Kieran Daly: January 2007 Archives

Throughout 2001 there were deepening signs of financial crisis at what was then Swissair and its parent SAirGroup. It looked as if they would be restructured with heavyweight funding from the usual suspects in the international banking community; the idea that the situation was already beyond saving seemed inconceivable.

Then on 2 October something happened that I remember almost as vividly as the first whispers of what would become known as "911". I was writing for our realtime news service Air Transport Intelligence and trying to leave my desk for a quick lunch. Suddenly our reporter Maria Wagland was saying that two Swissair aircraft had been impounded at Heathrow. We were still trying to check that out when our Turkish correspondent Tolga Ozbek filed a story saying a Turkish fuel company was refusing to refuel Swissair aircraft. The game was well and truly up, and the ghastly, prolonged death of Swissair was inevitable.

Its $13 billion collapse brought down Sabena of Belgium and other affiliates in France as well, and put 5,000+ staff out of work.

Make no mistake, Willie Walsh is the big winner in the settlement of the British Airways cabin-crew strike, despite some very odd things being written in British quality newspapers.

Not only is the cost of the settlement to BA a minor one, but the BASSA arm of the T&G union representing the cabin crew has been publicly humiliated and is in internal disarray, and Willie himself did not put a foot wrong in the whole affair.

The game was up from the moment on BBC primetime radio news that T&G deputy general secretay Jack Dromey failed to respond to Walsh's declaration that average sickness absence among cabin crew was 22 days a year. Not news to anyone in the industry, but big news to the rest of the world.

Dromey repeatedly refused to address the point. Shortly after, his boss Tony Woodley took over the negotiations and he and Walsh quietly thrashed out the new deal over a period of days. I guess labour deals aren't negotiated in the proverbial 'smoke-filled rooms' anymore, but it was that sort of old-fashioned session that cracked it.

Upshot:: no protracted strike, sickness absence problem consigned to history, minor concessions on both sides, stock price rock-steady.

Nobody should be surprised. The characterisation of 'slasher' Walsh as the scourge of unions is simply stupid. It comes from his Aer Lingus days and ignores the context of what was happening at that company - which was nothing less than its complete reinvention from a stone-age, state-owned, flag-carrier into a reasonably modern business with a fighting chance of long-term survival. Employment reduction was just one piece of the jigsaw.

And I have to respect former pilot Walsh, he passed the Aer Lingus aircrew selection test in the same era that I failed it! Another story...

Unfortunately for Airbus, the US denizens of the darker Francophobic corners of the web are going to be in near-ecstasy over this one...

The first media flight of the A380, due to take place from Toulouse early next month, has had to be rescheduled. The reason: the French civil service is going on strike.

Could just as easily happen to Boeing of course (OK, maybe not.)

For GE, Smiths is the new Honeywell. There are plenty of people in both those companies (and more significantly, some now not in them) who would rather consign the whole ghastly memory of the failed GE-Honeywell merger of 2001 to a dark corner. But, thanks to the European Court of Justice,  this time around, things should be different.

The GE/Honeywell affair was one of the most extraordinary events in contemporary aerospace history. A $41 billion acquistion (by Jack Welch's GE) that pleased most of their customers, appalled their competitors (including Rolls-Royce which fought it in the courts), and finally was struck down by mild-mannered EU Competition Commissioner "Super Mario" Monti.

It was pure theatre. From the moment that the buccanneering Welch swooped on Honeywell to snatch a virtually done-deal from under the nose of arch-rival UTC, to his final legendary conversation with Monti, each week seemed to bring another incredible twist.

At one point GE offered to sell one-fifth of its hugely successful GECAS leasing unit (but not to UTC/Pratt & Whitney or Rolls-Royce) to satisfy Monti. And there was Boeing vice-chairman Harry Stonecipher's public apology to Airbus CEO Noel Forgeard at the Paris Airshow after he wrongly accused Airbus of trying to block the deal. European journalists sat in grinning rows as Boeing's iron-man ground out the words at a press conference. Not a nice thing...schadenfreude.

Within months Welch was gone. But GE, as ever, was playing a long game and, despite having no intention of reviving the merger, appealed against the ruling. In December 2005 it lost the battle, but the detail of the court's judgement transformed the battleground on which the M&A war is now being fought.

