Where will Boeing build the 777X?
The unwinding of Boeing’s commercial division from its nearly century-old, Seattle-area roots will accelerate in 2014.
Boeing has been distancing itself from the Puget Sound area of Washington state for more than a decade. It began with the transfer of the corporate headquarters to Chicago, gained momentum with the 787’s troubled outsourcing strategy and continued with a series of recent internal transfers of engineering and back-office functions to other states and countries.
Deciding where to build the composite wing for the 777X and assemble the complete aircraft has raised the drama of Boeing’s steady withdrawal from the Seattle area to a whole new level.
Twice through mid-December, Boeing’s largest union in the Seattle area has rejected management proposals that would have protected the Puget Sound’s claim to what is potentially the company’s flagship widebody product for the next 30 years.
It may be that the International Association of Machinists and Aerospace Workers may simply be driving a hard bargain. Moving 777X final assembly to another site is not without risk for Boeing’s delivery schedule, and management may be prepared to pay a higher price than it has offered so far to keep the risk as low as possible.
If that is so, the IAM leadership has a strange way of communicating its point of view. A series of opposing public statements has revealed a philosophical split between the local union chapter and the national IAM leadership. How this internal feud is affecting decision-making is unclear, but it would be a massive disservice to members if their union is acting on emotion rather than self-interested calculation.
So far, Boeing seems unwilling to meet the union’s apparent red line issue and drop a demand to abolish continued pension contributions starting in 2016. Meanwhile, the company is evaluating bids from 22 states on 54 sites. Recent history has shown that aerospace companies can successfully launch production at greenfield sites in the USA and be successful – not least Boeing’s own experience on the second 787 assembly line in Charleston, South Carolina.
It should be noted, however, that the size and scale of a single 777X assembly line is bigger by far than any previous project.
More likely, emotions will cool and Boeing will realise it still needs the skills and production capacity of the Seattle area to keep the 777X programme on track. The company will also probably hedge its bets on Seattle – perhaps replicating the 787 model, with two assembly lines in separate locations.
No matter what rapprochement, if any, can be achieved in the first few weeks of 2014, the damage is already done. Barring an unforeseeable turn-around by either side, Boeing will seek to accelerate its withdrawal from the Seattle area.
Which defence programmes will survive US budget cutting unscathed?
The US Congress gave the defence industry an early Christmas present. The US Senate was still debating the proposal as this magazine went to press, but the compromise agreement approved by the Senate budget committee and passed by the US House of Representatives on 12 December gives defence companies two unexpected reasons for holiday cheer.
First, the two-year agreement means the world’s biggest defence market will have fiscal certainty for the first time since early in the first term of the Obama administration. Defence companies may not like the slightly downward spending trend proposed by the agreement, but they will appreciate knowing what the end result of the budgeting process will be for the next 18 months.
Secondly, the proposals suspend the arbitrary, across-the-board budget cutting policy called sequestration for the next two fiscal years. The Department of Defense also will receive about $50 billion more than called for under sequestration.
While that will provide some relief to the Pentagon’s busy programme analysts, it is no panacea for preventing deep programme cuts over the next two years.
US taxpayers want peace after 12 years of war-time defence budgets, and the US Congress is ready to oblige.
The full list of casualties has not yet been decided, but the programmes already named in the discussion – including wholesale retirements of the Bell Helicopter OH-58D and the Fairchild Republic A-10C, plus the continued deferral of the combat rescue helicopter – indicate a clear trend.
The US armed services are redefining what they consider essential, and what is a luxury. An armed scout helicopter has been a critical component of army aviation doctrine since the Vietnam War – but not if it means absorbing deep cuts in more valued areas, such as the tank-killing and battlefield networking capability of the Boeing AH-64 Apache. The A-10 is the acknowledged master of the close air support mission in uncontested airspace, but it is also a death trap for the pilot in any almost any other role. The USAF will not sacrifice one dollar of spending on the Boeing KC-46A tanker, the Lockheed Martin F-35 fighter and an unselected new bomber.
The aircraft fleets supporting other missions – mobility and surveillance – will be spared fleet-wide retirements, but face reductions in investment spending and no new programme starts for at least three or four years.
When will Gulfstream move to replace the G450?
Word of Gulfstream's P42 project first leaked in 2010. Since then, Dassault has launched the Falcon 5X and Bombardier has revealed the Global 7000 and 8000 families – but still the large-cabin market waits for Gulfstream to reveal the successor of the G450 and perhaps G550 jets.
