would like with that range,” says Keith Leverkuhn, vice-president and general manager for the 737, the magazine wrote.
“The redesign also happens to answer Boeing Business Jets’ long-term search in the VIP market for an answer to the 7,500nm (13,900km) capability of the Gulfstream G650ER, which dwarfs the 6,100nm range of the 737-700-derived BBJ1. The launch of the BBJ Max 7 at the Farnborough air show fills that need,” the magazine wrote.
By Boeing’s own admission, the 737-7 MAX redesign is driven by niche requirements of its two principal customers and it won’t stimulate demand.
Boeing told the DOC and the ITC that it had no sales of the 7 MAX from 2013 through 2016, when Bombardier sold its airplane to Delta. Since then a Chinese airline announced a LOI for 10 and lessor Air Lease Corp. ordered a handful. The LOI apparently hasn’t been converted to a firm order, or at least identified as such. Officials blamed the existence of the C Series.
This is disingenuous.
The original 7 MAX design, as noted, was merely a reengine of the 737-700. In the same Flight International article cited above, Boeing officials noted.
“In some ways, the stretched 737-7 restores a balance lost with the arrival of the 737NG series in 1998. At that time, Boeing lengthened the 737-800 by two rows compared to the 737-400, but left the 737-700 identical in length to the 737-300, says Randy Tinseth, Boeing’s vice-president of marketing,” Flight wrote. “As much as airlines have prized fuel efficiency in new models, extra seats rank as a close runner up.”
More to the point, there were just 87 C Series firm worldwide and none in the US during the same period. Twenty of these were to Russia’s Ilyushin Finance Corp., five to Iraqi Airways and 17 to start-up carrier SaudiGulf. None of these is an “A” list customer. Forty of the remaining sales were to Australia’s Macquarie Airfinance, a lessor.
Boeing hasn’t sold a MAX 7 since 2013. Bombardier hadn’t sold a C Series in the US from 2008 to 2016. If the MAX 7 was such an attractive airplane, why weren’t there any sales absent any C Series sales during this period?
Boeing didn’t answer this question.
The original MAX 7 design had a two-class capacity of 126 and economics that were analyzed by many to be significantly worse than the CS300. Irrespective, the trend was for up-gauging to the 737-800 from the -700 and to the MAX 8 instead of the MAX 7.
Alaska Airlines, Aviation Capital Group, ILFC/AerCap, Air Lease Corp, and non-US customers bypassed the 737-700 and the MAX 7 (and the C Series) for the larger airplanes. American Airlines selected the A319ceo/neo instead of the 700/MAX 7 when it launched the MAX program in July 2011.
As noted, United ordered 65 737-700s in early 2016, but within months swapped these to the larger 737-800 and MAX 8.
The lack of interest by these customers in Boeing’s small airplane speaks to the lack of interest/market demand.
Boeing didn’t comment about this, either.
Other questions Boeing didn’t answer:
Boeing was maneuvered into launching the MAX program when Airbus was on the verge of capturing a huge order from American Airlines for the A320neo family. The 7 MAX and 9 MAX were ill-suited cheap (by R&D standards) derivatives, neither of which were well received in the market. (Nor was Airbus A319neo, competitor to the 7 MAX.)
To address the clear weakness of the 7 MAX and 9 MAX, Boeing by April 2016 was studying the stretch of both airplanes to make them more attractive.
Boeing’s problem was not the C Series: it was an outdated product strategy and reliance on derivatives of a fundamental 1960s aircraft design. Bombardier passed the small 737 with a clean-sheet design in a sector Boeing had long-since abandoned when it dropped the 737-600 and when the market moved beyond the 737-700. The 7 MAX simply was a plane whose time had passed.
The MAX 9 was no more competitive with the Airbus A321neo than the 737-900ER had been with A321ceo. Hence, the development of the 737-10.
Faced with an out-dated 737 product strategy and unwilling to invest in a new single-aisle airplane, Boeing resorts to trade complaints to block competitors with more advanced designs.
