Tuesday, March 31, 2015

KC-46 Tanker Tanks Progress a Few More Months

The KC-46 Pegasis tanker still needs additional time as reported by the Puget Sound Business Journal. The March 26, 2015 article explains how additional time is required will not impede its ultimate delivery date in 2017. In fact, the tanker was scheduled as being fully loaded by April 2015. The date now moves to Late June (probably August) 2015. This three (probably five) month time bump is not serious during this stage of development. Other developmental progressions scheduled for the KC-46 tanker continue congruently with the delayed portion of the project. The workload shifts slightly when installation and validation of systems are carefully reordered. A first time production of any prototypical and systemic installation has the two headed conditions; of where it should be according to the plan; or where it actually is during the program in its reality mode. the KC-46 program progress is in reality mode at this time and a good thing too.

System stuffing in the KC-46 will be complete by August 2015 instead of the planned April 2015 deadline, including the tricky boom installation in question. Then its go time for flying its systems testing on the first 767 KC-46 2c. Early in 2016 will be the first of the 18 KC-46 completions, as it will begin assembly during this same period. Boeing will upgrade production copies on the ground during the testing phase until it ends.  Noting testing updates and risks retirement can be applied to the completed delivery queue waiting for final readiness, It gains back some time for Boeing's original delivery date for 2017. I only assume this from Boeing's 787 program, when they built 40 to 50 787's before final configurations, risk retirements, and updates were applied while they "rested on the flight line".

This first group of KC models may rest on Everett's flight lines until testing is complete.  It took several years until further 787 completeness was enacted, through its Change Incorporation and Rework Centers. It won't take several years for the military, since the 767 airplanes and its complimentary engines are a known and solid factor. It will only take weeks from installing the remaining ongoing changes accumulated throughout the program, as it chases the continuous improvement model. Upgrades are made when solutions are determined in process. It only has to consider new military systems interfacing with well developed Boeing systems. They have its arms around that consideration at this time.


Boeing KC-46 December 28 First Flight, Boeing Photo

All this was projected and promised in a timeline by Boeing to the Military. The phase of the project has moved to installation of all new system applied to the airframe. An earlier wiring problem with the schematic did not adhere to military redundancy and survivability codes. Five different power sources intersected at one point. The main electrical power wiring needed five separate routes not a junctions at one point, in case of a damaging or a coincidental hit during combat. This problem has been corrected, as it had added additional time into the project. This reinstallation compounds the time penalty as it affects the built-in slack time needed for such occurrences during a project. The cushion it had open for dealing with other "normal" developmental problems as it occurs is gone. As the schedule reaches closer to the development cycle conclusion, all the pent up delays are pushing out the first delivery window a few months.


Boeing Video KC-46 First Flight

The parts suppliers are having issues of timely delivery for essential refueling tools, as supplier design changes are encountered coming from both the military and Boeing engineering. This rolls back the time further as they are coping with the now tightened schedule. In response Boeing has deployed its personnel to various affected parts suppliers for shoring up critical mission parts, such as the aerial boom and the wing's flexible refueling pods undergoing newly required upgrades passed through Boeing to the supplier. Eight months of delay has been absorbed through the program from waiting for its suppliers who are making the necessary changes, thus making the initial fully operational first flight targeted for later in June. The Pentagon and Boeing are hoping for an end of June date going fully operational on the initial fully equipped test Tanker.

But a rule of thumb from "Winging IT" says 60 more days past middle June is likely, considering all the identified improved parts in the pipeline, and as all military systems become compliant with Boeing systems. Full implementation is yet to be achieved at this time until all parts and programming, flows into the assembly of the first four test frames. The Tanker status is in a "normal first time airplane manufacturing phase", as it experiences issues encountered for any military venture. Nothing here is showing up as a project stopper. The pentagon and congress should be pleased at this point, and they will go after "The Tanker  Project loose ends, conducting its part with due diligence.

However, Boeing is saying and the Air Force concurs, who is working closely side by side on this first flying copy, there is enough time to meet its 2017 deadline for an on time project conclusion. The news in this case, is really an inside look at any project churning out new technology and new systems concepts. The main understanding is realised by both parties. The estimated "contingent time slack" is gone, if it is to deliver in 2017. Both Boeing and the Air Force believe any show stoppers have been dealt with while the product schedule can be maintained, as the airframe is loaded with its all the secret systems. At this point I assume those systems have been ground tested or flown on test bed aircraft long ago. It remains to test on the actual first KC-46 frame fully loaded. Then it will build the first bunch.

Having the program this far along with so few major change-orders is a good indication the purchasing concept of using a well tested commercial frame is avoiding many of the time draining problems arising from an all new frame. Airbus is still working out its kinks on the A400 multi-tasking military transport after many years. Boeing will have proven engines, wings and 787-like avionics going in its favor before delving into the plug and play schemes brought on board  for the tanker. This is no F-35 clean sheet attempt. It purports to be the best of both worlds, proven ruggedness and all new advancements. Its a perfect military requirement.

Sunday, March 29, 2015

The 787-9 is the Giant Fuel Price Slayer

It is known that lower fuel price gives comparable status for the 777-200 with the 787 -9. In fact  Seeking Alpha Link has expressed with diagramming on whether the 777-200 can beat the 787-9 with lower fuel prices considering passenger load factors. Passenger load is defined as the number of seats filled on average compared to the number of seats available. If a 777-200 seats 316 persons and the load factor averages 85%, then it sells 268 seats each trip. If an airline sells that average, then the same number of seats sold fills 91% of a 294 seat 787-9.  The point is made through graphing, when the 777-200 at some point intersects with 787-9 profitability after fueling at the current lower fuel price. The article makes this point well.


Image result for 787-9
The reality is what is facing airline research teams when buying the 787-9. The 787-9 is the more real option in the long run. Prices will rise because Jet A potential is finite.

Simple observations:

  • Finite Oil Reserve
  • Fuel by Crops becomes more expensive from production expense.
  • Increased passenger demands increases fuel prices.
The theme above is fuel prices will naturally rise significantly and airlines know this fact. The current fuel price dip is a unnatural geo political economic condition brought by market imposition from oil producing nations. 