Gulfstream, however, seems to be in no rush – and it is easy to see why. In a large-cabin segment almost unscathed by the financial crisis that still paralyses the light jet sector, the G450 and G550 remain as relevant as when they were introduced in the last decade. Gulfstream does not publish deliveries by individual aircraft type, but by some estimates the company shipped more G550s than any other business jet – of any size – in 2012.
Launching a replacement too soon can dampen sales for the aircraft currently on the market. Now that the G650 and G280 are ramping up to full production, Gulfstream may have more flexibility.
There are two shows in the business jet industry to launch new products. The first arrives in May at EBACE in Geneva. The second opportunity comes in October at the NBAA convention in Orlando, Florida.
Our bet is that Gulfstream – including suppliers Honeywell and Pratt & Whitney – unveils the P42 sooner rather than later in 2014. The industry will then catch a glimpse of Gulfstream's first new development since the G650 in 2008.
How profitable will airlines be in 2014?
In December IATA outlined its forecast that airlines could post collective profits of $19.7 billion. Not only is that $3 billion higher than IATA thought just three months ago – and an improvement on the near $13 billion they will likely make in 2013 – it tops the previous highest industry profit of $19.2 billion in 2010.
While IATA is quick to issue the caveat that profit margins will not be as strong as 2010, it would still mark a fifth consecutive year of net profit – in stark contrast to the horrendous losses racked up in the previous decade. Also, all regions are seen as profitable in 2014.
“The average margin of the airline industry even in 2014 – which if we are correct will see the highest absolute profit ever – will be 2.6%,” says IATA director general Tony Tyler. “Many airlines will do better than this. And many others will under-perform.”
North American carriers are among those set to prosper the most. IATA expects these carriers to make a combined net profit of $8.3 billion, making it comfortably the most profitable region.
Airlines in the USA in particular have benefited from consolidation, both through mergers and joint business ventures on key markets like transatlantic routes. The majors – and indeed many of the established low-cost carriers – have improved aircraft utilisation and efficiencies as a result. The tight capacity discipline of recent years has continued, helping to lift passenger yields. Much of the attention in 2014 will now go on how American Airlines’ recently approved merger with US Airways – the final part of the US majors’ consolidation jigsaw – will contribute to the reshaped US market.
Asian carriers are the next most profitable, but are some way from the levels enjoyed a few years ago, as they grapple with a still-stagnant cargo market and falling yields. While that picture is mixed across the different markets, fares have struggled in some key areas like India, where the extra capacity has increased pressure in the short-term. IATA points to the impact on supply and demand in the region from the expected delivery of 710 aircraft next year.
For all the difficulties, European carrier profit projections – while still small – are on the up. The region has been aided by strong long-haul performances, but this again this differs widely across markets. Generally most of the strength has been linking northern European markets on North Atlantic routes.
The year is likely to see Europe’s network carriers retrenching from some markets as they continue to refocus short-haul business. This has already seen the likes of Air Berlin, Austrian and Iberia sharply cut capacity, and more reductions across other carriers are likely in 2014.
European network carriers' attempts to restructure will come under close scrutiny from regulators and unions alike. A number of restructuring moves are already being closely watched by the European Commission, to ensure there is no state aid through the back door. For some the challenge will be securing staff buy-in, as airlines seek a further round of productivity improvements to give them more chance of competing with low-cost rivals.
Indeed, many budget carriers are ready to pounce on any sign of weakness – made evident by the likes of EasyJet, Ryanair and Vueling all raising their game in Rome, even before Alitalia had detailed any of its expected cuts. However, low-cost carriers face their own challenges – not least Ryanair, which continues to take steps to make itself more appealing to higher paying passengers. Expect more freeing up of rigid rules around flying during 2014 from the now touchy-feely, tweeting, lowest-cost carrier of them all.
“The cash being generated by airlines is rather good under the circumstances,” says IATA chief economist Brian Pearce, citing high fuel costs and a relatively weak economic growth environment. “This puts the airlines in a good position to start improving their financials when the global economy starts turning around. We think we are now seeing the economic cycle turning upwards again. Unless we experience a shock, 2014 should be stronger than 2013.
“We had the Eurozone crisis – that seems to have eased. The banking crisis – in the USA they seem to have turned that around, and fears have eased a bit on oil prices,” says Pearce.
“Fuel prices have been in a flat range for the last three or four years. We expect to see some easing in fuel prices, because we have seen some changes [on the supply side],” he says, pointing to improved relations with Iran and the fresh supply of shale gas in the USA.
While passenger traffic is growing at historically typical rates – IATA sees passenger numbers increasing by 6% to 3.3 billion in 2014 – the air cargo market is still to recover. After two years of decline, air freight levels will rise by only 1% this year and 2% in 2014. This growth will be wiped out by falling freight yields.