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By Scott Hamilton
Dec. 10, 2018, © Leeham News: In the world of commercial aviation, GECAS, Avolon, AerCap, Air Lease Corp and BOC Aviation are among the most recognizable names of lessors.
These companies make headlines with large orders of Airbus and Boeing aircraft. Air Lease is headed by Steven Udvar-Hazy and John Plueger, giants of the aircraft leasing business.
But one lessor quietly, below the radar, has become one of the largest lessors in terms of aircraft count pursuing regional aircraft, a product mostly shunned by the biggest lessors.
Nordic Aviation Capital Embraer E190-E2. Source: Nordic.
Nordic Aviation Capital last year ranked tied for fifth with asset manager BBAM, each with 404 airplanes in their portfolios, according to an Airfinance Journal 2017 survey. GECAS, AerCap, Avolon and SMBC Aviation Capital were bigger.
DAE Capital of Dubai, BOC Aviation, Air Lease Corp and Aviation Capital Group rounded out the top 10.
Nordic currently has 457 aircraft owned and 11 under management, according to its website, which is slightly out of date. Airfinance Journal’s Fleet Tracker data base shows 502 aircraft; a company official says recent acquisitions from Air Canada and JetBlue boosted the portfolio to “more than” 500 airplanes.
According to the website, Nordic—which acquires used aircraft, undertakes purchase-and-leasebacks and has placed new orders—shows 154 ATR72s in the portfolio. The Embraer E190/195 accounts for 134. There are 90 Bombardier Q400s, 43 ATR42s, 26 E170/175s, 23 CRJ900/1000s, and seven Airbus A220s.
Airfinance Journal’s 2018 lessor rankings won’t be out for several months. But based on websites, Nordic will displace 2017’s #4 lessor, SMBC, which has 419 owned and managed airplanes. (When it comes to owned airplanes, SMBC only has 254 to Nordic’s 457.)
However, SMBC has orders for 246 aircraft, mostly Airbus A320neos and Boeing 737 MAXes.
When it comes to asset valuations, Nordic ranked #15 in 2017 in Airfinance Journal’s listing. Given the vast differences in values between mainline single- and twin-aisle aircraft vs regional aircraft, this ranking isn’t surprising.
Nordic came in at $6.1bn in 2017. In Fiscal 2018, ended June 30, the asset valuation increased to $7.8bn, according to its annual report.
Mega-lessor AerCap, with 1,121 airplanes, ranked first at $35.1bn in valuation. GECAS, with more aircraft (1,271) than AerCap but with an older portfolio, ranked second at $28.3bn. Avolon was #3 in aircraft (572) and valuation ($21.3bn).
Nordic was founded in 1990. It’s been profitable for 22 consecutive years. Revenue in FY2018 was US$735.4m. Business Performance was $160.2m and net profit was $130.9m. “Business Performance” may be equated to non-GAAP financial results. In this case, Nordic is subject to IFRS accounting standards.
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By Bjorn Fehrm
January 22, 2020, ©. Leeham News, Dublin: The yearly Air Finance Journal conference finished its second day with a Q&A with the top executives of the Leasing industry.
The Leasing companies buy 40% of all new airliners from the likes of Airbus and Boeing, to later rent them to the airlines on a monthly basis.
With 40% of all new aircraft delivered to these companies, their view on where we are in the cycle and what are the main challenges facing air transport is important.
The main topics during the three-day conference are the state of the airlines, the ease or difficulty to finance the purchase of $50bn of aircraft per year and the growing issue of air transport and the environment.
The leasing industry buys aircraft from the aircraft OEMs and rents them to the airlines on a monthly basis. Typical rental contracts are for seven to 12 years, whereafter the leasing company will find a new home for the aircraft. Airlines typically have 30% to 50% of their fleet on a rental basis with the rest in their own ownership. This gives the necessary capacity flexibility in a changing market.
During 2019, a total of 20 airlines ceased to exist, as weak airlines went bankrupt. The lessor then sends a team of mechanics and pilots to repossess their aircraft when the rents are no longer paid. The rules around international aircraft leasing are now recognized worldwide, so the repossessing and re-leasing of these aircraft to new customers no longer poses problems or cause value losses, except in some cases where countries ignore treaties.