The main concept for buying the 787 during lower fuel price period comes from the over-arching theme, efficiency is for higher fuel prices. The 787-9 is the most efficient wide body flying.. It will slay Giant fuel prices. The airlines know this graphically, statistically and profitably. It was not made for lower fuel prices which have a temporary nature. It was made for swinging at high fuel price fastballs with the fat part of the bat.

Seeking Alpha feature goes to the detail making sure the reader understand whether KLM is better off with its 777-200 or 787-9. My answer is no, the 777-200 is only a placeholder for the 787-9 arrival. If it is chasing the moving low fuel price target keep the 777-200. Low fuel prices are gone by 2016. An order filled takes five plus years where chances are fuel prices are doubled over today's prices. The doubling fuel price effect hits the fat part of the 787-9 bat, and all today's graphs become a moot point. Where they become only an important what if graph.

KLM should be pondering a 787-10 purchase if it perceives any passenger growth within its business model. At 323 passengers, the 787-10 is within a passenger step growth pattern. Buying the 787-9 having a 91% capacity average indicates a need for the 787-10 if KLM grows it market. The 8,000 mile range 787-10 will touch all its current route destination with greater capacity than both the 777-200 and 787-9. The stable compliment is part of a natural passenger growth progression as the travel world continues to grow. The higher fuel prices puts a shine on the corporate apple if equipped right.

Saturday, March 28, 2015

Boeing's 100 787 Order Year Depends On Emirates and the Devil

Hainan    30
Emirates 70
Total      100

It is a stretch thinking Emirates will come through in 2015, booking more 787. However the robust and trouble free last twelve months sounds promising for Boeing. Tied up in the Boeing order quandary is Emirates penchant for the A380 and Rolls Royce engines. They, Emirates wants the A380 NEO with rolls engine. Dangling a new A350 order in front of Airbus as an incentive since it cancelled an Airbus order for 70 last year. Is this a form of airplane thuggery or just a way  of showing money talks as the saying goes?

Somehow Boeing got messed up in these dynamics with its 787 offering. No other Airbus A380 customer really cares about what Emirates wants as a counterpoint for additional Airbus A380 purchases. Also, at some point the whole Boeing strategy could come unraveled with an additional 200 or more A380 ordered by Emirates. Simply, Emirates three years down the road may decided having 440 A380 on the books is not such a grand idea after-all. That becomes a big Airbus risk with Emirates. They are hesitant ramping up a Rolls equipped A380 NEO for the sake of one customer ideas. Emirates counters with "we are talking to your arch rival Boeing" on some more 787, savvy.

Airbus is between a hard place and a rock with the A380s. It has a dwindling backlog and a saturation of capable airports for landing the giants. Emirates offers a compliant hub for that matter, but that only represents one half of the travel side for a connection. It still has to fly to a destination capable of handling the A380 that may already be at max airport capacity. There are many moving elements when ordering 200 or more A380NEO's fitted with Rolls Royce engines. Emirates may not trump the market with its own strategy. The 70 A350 it had canceled, may stay cancelled, and the threat of a Boeing order may become a reality. As much as Airbus would like never turning down a customer, it may have to to save itself from its own greedy aspirations, and from ruining the company in the long run.

Two hundred more A380 NEO ordered doesn't take Airbus past a breakeven point for the program, after adding in NEO cost and testing resources to the program. A NEO A380 comes too soon in the A380 life cycle, as the first of its type are too new and are far away in time from replacing during its normal life cycle. Follow-on orders, after a Emirates A380 NEO initial order are non existent. A prospective 200 Emirates order is a non starter for Airbus, and will drive any profitability to the loss column. The threat of a Boeing order is the bait where Airbus should consider this as a rational consideration. Emirates already cancelled Airbus once. Boeing shouldn't never count on seventy 787 from Emirates. It should count on selling 60 787 worldwide with its other customers for the remainder of 2015.

The flirtatious order book for Boeing is making a deal with the devil. They should message Emirates as a serious contender who doesn't want to be played with faux kisses and winks, as the real goal of Emirates is ruining Airbus for its own gain.

Boeing Needs A Cross-Over

Boeing couldn't build the 787-300 before it built the 787-800. Its common sense, establishing the benchmark first before defining a cross-over model. A 787-300 had nothing to hold it up like a book-end. No need for a cross-over in 2005. When considering an off-road vehicle or a rugged extra wide cab ranch pickup truck while first building a crossover wouldn't make any sense. How can you make a crossover for suburbia without a trail rated jeep coming first?



Boeing is building a single aisle 737-900 NG-Max for the urban sensibilities, until the ultimate inter urban transporter is made. It must look and act like the 787, while becoming the 757 Super Utility Modality known as SUM, and act like a compliant business tool. It’s the SUM of all its parts from Boeing that is what's missing! The venerable 757 is going to the scrap heap in a workmanlike manner. Boeing accidentally tapped the inter-urban SUM market a long time ago and it mis-identified the big opportunity by cancelling the 757 in 2005. Now it’s faced with a European knock-off jet in the likes of an A321. Boeing, having no articulation on the subject other than "we're good with the 737 and current 787 line-up".
I give Boeing three slaps in the forehead, and three consecutive expletives of "Come On" awarded in a row with its 757 public sentiment. Outstanding, missing how the much loved the 757 is and was! Boeing doesn't need another 757 for its replacement. It needs the abandoned 787-3 remade. A twin aisle replicator for passengers who are dependent on business and pleasure rewards. The airplane crossover concept is a brilliant reminder of soccer moms and grocery getting in the ground world. Big enough to haul the neighbors to school and awesome enough to go on vacation, looking somewhat like the newly Iconic looking 787-9.

Crossing over from single aisle two duo aisle isn't hard to do, "Neil Sedaka". Boeing needs this gap filler taking off from medium sized airports going all the way to San Jose while queuing the music along the way. South West Airlines are you listening? It could take you all the way to South West of Hawaii.