In its ruling it explicitly dismissed many of the grounds for the original decision - crucially, including the European Commission's arguments against "bundling" - the idea of gaining an unfair advantage by acquiring a portfolio of products that could let one player use bundled pricing to provide more and more parts of any new aircraft.

That matters hugely, because Smiths' product line-up is heavily biased towards supplying OEMs like airframers. At the time of the Honeywell deal, for example, GE had won the engine deal for the Embraer 170 and there was much talk of what Honeywell kit it could bundle into that if the merger went through.

On the A350 XWB and the new narrowbody programmes to come, that will be very important. I don't think the courts will intervene this time.

Well, the Airbus numbers are out and my prediction of a week ago that they'd get to 40% by net units sold was right, but a big chunk of undisclosed customers listed as December 06 orders means that I wasn't as close as I'd like to have been. In fact, Airbus's 790 net orders gets them up to 43% against Boeing's 1,044 net at 57%.

So that's one of their best years ever in absolute terms, but also puts Boeing back as undisputed champion for the year - for Airbus I think "bittersweet" is the word (probably something a little stronger inside the company.)

The additional December 06 orders revealed today are as follows:

• Undisclosed - 5 x A320


• Private - 1 x A319


• MEA - 4 x A319, 4 x A330-200


• AirBlue - 4 x A320


• Private - 1 x A319


• Undisclosed - 3 x A319, 7 x A320, 5 x A330-200


• Undisclosed - 9 x A319, 18 x A320

If you know who the undisclosed customers are, then do tell...

So congratulation to Boeing on a really superb performance. And congratulations to FT Deutschland who got the correct Airbus figure leaked to them four days ago!

Loyal followers of this blog will recall that on 5 January last year I stunned the world by correctly predicting that, contrary to all received wisdom, Airbus would still overtake Boeing's 2005 order total despite being way behind with only days to go. (OK, not stunned exactly, and possibly you don't recall exactly, but anyhow...)

Flushed with success, I'm going to have another stab at predicting what will happen when Airbus announces its 2006 figures in 7 days time. You'll know that Boeing has already put down its 2006 marker at 1,044 net orders (1,050 gross).

Airbus' problem, obviously, is that it can't possibly catch up (..I mean it can't...can it?) Its most recent figure was released 30 November and declared 635 orders in 2006 by then. In December it added these:

• Qantas - 8 x A380


• Singapore - 9 x A380


• Silkair - 11 x A320


• Lufthansa - 7 x A340-600


• AerCap - 20 x A330-200

And in January, it has so far added these below which it put 2006 dates against:

• Grupo Marsans - 12 x A330


• SALE - 20 xA320


• Pegasus - 2 x A350 and 6 x A330


• Interjet - 10 x A320

So that's 105 more firm orders in 2006 - taking the total to 740. Take off a handful to give the Airbus net figure and you will end up with a figure just over a 40% market share (if the net figure is 730 then it comes in at 41.1%).

And my theory is that that is basically the figure that Airbus will hit. Why? Because for several years now John Leahy has very publicly said that Airbus wants a stable market share of "40-60%". So long as he hits the 40% then he can shrug off 2006 as Airbus' annus horribilis and return to the fray in 2007 - starting with the AirAsia order for 50 two days ago.

One by agonising one the RAF has been getting rid of the assortment of made-in-Britian, and pretty much only-operated-in-Britain, aircraft that soldiered on through the sixties to the nineties. But the VC10, almost incredibly, is looking highly likely to hit 50 years of service.

Flight International this week reports that delays to the RAF's Future Strategic Tanker Aircraft (FSTA) mean that the current VC10 tankers should see service until 2015. One year later and the type (although not necessarily specific airframes I think) will have been in service for 50 years. Mostly as the service's resident 'airliner' in Shiny Ten - number 10 Squadron - more recently as a tanker.

I've got my own memories of the VC10. As a cadet I flew on one of the Shiny Ten machines on a training flight from RAF Brize Norton in the summer of '76. It was a memorable trip - I was in the cockpit as we did max angle of bank turns (60 degrees I think), an ear-popping max-rate descent, Mach-limiting runs (not sure what speed but it was high), and most dramatically - recovery from a Dutch Roll.