Angus Kelly, the CEO of the world’s largest lessor, AerCap, said the movement of aircraft from weak areas and customers to stronger new homes worked flawlessly during 2019 and that it confirms the role of the industry to dynamically provide airlift where needed.
As a result, investors like pension funds that seek a good home for their money are viewing airliners as a secure investment with good returns. There is, therefore, no issue with sourcing low-cost capital for the billions of investments needed when the OEMs deliver their aircraft said, Kelly.
A growing issue for the airline industry is the environmental stigma associated with air transport. An increasing environmental footprint of airline growth is characterized as unsustainable by environmental activists like Sweden’s Greta Thunberg. Her influence on the industry has even got its own name, the Greta factor. It was a topic on most presentations and discussions during the day.
The CEO of Avolon, Domhnal Slattery, said: “In Avlon we have identified three things we can do. First, we make sure we buy and rent the most fuel-efficient aircraft possible to our airlines. Second, we have convinced our lenders of capital to give special interest rates for aircraft we rent to airlines with active environmental footprint programs. Finally, we have put together a team to look at the problem holistically. While we find it challenging for our industry to save an additional 10% of our CO2 emission for a total gain of 0.2% in total lowered emissions (airlines represent about 2% of global CO2 emissions), the energy industry represents 72% of the world’s CO2 emissions and it would be easy for them to cut 58% of their emissions by 10% or more. Part of the airline industry’s job will be to tell the public we are barking up the wrong tree if we want quick gains.”
The background is, air transport is already very efficient regarding CO2 and any gains are hard-won. In other, more important polluters, substantial gains are easy to achieve, for a fraction of the invested effort and money.
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By Scott Hamilton
Feb. 24, 2020, © Leeham News: Not so fast, Europe says about Boeing’s claim it is curing illegal tax breaks from Washington State.
The World Trade Organization has to agree to Boeing’s interpretation. This will take at least a year. In the meantime, be prepared for tariffs to be levied on Boeing airplanes by this summer, just as the company hopes the 737 MAX is recertified and deliveries can resume.
Boeing must get the WTO’s approval that the move to suspend the tax breaks will bring the US and Boeing into compliance with a ruling they are illegal.
This process could take a year, said a person familiar with the process. He spoke on the condition of anonymity in order to speak freely.
In the meantime, tariffs that have been authorized for the European Union to impose on Boeing, and other US products, may take effect once the amount is approved. This decision is due in May or June.
“We are confident that, once enacted, this legislation will bring the United States into full compliance and address the lone outstanding finding against it,” Boeing said.
LNA pointed out last week that the EU sought authority to levy tariffs on an old case, relating to federal tax breaks called Foreign Sales Corp. There are other issues, says the source, despite Boeing’s claim. These include tax breaks from Kansas and support from NASA and the Department of Defense.
In a statement, Airbus said it “will review the proposed legislation, which would need to be passed [by Washington State] before implementation. It is of course up to the WTO to rule on the application of compliance measures and whether the legislation would remove the subsidies and their related adverse effects.”
Nevertheless, there is s positive seen on that side of the Atlantic in Boeing’s move.
“It’s the first time it’s acknowledged it had a subsidy,” the source said.
This conceivably could become the basis for negotiation, it was suggested.
The timing is inconvenient for Boeing. The WTO is set to approve in May or June the amount of tariffs that may be levied. This was just about the time Boeing hoped the MAX will return to service. (Recent events suggest this may slip to later in the summer.)
Imposing tariffs on Boeing airplanes may add to the company’s financial strain.
Airbus agreed to split US tariffs with customers whose airplanes were already in production, the CFO said in November on an Asian investors tour. Customers would be liable for tariffs on subsequent airplanes, he said.
Boeing may face a more difficult customer relations challenge.