The assigned spot is 220 seats, the assigned range is 6,000 miles. It’s a crossover from single to dual aisle. It has the quaintness of single aisle gawking and the room of seven across for urban sensibilities. It hangs 100 million on the airline customer for each replication it purchases. It crosses-over everything good about Boeing's manufacturing conceptualization even though it is not as wide as the 787-8 or its counterpart. It’s very roomy for the number of seats, and it makes money for everyone even the passengers having sensibly priced tickets for the same commonalities with the 787 family.

Having it bigger than the 737-9, doesn't mean the 737-9 extra-long single aisle is dead. Nor does it threaten the 787-800. The 787-3 has the 787 aggressive design signature for long haul, yet providing the inter-urban frivolity for city hopping, in high density 1-5 thousand mile routes. This crossover is what an airline makes of it, as it defines the low cost of operation.

“It was once stated the 737 single aisle would not benefit from the lighter weight frame of plastics for the offset of development cost compared with the efficiencies gained from new technological advances on metal frames. It was also observed at the time, the 787 was still unproven concept, and the risk was too high to go with all plastic airplane models top to bottom. Wise people thought the 787 must matriculate to its completeness and demonstrate performance maximums, before proceeding to the next model. This is witnessed with both metal 737 Max and Partial metal 777X models. Boeing's approach is cautious on technology implementation since its "787 Moon Shot". They have the Golden Fleece in hand with the 787, and will should not go hunting for another overhaul of design and airplane evolution in my own life time.

A 787-3 “new version” for medium body design will have added manufacturing tooling cost for both the supplier and Boeing. But it's not groundbreaking, thus less expensive than doing a 787-3 in 2005. It has all the carry forwards from both the MAX, 787, and 777X programs. It has all the designs lessons learned from the last 10 years. They have the opportunity of repaying already sunk cost on advance technology needing repayment. Boeing could use a crossover program development accessing paid for technology, which it installed in the 787. Engine technology keeps getting better every day. A down sized 787-8 and up sized Max-9 has a 1,000 airplane sales target which would turn a profit for Boeing and compliment both models. All Boeing has to do is find charter customers from China to San Jose within in the Pacific Rim to make it so.

It becomes a financial shim wedged in, securing both new models from the Airbus nit picking on the edges. It's why they call it, the 757 the Gap filler for so long. Now that the 767 has stopped commercial passenger production and the 787 replaces it. The Gap must be addressed before further market erosion occurs. Go ahead, call it a "Gap Filler", cannon fodder, or a lost production leader. The gap must be filled! It’s just as important as the front line players when churning out numbers. My own opinion within is just an "I told you so" effort for Boeing, and having said so, I can sleep better tonight. A 787-3 is an investment for selling all models of aircraft at a higher rate, rather than compartmentalizing a 787-3 as a no go because it doesn't stand on its own. This is a false assumption because Boeing is a SUM of all its parts! A 787-3 revised model then becomes the SUM of all Boeing's parts making the corporation more successful. But make it a mid-body, two aisle inter- urban, and hub busting mover. Ryanair’s expansion is a plan solved with the 787-3.


Friday, March 27, 2015

Why I Couldn't Sell The 787 Dream

Great Expectations destroys the heart. When you have in your hand the rarest and the best object and another turns and decides on objects of less value. It becomes a tortuous moment coming from another's under appreciation. They chose the knock-off copy because they liked the look of a big bus.

The second most destructive nature emerges called "lack of patience". Selling 30 787-9 at $7.7 billion to Hainan Airlines takes immense patience.  The airlines must check it twice, which takes time, and its rightly so for any investment in its future. Due diligence is a wheel stone turning "oh so slowly and grinding oh so fine". The grist of the deal is turning into powder while I stand-by waiting to fill a spreadsheet. Patience is not my strong suit when billions are at stake. By now you should know the inner turmoil going on, is like what a waiting father has for a first born to cry. Knowing the mother's pain and experiencing the helplessness to do anything at the same time. A salesman's agony is silent and private. A suit can go limp and falls to floor with nothing to support it. The person inside evaporates before your eyes when all this waiting creates an inextinguishable void. Impatience has claimed another victim. A salesperson's passion would be my undoing.

The remedy for having Great Expectations with having a lack of patience comes from silly thoughts.

A number is just a number and nothing more, is a great remedy?

However, we all know numbers destroys the heart when they fail to exist during a sale. Having no number becomes the most important item of discontent. The expectation is now set. The order book is set at five 787's in 2015 , and with applied patience it will swell to 35 787's. The suit picks itself off the floor while standing up on that promise. Patience returns fueling its expectation. Hainan will save the Boeing sales team from a collective suit collapse, while it further spurs on more 787 expectation. Even though I can't suffer the damage of my resolve in a loss, I celebrate completed expectation in a win. Concluding, patience is the great motivator of expectation of which I have little of.

Thursday, March 26, 2015

Boeing's 787 Four Year Total Orderbook Flow

A review of 787 numbers of sorts. The Cost of Goods Sold journey must take into account raw inventory numbers with fixed and variable cost. The complexities of COGS is broken down by unit cost and averages or factors are applied to any build. Further statistical analysis would calculate application rates within a years build cycle making for a quick estimation or in some cases an actual cost derived from formulation. In this simple case I only look at the big picture. Each category below happens within the same year.

Notes:
  • As an example 2011 starts with the ending 2010 order book count  and sliding this number for the beginning number starting the  2011 backlog.
  • Boeing Delivered only 3 787 in 2011, reducing available orders to a paltry 733 during its production start-up.
  • Orders continued to flow in during the 365 day period in 2011, increasing the factory number of Backlog to  a net number of  778 which is an overall impact of a plus 42 for the year.  
  • The final note is for the Backlog Delta or the change in Backlog at year's end. The year 2011 saw a backlog increase of 42 during its start-up production years 2010-2011.  The year 2013 also increase the net back log by 118 787's  during that year where the 787-10's were ordered. The years 2014 and 2015 , so far have shown negative net backlog numbers before any significant 787 orders are book during 2015. The last last periods are very strong with production.

Soon there will be 30 more 787-9 booked in 2015 by Hainan Airlines China. The year remains young and another 60  787's  could be booked maintaining a generally positive 787 Backlog by the end of 2015. Overall the 787 backlog has grown since the start of its production in 2011 by 83 more ordered than delivered through the reported 2011-2015 period.  The four year mark numbers are a very healthy sign the plane has caught-on as a "preferred aircraft". Boeing seeks more validation during 2015 by increasing its 787 backlog ever so slightly. I believe they will be able to do this in the second half of 2015.   