The Dutch Roll was spectacular from the cockpit. My recollection (might be slightly wrong) is that the drill was to disable the yaw-damper and give the rudder a nudge. With its swept wings and huge fin, the aircraft would rapidly diverge. I think the regulations allowed no more than two complete cycles before the aircraft had to be recovered with some hefty aileron input. By that time you had reached about 45 degrees of bank in both directions with lashings of yaw going on. Amazing stuff.

But then things got more exciting. I went and sat down in the cabin while my mate Richard Worrall went up-front. The cabin was configured with only about five rows of rear-facing seats and then a completely empty main deck all the way to the rear. At the rear was parked a galley trolley, of which more in a moment.

I sat down in the final row of seats and stretched out my 16 year-old legs. We began Dutch rolling again. At some point the nose went steeply down. The galley trolley, I rapidly learned, had been left unstowed and it began moving...towards me...very fast indeed. Strapped in, and under a fair bit of g force, I couldn't move. At the last second I managed to lift my legs high in the air and the trolley smashed  into my seat an inch from my backside.

The aircraft quickly recovered, and a few moments later so did I.

I told the pretty, Welsh, female air loadmaster, responsible for stowing the trolley, what had happened. She begged me not to mention it to the captain. I promised not to and, aged 16, didn't even insist on a date! (I joined the RAF myself three years later and made up for that.)

Getting on for three years ago (26 March 2004 to be exact) Boeing marketing supremo Randy Baseler made an interesting comment about the future of the A380. What he said was that the real make-or-break for the programme would be Airbus' success in securing follow-on orders from the original group of customers.

His point was that there were simply never going to be enough customers for the A380 based on the typical initial order of 10 or so aircraft. Not even including Emirates' 40+. So the crucial question would be whether or not the first wave came back for more.

I think it was a good analysis. Say Airbus had got 15 or so intial operators with about 10 aircraft then they'd be at 150 sales. Doubling that with follow-ons would give 300, which would at least have taken Airbus past breakeven.

So how does that look today? Well, the good news for Airbus is that finally two of the original customers have just added orders: Qantas firmed up another eight options to take its deal from 12 to 20; and Singapore Airlines took its order from 10 up to 19. Better still, Airbus CEO Louis Gallois says there are more such deals to come shortly.

But...a lot has changed since Randy's remarks. The programme delays have pushed the breakeven sales up to 420 - still a lot less than Airbus' predicted 750 sales, but alarmingly more than the originally envisaged breakeven of 270. FedEx, which I suspect Randy had more or less written off at the time, has switched sides. And the delays have also let the 747 emerge as a much more powerful competitor in its latter years than he can have possibly hoped.

In fact, the brutal truth, is that not only does Airbus need those follow-ons, but more than ever it also needs new A380 customers.

As an aside, the bit of the 2004 presentation that got more attention at the time was reported by us like this:

Speaking in London last week, Baseler said Airbus had claimed in 2000 that the A380's OEW would be 608,000lb. By 2002 this had shifted to 613,000lb and to 619,000lb last year. "In doing so, Airbus has acknowledged a weight problem. At this point in the A380 design process, a maximum take-off weight increase by Airbus would be clear evidence that this airplane design is on an uncontrolled weight growth track," says Boeing. It predicts the A380 OEW will be "closer to 630,000lb".

Richard Carcaillet, director of product marketing A380, firmly refutes Baseler's claims. "Boeing has had a long monopoly period with the 747, but frankly it's over. [Boeing] is so plain wrong that the airlines who have purchased the A380 will be having a good chuckle," he says. He says the 619,000lb is a "typical" OEW based on discussions with airlines. But the "spec" OEW is 596,000lb. "Weight at delivery will be very, very close indeed to the spec. Our launch customers are quite comfortable with that."

Airbus mostly doesn't use the OEW terminology these days - referring to manufacturer's weight empty (MWE) instead - but on its website it still quotes that 608,000lb figure and in briefings it still says the aircraft will hit its performance targets. We should know for sure later this year, but I think Randy will lose that battle (and, in fact, he may well be fighting a related one for the 787 by then.)