The MAX grounding hits its anniversary date beginning March 10-13. Boeing already wrote of several billion dollars for customer compensation. Beginning a year from the grounding, customers generally have the ability to cancel their contracts. With 400 airplanes built and stored, Boeing wants to deliver these aircraft and resume cash flow.
Customers in the European Union may demand Boeing cover any tariffs.
The tariff amount the WTO will authorize hasn’t been hinted so far. The WTO granted the US the authority to tax imported Airbus aircraft up to 100% of the airplane’s cost, up to $7.5bn in the aggregate. Non-aerospace products from across the EU are also authorized by the WTO for taxation.
The Trump Administration initially imposed a 10% tax in October. This goes up to 15% in mid-March.
It seems likely the EU will match tariffs on the Boeing airplanes: the MAX as well as 777-300ERs, 777-9s and 787s will be eligible to be taxed: 15%.
There are 48 MAXes that have been built and stored, undelivered, that will be subject to tariffs.
There are 47 MAXes scheduled for delivery to EU companies in 2020. Most are to Ireland’s Ryanair. The others are to lessors AerCap, Avolon and SMBC Aviation.
There are 87 MAXes scheduled for delivery in 2021, to the same companies.
There are 35 787s for 2020 and 19 for 2021.
The post Europe to Boeing: Not so fast on your WTO move; tariffs still likely appeared first on Leeham News and Analysis.
By Scott Hamilton
By Scott Hamilton
May 11, 2020, © Leeham News: Boeing killed development of its alphabet soup of airplane concepts for now.
“For now” is a relative term. When Boeing will be ready to show concepts to customers as a prelude to a program launch depends on how quickly the industry recovers from the COVID crisis.
But research and development of a streamlined production system, once key to new airplane projects, continues.
CEO David Calhoun said on the 1Q2020 earnings call that the New Midmarket Airplane (NMA) is essentially dead. He said in the following media call that the “differentiators” for the next new airplane from Boeing or Airbus will be manufacturing and engineering.
“We’re not out of the product development business,” Calhoun said on the earnings call. “We are invested in capabilities with respect to manufacturing and engineering that we believe will offer a very differentiated product in whatever strategy we choose. We’re fast at work at that stuff. We continue to be at work on it.
“It will probably not be applied to an NMA, and I think we’ve conveyed that to the marketplace,” Calhoun said. Boeing’s pursuit of advanced design and manufacturing processes are well known in aviation and supplier circles and on these pages. Elements of advance production techniques were implemented long ago across the 7-Series products. Advanced wings for the 777X. New wing production for the 737 MAX. Various processes on the 787 and even the 767.
Boeing Defense combined advanced design and production into the T-X trainer project and the unmanned MQ-25 aerial vehicle.
The NMA was to be the first 7-Series airplane where all these would converge into one commercial airplane for the first time.
“We’re going to continue to invest in it, and I believe at the moment that’s probably our biggest priority,” Calhoun said on the earnings call.
On the follow-up media call for the 1Q earnings, Calhoun made it clear this direction wasn’t just at Boeing.
“I believe that the true differentiators on the next airplane for either one of the parties who does that is going to be largely built around the way we manufacture and the way we engineer, as opposed to the point design of the airplane itself,” he said.
“We have not let up on the investments that we’re putting into those capabilities. We’re going to continue forward with those. It might take us a little more time and in light of this major market event that has occurred to get to the next point design. We’re still in the development business and we continue to invest in it. Yes, it’s the right question because it’s exactly the thing we focus on the most during these difficult moments. I think we’re going to get to the other side and we’re going to have our engineering intact, our capabilities intact. We’re going to have some real weapons with which to work on the next point design of an airplane.”
Boeing plans to restart 737 production this month, despite the COVID crisis upending demand.
But it won’t be smooth sailing.
Spirit Aerosystems makes the fuselages. It announced in its earnings call last week a revised agreement with Boeing. Last February, Spirit said it would deliver 216 fuselages to Boeing this year. Last week, this was trimmed to 125. This includes 18 delivered in January before production shut down at Boeing’s Renton plant.