2011 2012 2013 2014 2015        Total
Beg B-log 736 778 773 891 842 736
Delivered 3 46 65 114 25 253
Ordered 45 41 183 65 5 339
Ending B-log 778 773 891 842 822 822
Back-Log Delta 42 -5 118 -49 -21 85







Summary:
Total Ordered            To Date:   1075 
Total Delivered          To Date:    -253
Total Aircraft delivery remaining: 822

Data sources from nyc787.blogspot.com and Boeing .com

Wednesday, March 25, 2015

Hot News Of the Day For Boeing

Hainan wants 30 787-9 and will order ASAP if it wants a delivery completion by 2021. It has to order in the near future to achieve a delivery goal it has stated.

WSJ: March 25, 2015 Write to Jon Ostrower at jon.ostrower@wsj.com
"The airline said it plans to sign an agreement with the U.S. plane maker for 270-to-290 seat 787-9 Dreamliners for delivery by 2021 valued at as much as $7.7 billion at list prices, though customers regularly secure steep discounts."

The deal mechanics are already in process as it listed the "works in process filing report" for a proposed 30 787-9 in its stock exchange footnotes.

WSJ:  March 25, 2015

"Hainan announced the pending deal in a regulatory filing. A Boeing spokesman said the company couldn't comment on negotiations with its airline customers. The airline has taken delivery of nine of 10 Dreamliners it currently has on order, according to Boeing."

The importance of this intent underscores the order book dynamics that are now in play. A shrinking order book and slots have emerge as the motivation for jumping in with 30 787-9's with order is an urgency by Hainan. The Opportunity index has risen to a level where airlines are now in the backrooms negotiating for the existence of 787-9 slots. Opportunity index during 2014 was dead, and now after 114 787 deliveries from 2014 and proving the steady start in 2015. The light at the end of proverbial tunnel is well lit for wide body customers like Hainan who has jumped first. Others will follow as the pace will quicken during 2015.

WSJ: March 25, 2015
Many of the Dreamliners ordered by Hainan will come from delivery positions once reserved for United Continental Holdings Inc., the two people said. The U.S. airline is in negotiations with Boeing and engine maker General Electric Co. for a crop of larger 777-300ER jets converted from a portion of its Dreamliner order now going to Hainan, but hasn't yet been completed.

United Chief Executive Jeff Smisek said in an interview last week that the discussions with Boeing and GE for the 386-seat 777s were ongoing and “focus on a lot of things, including price.”

The order book rearrangement affects Both United Airlines and American. This year indeed will become a year of many speculative musings of who will get what in this order book dancing. American Airlines already has orderbook high ground with:

WSJ: March 25, 2015
"American recently received its first two 787 Dreamliner, which are slated to begin service May 7. A spokesman for American said it has 40 787s on firm order and 58 additional options. The airline switched it initial commitment from larger 787-9s to smaller 787-8s to replace aging 767 jets of similar size. The spokesman said it expects over time it will fly both Dreamliner models."

A concluding thought is the house of order cards is rapidly unfolding in the wide body world, as the Hainan card announced in footnotes makes all other players relevant again. Meetings are being held shorting out this large order scramble for major airlines widebody issues such as the 777 and the 787.

Tuesday, March 24, 2015

Winter Doldrums Are Over Now What

It seems this winter has been a non starter with only 74 net Boeing aircraft ordered in three months. The chart below from Boeing's own website gives the impression of the winter Doldrums are not some sargasso sea kelp bed holding back the Ship of Washington State. After three robust sales order years from 2012-2013-2014 comes a seasonal pause . I wonder how Boeing handles the lull before another order storm? I do know Boeing has pending commitments in reserve clear from 2014 with nary a slip of tongue on potential orders.

Boeing.Com Charts  "Ordered"
Orders through March 24, 2015
737747767777787Total
2015 Net Orders663 7480
Alaska Airlines6    6
All Nippon Airways5    5
GECAS2    2
Korean Airlines   5 5
Ryanair3    3
Silk Way Airlines 3   3
Unidentified Customer(s)54  2561
2015 Gross Orders703 7585
Changes-4   -1-5
2015 Net Orders663 7480
 737747767777787Total
PARIS Thu Nov 6, 2014 6:43am EST

"China and that region of Asia have not got enough orders. They have missed opportunities to get new technology aircraft at close dates from the manufacturers directly," Steve Mason, vice president of CIT Aerospace, a subsidiary of U.S. commercial lender CIT Group, said in an interview."
HYDERABAD Thu Mar 13, 2014 6:12pm IST
(Reuters) - Boeing Co (BA.N) is in talks with Jet Airways (JET.NS) about the sale of 737 MAX jets, a Boeing executive said on Thursday, while two other people familiar with the matter said the company had secured the $5 billion deal.
Dinesh Keskar, senior vice president sales for Asia Pacific at Boeing, said he was also in discussion with state-owned Air India AIN.UL over sales of the MAX jets, but that these talks were not as "intensely involved" as they were with Jet.

The two other sources said the Jet deal for 50 planes had essentially been completed and the planes were already listed under Boeing's "business with undisclosed customers", in its order backlog.

Monday, March 23, 2015

No 757 Part II Study

Part II completes the discussion from the 2005 Aircraft Commerce (Link) journal. Even though much has changed in aviation technology and aircraft development, the arguments for a 757 replacement are salient for the student of Aircraft making. Does the A321 fill the gap and will Boeing address the gap? I best can summarize these questions by a single sentiment. Boeing has so much as said, "go ahead Airbus use the A321NEO on this lost leader gap". Boeing thinks the 787-800 is the ultimate gap filler since aviation travel has grown so much since 2005. Routes once assigned with up to 200 passengers each time during 2005 have grown to 250 passengers in 2015. Routes that filled with 150 single aisles passengers in 2005 have also grown with a need for 180 seats within the same regions. Boeing sees the opportunity in the Max 737-900 once it demonstrates its capabilities in real time operations. Airbus has appeased its customers with with a A321 NEO after so many years of being 2nd fiddle to the 757. Now Airbus has the lonely slot that the 757 once occupied. 

My own dream was for a twin aisle middle body aircraft with seven across seating,  totaling 200 passengers and a 6,000 mile range. The dance card at Boeing Works is full until 2025. That is when better things will come again for speculations on airplane growth. I could imagine another 787-300 type announcement at that time, as passenger seat counts continues its growth.
  

Replacement outcome
As discussed, three replacement scenarios are analysed: replacing the 757 with smaller aircraft and maintaining a daily frequency of five flights per trip; replacing it with smaller aircraft and increasing frequency to maintain daily seat capacity on a route; and replacing it with larger aircraft at the same daily frequency where traffic growth is high. The best aircraft to replace the 757 are those providing the largest trip cost saving per seat reduced, or the smallest increase in trip cost per seat added. The marginal cost per seat reduced or added should be considered against the average cost per seat of the aircraft concerned. 

Smaller aircraft, same frequency 
The effect on the total seats supplied and total trip cost for operating five daily flights with the 757-200 and the six replacement options is shown (see table,page 31). The first issue to consider is the average cost per seat for each aircraft type. Trip costs for each have already been discussed, as well as the split between cash direct operating costs (DOC) per seat and finance or lease cost per seat. 

The 757-200 has the highest cash DOC per seat of all seven aircraft types. A lease rate of $350,000 per month makes its total cost per seat relatively high compared to the other types except the 737-700 and A319, which are the smallest. Lease rates for the 757 are highly variable, however. Unsurprisingly, the largest types (the A321 and 737-900ER) have the lowest costs per seat, with an advantage of $6-8 over the 757-200. 

The A321 is the best option, since it offers a 10-seat smaller capacity and a $2,100 lower trip cost by comparison: a cost more than $214 lower per seat reduced. That is, the five flights have a $10,700 lower cost than the 757-200’s five flights, but the A321 offers just 50 seats less (see table, page 31). This saving compares to the A321’s cost per seat of $71. The 737-900ER is similar, and saves $153 per seat reduced, compared to its cost per seat of $73. These reductions in seat numbers are also likely to be accompanied by a stronger yield mix, and so higher revenue per seat. Airlines could thus benefit from both more efficient aircraft and stronger revenues. The 737-800 is the next most efficient and the A320 has a marginal advantage of $2 per seat. Despite having lower cash DOCs per seat than the 757-200, the A319 and 737-700 have total costs per seat higher than the 757-200. 

Smaller aircraft, same frequency 
If unrestricted by airport and airspace congestion, airlines may choose to replace the 757-200 with smaller narrowbodies operated at higher frequency, providing a daily seat volume close to the 950 provided by five 757-200 flights. In this case the A321 and 737-900ER have to be operated at five flights per day to provide a total number of seats as close as possible to the 950 generated by the 757-200’s five daily flights. 

The A320 and 737-800 have to be operated at six flights per day, and the 737-700 and A319 at seven flights per day. The overall effect on the number of seats provided and total trip cost is shown (see table, page 31). The 737-800, A321 and A319 provide the biggest saving per seat reduced or added. The 737-800 has a $3,640 lower trip cost operating at six flights per day and giving just 10 seats more than the 757-200 at five daily flights (see table, page 31). 

The 737-800, therefore, offers a substantial reduction in operating costs for a slightly higher seat capacity. The A321 and A320 both offer 900 seats, 50 less than the 757-200, and also have lower trip costs. Both have a large saving per seat reduced, but the A321 and 737-900ER offer the second and third most economic options. The A319 and 737-700 have lower total costs, but the reductions are small in relation to the reduction in total seat numbers. 

Larger aircraft
In this scenario the effect of operating the 787-3 and A330-200 at four and five daily frequencies compared with the 757-200’s five is analysed. This increases the number of daily seats by 200-515, or by 21-54%. The main issue is how the increase in total trip costs compares to the extra capacity. The additional cost per seat added is higher than their average cost per seat, indicating that airlines will have to increase their yield mixes and average revenue per seat to cover the higher cost of operating larger aircraft. Higher belly freight capacity may help. The option of using larger aircraft is, however, only likely to be partially adopted by airlines replacing their 757s with larger aircraft on two or three of the busier daily frequencies. 

This will be at times of the day when load factors on the 757 are so high that unacceptable levels of spill occur, and also when there is a high level of demand from business passengers paying high yielding fares. The 787-3 has a trip cost of $81 per seat, and the A330-200 a trip cost of $82 per seat, $2 and $3 more than the 757-200 respectively. 

Their modern designs give the 787-3 and A33-200, however, lower cash DOCs per seat than the 757-200. The difference in overall cost per seat is marginal, however, and remains highly sensitive to the actual lease rates of the aircraft analysed. Lease rates will be the most important factor determining if it is economic to replace the 757 with larger types. While airlines experiencing high traffic growth may have little option about introducing larger aircraft, they should at least benefit from stable passenger yields when growth rates are high. 

Summary 

Although the 757 is old, its fuel burn performance is still affordable. Its maintenance costs, although not significantly increased with age, are higher than those of the narrowbody aircraft offered by Airbus and Boeing. The Blended Winglet system may prolong the 757’s operating life with original operators. The conversion-to-freighter modifications for the 757 are likely to provide an attractive exit strategy for some airlines. Replacement with the A321 or 737-900ER in an environment of strong competition and weak yields are among the most attractive options. These aircraft are of lighter designs, have lower maintenance costs, particularly engine reserves, and have lower fuel burns. The A320 and 737-800 also provide economic solutions in some circumstances. Although not analysed, airlines can of course finely adjust their capacity requirements by replacing 757s with mixed A321/320 or 737-900/-800 fleets as required. This is the main purpose of three- and four-aircraft families, which is to provide airlines with seat capacity flexibility and match supply more closely with demand Replacement with larger aircraft in strong passenger markets is most likely to be economic when 757s are replaced on busier flights. This is because high yield mixes will be required to cover the higher costs of operating these aircraft. This will be at peak periods when demand from business passengers is high. 