This is new production. Spirit previously built more than 120 fuselages that are now in storage near its plant in Wichita (KS). Inventory will increase to an unspecified peak in July and August before returning to current levels by the end of the year.
Spirit said it will be about two years before the inventory is burned off.
Boeing plans to reach a rate of 21/mo by year-end and 31/mo next year, but this may be a challenge. Already under strain from the production shutdown, suppliers—especially smaller ones—face added pressure on survival due to COVID.
It’s unclear how this will impact Boeing’s 31/mo goal. One lessor predicts there is “no way” Boeing will achieve this.
AerCap, one of the world’s largest lessors, noted in its 1Q2020 federal filing that recertification of the MAX is uncertain.
“Boeing currently expects that the necessary regulatory approvals will be obtained in time to support resumption of the Boeing 737 MAX deliveries during the third quarter of 2020,” AerCap said in its federal filing. “It is uncertain, however, when and under what conditions our Boeing 737 MAX aircraft will return to service and when Boeing will resume making deliveries of our…MAX aircraft on order. As a result, we expect to incur future delays on our scheduled…MAX deliveries….
“Certain of our…leases have now been cancelled, and we expect additional leases to be cancelled in the future. In cases where leases have been cancelled, we have the right to cancel our corresponding orders for delivery of those aircraft,” AerCap said. An industry source said 30 MAXes are subject to lease cancellations at AerCap.
On the earnings call, AerCap CEO Angus Kelly said, “However, I do think it is likely that there will be additional delivery delays due to the challenges that the OEMs will have in their supply chains as they restart production.”
Air Lease Corp, another major lessor, also said some of its MAX orders can be canceled because these passed the 12-month trigger point.
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By Scott Hamilton
March 15, 2021, © Leeham News: GE Corp.’s decision to sell its mega-leasing unit, GECAS, to AerCap represents a huge shift in commercial aviation.
For decades, GECAS was the largest lessor in the world. One of GE’s best profit centers, GECAS was a major source of financing to airlines. The lessor purchases and leases back airliners, as do most lessors, as well as initiating leases with orders received directly from the OEMs. GECAS’ scale was a magnitude or two larger than most competitors.
The closest competitor was International Lease Finance Corp., a unit of insurance giant AIG. ILFC’s leadership liked to boast the asset value of ILFC’s smaller fleet was greater than GECAS, which while larger had more older airplanes in its portfolio.
GECAS often served as a financier for distressed airlines. Throughout the 1970s, 1980, 1990s and early 2000s, struggling airlines across the globe often turned to GECAS for sale/leasebacks. After the Great Recession, beginning in late 2008, GECAS flexibility was inhibited by the growing financial problems of GE Corp. Just as GECAS was dragged down by GE Corp., ILFC was dragged down by financial pressure on AIG. AIG sold ILFC to the smaller lessor, AerCap, which became the second largest lessor after GECAS.
Now, with GE selling GECAS to AerCap, the latter now has a portfolio of more than 2,000 airplanes. GE Corp. will have a 46% ownership in AerCap and get two board seats.
The power and heft of the new entity will be enormous. The deal requires regulatory and shareholder approvals. The target for closing is 9-12 months.
Source: GECAS.
Before the Great Recession impacted GE Corp. and with it GECAS, the lessor wielded a great deal of weight in the airline and lessor industries. In the 1986, GECAS acquired Polaris Aircraft Leasing, adding size to its own portfolio. Polaris specialized in what was called Aircraft Income Funds. Doctors, dentists and other high-wealth individuals looking for income and tax deductions invested in funds created by Polaris.
The airplanes purchased by Polaris were Boeing 727s and 737s and McDonnell Douglas DC-9s. The airlines selling the planes to Polaris were mostly distressed carriers of the day needing to raise money: Continental, TWA, Pan Am, Northwest and the first Midway, etc. ILFC Chairman Steven Udvar-Hazy famously called the Polaris portfolio the Wheel-Chair fleet, reflecting its age.
A wave of bankruptcies through the 1980s included these Polaris lessees.