 AIRCRAFT ANALYSIS & FLEET PLANNING

ISSUE NO. 42 • AUGUST/SEPTEMBER 2005 AIRCRAFT COMMERCE

Sunday, March 22, 2015

I Repeat There Will Be No 757 Replacement: Homework Reading Assignment Below:

Sometimes in a bloggers life ,there comes that time where a blogger must face the reality of where a corporation is heading. First a corporation canceled the 787-300 model line. Here is a copy paste prospectus on the 757/787-300 case and A321 as it stood in 2005. Missing are import charts and graph looking at options. Boeing has this data and so does Airbus yet they opted for an A321Neo

When this report was made in 2005, Boeing had announced making the 787-300 and was making its last 757's. The MAX hadn't even been a conceptual footnote during this moment. The A321 NEO hadn't even had a champion with Airbus Now the status has changed.

2015 Boeing summary:

  • No 757
  • No 787-300
  • Yes with Airbus A321 NEO is hoping for replacing the 757
  • Boeing's Business Case Is found in other Airframes  

I believe Boeing is doing more with the 737-900 than advertised at this point. First it must roll out the 737-800 Max, then 737-700 MAX, and going forward the 737-200c Max for Ryanair. Its ongoing slight enthusiasm for its 737 MAX 900 becomes more of a mystery until the A321 NEO debuts. Could this remain becoming a future Boeing announcement in the next two years for an 737-900 ER for 220 passengers? Two hundred passengers is the Max load for a single aisle. After that its a mini twin aisle for seven across with about 31 rows. A mini twin aisle is not a 787 width nor is it too long for more seats, but it would borrow from every program in making this a special airplane. Below is the 757 eulogy from back in 2005.


Aircraft Commerce: Important click when thinking the 757 Boeing decision not to replace:

Analysing the options for 757 replacement
Page 25  AIRCRAFT ANALYSIS & FLEET PLANNING

"The 757 has had an impressive history. It has been in a class of its own and offered airlines some of the lowest seat-mile costs possible for narrowbody aircraft. Weakened yields and traffic volumes and more efficient alternatives mean its now time to consider the 757’s replacement." 

Below is the quoted article for your convenience please link  to article above for complete analysis.

"The 757 has been in operation for 23 years, and a large number of aircraft are now of an age when operators are considering their replacement. The problem is that the 757 is in a class of its own as the largest narrowbody, so there are no direct replacement candidates. The narrowbodies with the closest seat capacities are the A321 and 737-900ER. The 787-3 and A330-200 are 100 seats larger, but are the smallest widebodies that could be considered. Airlines will therefore have to consider replacing the 757 with smaller or larger aircraft, operating at similar, lower or higher frequencies than they currently use on their route networks.

Before considering which aircraft is a suitable substitute for the 757, the need for replacement must be examined, including the 757’s operating cost trend and disposal options.

757 profile: 
The 757-200 is mainly used on short and medium-range routes, with seat numbers typically totalling between 178 and 208 in various arrangements. While seat arrangements vary, a typical two class configuration is 190 seats. American Airlines, is the biggest operator, with an average stage length of 1,178nm, and configured with 186 seats.

This is close to the average for many 757 operations. Overall, a 1,000nm sector length and annual utilisation of about 2,700 flight hours (FH), 3,000 block hours (BH) and 1,050 flight cycles (FC) is representative of how many 757s are used. Despite being about 33% bigger than the 727-200, the 757-200 consumes up to 43% less fuel per seat. The 757-300 is a stretch version of the -200, carrying about 245 passengers. The 757-300’s maximum take-off weight (MTOW) was increased to 272,500lbs.

There are 986 757-200s in service with 98 airlines, most of them in North America and Europe. Only 55 757-300s were acquired by seven airlines, including Northwest, Condor Flugdienst and ATA Airlines. The 757-300’s poor sales performance is partially due to the A321. The 757-300 is also a very long aircraft. So, despite being very efficient and having attractive seat-mile costs, it takes a long time to load and off-load passengers. The majority of 757s fly short- and medium-haul trunk routes in the US domestic market.

It has proved popular with European charter carriers, since it can operate across all of Europe, as well as to the US East coast. The 757’s largest operators are American, Delta, Northwest and United. America West, Continental, National and US Airways also have large fleets, as do British Airways, Iberia, and various European charter airlines. China is also an important market, with Air China and China Southern operating 42 757-200s.

Case for 757 replacement:
Many 757 operators are split between those that may benefit from downsizing and those that require higher capacity aircraft. This needs careful consideration, since new aircraft will offer operating efficiencies and lower cash operating costs, but will also have high capital and financing charges. This raises the issue of whether the 757’s maintenance costs are increasing at a high rate, and if its fuel burn is high in relation to the aircraft that could potentially replace it. Besides the 787-3, A330-200, A321 and 737-900, the smaller A320, A319, 737-800 and 737-700 are all replacement candidates.

Maintenance costs:
The 757’s maintenance programme includes a base check cycle based on four C checks. The basic interval for 1C tasks is 6,000 FH or 18 months. There are multiples of the basic 1C tasks, and the heavy check at the end of the cycle is the C4 check with an interval of 24,000FH and 72 months. In practice, most airlines utilise about 85% of this interval. With an annual utilisation of about 2,700 FH and 1,050 FCs, the C check will be about every 15 months and 3,375 FH, suggesting that the C check cycle will be completed about every 13,500FH and five years.

The youngest aircraft will still be in their first base check cycle, but many older ones will be in their third and fourth. They will have reached maintenance maturity, and their man-hour (MH) and material expenditure could increase with age. “The MH used for routine tasks in the C1, C2, C3 and C4 checks during the first base check cycle are about 1,500MH, 2,400MH, 1,600MH and 5,000MH,” explains Patrick Ryan, head of engineering and planning at Shannon Aerospace. “The non-routine ratio for C1 and C2 checks is 0.4 and for C3 and C4 increases to 0.5.