In addition to ILFC, GECAS’ other main competitor during this period was GPA Group of Ireland. Over-ordering and over-expansion put GPA on a downward slide. GECAS purchased GPA in 1993, fully merging the lessor into GECAS the following year.
In 1996, GECAS placed its first speculative airplane order. At the time, it ordered only aircraft equipped with GE engines. Aside from the preference for its sibling, officials didn’t want any hint that GECAS would obtain proprietary information about competing Rolls-Royce and Pratt & Whitney engines. The policy didn’t apply to acquiring airplanes equipped with these engines through purchase/leasebacks direct from the airlines.
Since that first speculative deal in 1996, GECAS ordered 738 airplanes from Boeing and 633 from Airbus. GECAS also ordered airplanes from Bombardier, Embraer and ATR.
In 2000, GECAS acquired PK Finance, a small lessor and lender. In 2006, GECAS acquired the Memphis Group, a supplier of aviation parts for Airbus and Boeing airplanes.
Source: AerCap.
Irish-based AerCap was founded in 1995 in the USA.
It is the successor to debis Airfinance. AerCap was acquired by the private equity firm Cerberus Capital Management in June 2005. The following year, AerCap entered into a joint venture with a Kuwaiti company.
Throughout its history, AerCap took advantage of times of distress. The lessor grew with the acquisition of aircraft portfolios from lessors or banks that wanted to monetize assets during downturns. The lessor also seized an opportunity in 2006 to buy AeroTurbine, an aftermarket engine parts company. AerCap went public in 2006. In 2009, AerCap acquired Genesis Lease.
Growth continued with speculative orders placed with Airbus and Boeing.
Following the long decline of AIG rooted in the Great Recession, AerCap purchased AIG’s ILFC in 2014. This deal thrust AerCap into the Top Two position, by unit count, with GECAS.
Including ILFC, AerCap ordered 964 Boeing and 997 Airbus airplanes over the decades.
The two lessors individually were already important customer of Airbus and Boeing. Each were consulted by the Big Two OEMs when it came to new aircraft designs or major upgrades, such as re-engining existing airplanes. Airbus actively sought lessors to launch new airplane programs, whether a new design or a new subtype. Boeing was less interested in relying on lessors as launch customers.
Nevertheless, orders by GECAS, ILFC and AerCap were considered endorsements. The absence of launch customer orders by GECAS for the 787 and 777X have been glaring. ILFC ordered the A380, but later canceled in a blow to the program.
Some believe the merger gives AerCap an outsized influence on the Big Two OEMs.
There’s no question AerCap will have an important voice. But it now is one voice instead of two. Ultimately, Airbus and Boeing will be persuaded more by the end-users of airplanes than by intermediaries.
GECAS’ relationship with sibling GE Aviation clearly was a family matter. GE will own 46% of AerCap and have two Board seats. Engine purchase and MRO services aren’t likely to change much.
The more obvious question is whether the $24bn in cash GE Corp. will receive from AerCap will help fund research and development of GE Aviation’s next generation of engines.
The answer is No. The proceeds will be used to pay down GE Corp. debt.
John Slattery, president of GE Aviation, said during GE’s investor’s call detailing the deal that GEA will continue to spend about $1.8bn this year in R&D, about the same as in 2020.
“Partnering with GE Research, we plan to also demonstrate our hybrid electric capabilities on a regional airliner by the middle of this decade,” Slattery said. “As for the next narrow-body aircraft, we will develop and mature technologies to deliver greater than 20% fuel efficiency compared to the LEAP. Looking even further into the future, we’re positioning ourselves to lead the technology revolution, with innovations like liquid hydrogen where we can draw today from our experiences and the learnings from our colleagues over at GE Power.”
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Air Lease Corporation A321 XLR Rendering Credit: Airbus
The post Diverging financial fortunes for Airlines and Lessors appeared first on Leeham News and Analysis.
Subscription Required By Vincent Valery Introduction Credit: AerCap May 3, 2022, © Leeham News: Most passenger airlines incurred severe losses in 2020. However, last year, LNA showed that most lessors had a far less challenging 2020 than their... Read More
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