The MH for modifications, service bulletins (SBs) and airworthiness directives (ADs) in C1, C2 and C3 checks are 200, but increase to about 1,000 in the C4. Interior work requires about 200 MH in the C1, C2 and C3 checks, and about 1,500 MH in C4 checks. The total MH for the first C check cycle therefore reach 19,060 MH.” Given a labour rate of $50 per MH, labour cost for the base check cycle is about $950,000. This has to be amortised over the interval of about 13,500FH, and results in a reserve of $70 per FH for the labour portion. “Routine MH increase in the second C check cycle, as does the non-routine ratio. MH for modifications, SBs and ADs and interior work in the second C check cycle are similar to the first C check cycle,” says Ryan. Total labour for the second base check cycle totals about 23,360MH, which is equal to a cost of about $1.2 million, 22.5% higher than the first C check cycle. “MH for routine job cards increase again slightly in the third base check cycle, while the non-routine ratio, however, increases to about 1.0 in the C4 check.

Total MH climbs to about 28,100,” says Ryan. Labour cost thus reaches about $1.4 million, a 20% increase over the second cycle. The reserve for labour therefore increases to about $104 per FH, a $34 increase over the first cycle. This is equal to about an increase in $90 per average flight, and is small when all other costs are considered. The consumption of materials increases with each base check cycle, however. In general, although the 757’s airframe maintenance cost steadily increases with age, it will not impose an unexpected and heavy maintenance burden on operators. The 757’s engines, however, have high costs compared to narrowbodies that could replace it. In the case of the RB211- 535E4, reserves for life limited parts are in the region of $85 per engine flight cycle (EFC), while reserves for shop visits are about $160 per engine flight hour (EFH).

Fuel burn:
With the fuel price soaring, the 757’s fuel cost has become a concern for some operators. On a typical sector of 1,000nm, the 757-200 burns about 2,805 US Gallons (USG) of fuel. At the current fuel price of $1.60 per USG, the fuel cost is about $4,500 and is equal to 2.41 cents per available seat mile (ASM) (see table, page 29). On the same route length, a 757-300 burns about 3,250 USG, equal to $5,200 and 2.13 cents per ASM (see table, page 29). Fuel burn for the A321, A320, A319, 737-900ER, 737-800, 737-700, 787-3 and A330-200 on the same sector length is summarised (see table, page 29). The 787-3 has about a 20% lower fuel burn than the 787-300, and will thus have the lowest unit fuel cost. Unit cost is 1.51 cents per ASM (see table, page 29). The A330-200 and A321 then have the next highest unit fuel cost. All other replacement candidates have lower unit fuel costs than the 757-200, but only in the order of 0.10-0.35 cents per ASM.

Blended winglet:
Modification with blended winglets is one option to be considered for continued or extended use of the 757-200. The 757-200 Blended Winglet system from Aviation Partners Boeing reduces fuel burn by about 3% on a 1,000nm sector, reducing unit fuel cost by 2.35 cents per ASM. This translates into a saving of 99,651 USG and $160,000 per year at current fuel prices. With a list price of $1.05 million for a winglet system, it will pay for itself in about seven years. The fuel saving is improved to 4.4% on longer routes of 3,000nm. In this case the saving equals 196,259 USG and about $314,000 per year at current fuel prices, generating a return for the operator after about four years.

Freighter conversion:
Lessors and some 757 operators can consider passenger-to-freighter conversion programmes as an exit strategy. The two independent passenger to-freighter conversions for the 757-200 are offered by Precision Conversions and Alcoa-SIE. Precision Conversions has a 15-pallet conversion, which has been approved by the Federal Aviation Administration (FAA) and by China’s aviation regulator. The aircraft has maximum structural payload of 67,000-71,000lbs, and up to 6,600 cubic feet of cargo space on the main deck, with an additional 1,790 cubic feet on the lower deck. Alcoa-SIE is still developing its 14.5- pallet conversion. The aircraft will have a gross structural payload of 66,000lbs, and a lower total container volume on the main deck than aircraft modified with the Precision Conversions’ programme. Conversion is dependent on various factors. The first is lessors’ concern about whether the lease rate of 757-200SFs will be high enough to generate a return on the book value or investment in the aircraft and the cost of freight conversion.

The current market value for 757s built before 1989 is less than $8 million. Including the conversion and probable maintenance expenses, the total cost of acquiring a converted 757 is about $13 million. Given a lease factor of 1.5%, a monthly lease rate of about $195,000 for the 757-200SF is necessary to make conversion economic, which is similar to the expected market lease rate for converted aircraft. This suggests that lessors are only likely to be interested in converting the 757 when its market or book value has declined to $8 million or less. Airlines that own the 757 might also be interested in the conversion if they have dedicated freight operations. This is likely to be when the aircraft reach a low or zero book value.

Airlines therefore only need to pay for conversion and maintenance costs, which will total about $5 million, but will depend heavily on the need for engine shop visits. China’s airlines, such as Shanghai Airlines, are more active in converting their 757s to meet strong cargo growth.

Replacement strategy:
There are three options for replacing the 757-200. The first, for airlines experiencing weaker passenger volumes and yields, is to replace the 757 with smaller aircraft and operate them at the same frequency. This will reduce capacity offered on a route, resulting in operating cost savings and an improved yield mix.

The second option is to replace the 757 with smaller narrowbodies and increase frequencies to maintain total capacity on each route.

The third is for airlines experiencing high load factors and traffic growth, and examines replacing the 757 with bigger aircraft, thereby increasing capacity on each route. China Southern Airlines, for example, has ordered 10 787s to replace its 757s. Its 757s are flown on busy routes, such as Guangzhou-Beijing, which have been recording double-digit growth rates.

A321/A320/A319 
In a similar cabin configuration to the 757-200, the A321 has about 10 fewer seats, putting the A321’s capacity at 180 in this analysis. A high MTOW variant of 205,000lbs gives the A321-200 a range of up to 3,000nm, which enables it to operate a number of important US transcontinental routes, as well as some of the longer European intercontinental sectors. The A320 has a typical two-class seat size of 150. There are various MTOW variants, and the aircraft can operate the 1,000nm sectors operated by the 757 without any payload restrictions. This is true for the A319, which has a seat count of about 124 on this comparative basis. The A321, A320 and A319 have the same pilot type rating, share many system rotables, and can all be powered by the same variants of the CFM56-5B or V.2500 engine, thereby providing attractive commonality benefits.

737-900ER/737-800/737-700.
Over the past several years the 737- 900 has posed a threat to the 757-200 and A321. A new higher gross weight and longer range version, the -900ER, has now been launched. The 737-900ER can carry up to 26 more passengers, or fly about 500nm further than the 737-900. An additional pair of exit doors and a flat rear pressure bulkhead allow room for up to 215 passengers in the same fuselage. Other changes, which include optional Blended Winglets and auxiliary fuel tanks, increase range to 3,205nm. The 737-900ER connects distant city pairs across continents, such as San Francisco-Boston, in a general two-class configuration of 177 seats. It has two other smaller family members.

The 737-800 has a seat capacity of 160, and is larger than the A320. The 737-700 has a seat capacity of 128, and the performance capability to operate 1,000nm sectors without payload or performance restrictions. The 737-700/-800/-900ER are powered by the CFM56-7B set at different thrust ratings between 24,000lbs and 27,300lbs. Like the A320 family, the 737NG has a single pilot type rating and common system components, offering airlines attractive commonality benefits.

787-3 
The new 787-3 is expected to have a two-class capacity of 289 seats. Its 3,500nm range capacity will allow it to operate most city-pairs in the Asia Pacific region, and many of the same routes where the 757-200/-300 is deployed. The 787-3 will be powered by the General Electric GENX or the RollsRoyce Trent 1000. Both have wide intake fans and high bypass ratios. One main result will be a 20% lower fuel burn than the 767-300. The 787 will also have a carbon fibre content exceeding 80%, whose main benefit will be resistance to structural damage and corrosion. This should contribute to lower base-check-related maintenance costs, and also result in a low rate of increase in MH consumption for these checks as the aircraft ages.

A330-200
The A330-200 is similar in size to the 787-3, with a seat capacity of 293. The older design and use of Trent 700, PW4000-100 or CF6-80E1 engines means it has higher fuel burn than the 787-3. This aircraft is already used by Dragonair for high-density routes into mainland China from Hong Kong. The A350-800 could possibly be used to replace the 757 on similar routes, but the A350 has been designed for ultra longhaul missions.

Economic analysis.
The three 757-200 replacement options have each been analysed. The first two options consider replacing the 757 with one of three A320 family types and three 737NG variants either at the same or higher frequencies as the 757-200 on a 1,000nm route. This examines the difference in total aircraft trip costs and seat capacities between the 757 and six narrowbody replacement candidates to identify the most economic option.

The third option considers replacing the 757 with larger aircraft, by examining the quantity of additional seats supplied by either the 787-3 or A330-200, the net increase in aircraft trip costs, and the incremental revenue required by additional passengers to cover this. All three options are analysed on a 1,000nm sector length. The flight time for a 1,000nm sector is 152-160 minutes, and a taxi time of 20 minutes has been applied. This will result in annual utilisations already described. The 757-200 is also assumed to operate at a frequency of five flights per day. This generates a daily capacity of 950 seats each way. All aircraft have been analysed in two classes, with seat numbers as previously described (see table, page 29). The MTOWs used for each aircraft are also summarised. The trip costs analysed for these aircraft include: maintenance; navigation and landing fees; fuel; annual flight crew and flight attendant employment costs; and lease charges. These are summarised on table provided.

Fuel burns and costs have been discussed. The 787’s carbon fibre content of more than 80%, and resulting resistance to structural damage and corrosion to reduce the ratio of non-routine maintenance, is expected to give it 15% lower base check costs than the 767. The 787-3’s fuselage maintenance cost will be $480 per FH. The engine reserve is expected to be $260 per engine flight hour for an average FC time of about 2.5FH. This takes into consideration the probable reserves for life limited parts, shop visit costs and removal interval. The cost for rotables and heavy components is expected to be $250 per FH and $165 per FH, respectively.

Hence the 787-3’s total maintenance cost per FH is about $1,275 (see table, this page). The 757’s total maintenance costs are $1,140 per FH (see table, this page), which is high in relation to the A320 family and 737NG variants. These smaller narrowbodies benefit from the long average cycle time that results in a low engine reserves for EFH, as well as having airframe related-costs that are $200 per FH lower than the 757.

All aircraft types have two-man flightcrews, with gross salaries, allowances and annual productivity as shown (see table, this page). Gross salaries are escalated by 25% to account for the additional costs of insurance and pension contributions, subsistence, uniforms and training. This does not allow, however, for possible advantages some types may have over others with respect to commonality that would result in long-term reductions in training costs.

Pilot commonality may have the effect of improving pilot productivity and reducing training costs, with the overall effect of lower employment costs and fewer crews required per aircraft and so lower costs per trip. The actual benefits of pilot commonality depend on fleet mix and airline policy. Landing and navigation charges for each type relate to the MTOW. Catering charge is assumed to be $8 per seat.

Typical current monthly lease rates have been used for the A321/320/319, 737NG members, and A330-200. These are summarised (see table, this page). A monthly finance charge for the 787-3 is based on the list price of $120 million for the 787-3, a 25% purchase discount, and lease factor of 0.9%. This results in a monthly rate of $810,000. Monthly lease rates for the 757-200 are highly variable. Over the past four years leases have been renegotiated for many aircraft, and have come down to $180,000-220,000 per month in many cases. Moreover, rates for newly signed leases for older aircraft have approached levels as low as $160,000 per month. Long-term rates for financings signed prior to 2001 for a large number of aircraft are in the region of $350,000- 450,000. For this reason, a lease rate of $350,000 has been used for the 757-200.

Overall, this results in the trip and unit ASM costs shown for the seven aircraft types operated at higher frequency, providing a daily seat volume close to the 950 provided by five 757-200 flights. In this case the A321 and 737-900ER have to be operated at five flights per day to provide a total number of seats as close as possible to the 950 generated by the 757-200’s five daily flights. The A320 and 737-800 have to be operated at six flights per day, and the 737-700 and A319 at seven flights per day. The overall effect on the number of seats provided and total trip cost is shown (see table, page 31). The 737-800, A321 and A319 provide the biggest saving per seat reduced or added.


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