“Cargo has been a very difficult market. How that business develops depends on seeing much stronger growth in international trade. Stronger economic growth should help that,” says Pearce. The issue is compounded for cargo operators because strong passenger demand is bringing with it additional belly freight capacity. “Despite efforts to reduce the freighter fleet, it has not been enough to bring the capacity in line with demand because of the growth in the passenger fleet."
“Getting that stronger international trade will help. We are seeing some signs of turnaround, some stronger volumes, so it’s heading in the right direction,” he adds. “But I don’t think it will get there in the next 12 months.”
Will peace break out in Afghanistan before the year ends?
Not a chance, unfortunately. After well over a decade of intervention, the NATO-led International Security Assistance Force (ISAF) is due to halt combat operations in Afghanistan by the end of 2014, after handing full security control to the authorities in Kabul.
A massive drawdown of equipment and troops will be continuing through the year, as ISAF’s current 84,000 personnel (60,000 of which are provided by the USA) will be whittled down towards meeting a roughly 15,000-strong “Resolute Support” commitment to be provided from 1 January 2015. The final terms for this have yet to be agreed, but the multinational mission’s emphasis will shift from fighting the Taliban to “training, assisting and advising” the Afghan security forces.
An early test of Kabul’s readiness – or otherwise – to assume full control of its territory will be provided in early April, as the prospect of an entirely peaceful national election process would appear to be slim.
In military aviation terms, the Afghan government remains a long way short of having the equipment required to fend for itself (an Embraer/Sierra Nevada team has yet to even fly any of its air force’s planned 20 armed EMB-314 Super Tucanos), so we can realistically expect certain allies to stay on into 2015 and beyond. While this will be with reduced troop allocations, the need to provide strike aircraft, airlift services and unmanned air vehicles to assist a post-ISAF Afghanistan is unlikely to go away any time soon.
Will the trio of slow-moving major fighter buyers sign contracts this year?
Brazil, India and the United Arab Emirates have kept the world waiting when it comes to concluding their planned future fighter acquisitions, which once advanced could account for a combined 222 multi-role jets.
With its modernisation requirement dating back more than a decade, Brazil has the most urgent need to choose between the Boeing F/A-18E/F Super Hornet, Dassault Rafale and Saab Gripen NG vying for its 36-aircraft F-X2 award. But with a football World Cup to host in 2014 (and a summer Olympics to follow two years later), increased spending on social programmes a growing priority and a general election due in October, chances are that the wait will continue.
India confirmed the Rafale team’s attainment of favoured “L1 vendor” status back in 2011 for its air force’s 126-unit medium multi-role combat aircraft programme, but despite confident noises from France, it has yet to put pen to paper. A swift resolution would appear unlikely, as the nation is to stage a general election in late May. An ongoing acquisition scandal linked to the previous purchase of AgustaWestland AW101 VVIP transport helicopters – a subject guaranteed to generate fresh headlines in 2014 – also means that any new orders will be the subject of intense scrutiny. As a result, the pilots of aged Mikoyan MiG-21s should not expect to be changing cockpits in a hurry.
Speculation was rife before last November’s Dubai air show that the UAE could be ready to sign for potentially 60 Eurofighter Typhoons, having made a late assessment of the type after losing interest in the Rafale, which had been in the same position in 2011. With the Gulf state facing no internal or external threat and with its growing air force already well-equipped with Lockheed Martin F-16E/Fs, the eventual winner may have to wait until Abu Dhabi’s IDEX show in early 2015, the next Dubai event – or beyond – for a much-needed orders boost.
What will be the key developments and milestones in the propulsion sector during 2014?
Development of a raft of new propulsion systems will continue apace, as airframers lean ever more heavily on engine manufacturers to deliver significant fuel burn reductions for new airliner programmes.
With the Airbus A350 XWB to enter revenue service before the end of 2014, Rolls-Royce will underscore its position as sole-source engine supplier for a fast-selling long-range widebody. This will bolster its competitive position against General Electric, which continues to benefit from the runaway market success of the Boeing 777-200LR/300ER series. The US manufacturer will continue basic component rig testing for its all-new GE9X – selected as the exclusive powerplant for Boeing’s new 777X family.
Rolls-Royce in February, meanwhile, will start assembling the production-standard Trent XWB engines that will power the first Airbus A350 for launch customer Qatar Airways.
The UK company will battle to win back long-standing Trent operator Emirates Airline, which will decide whether to stick with incumbent supplier Engine Alliance when it selects the powerplant that will equip its top-up order for 50 additional ultra-large A380s announced at November’s Dubai air show. Do not be shocked if Emirates springs a surprise and defects to the Rolls-Royce Trent 900, as such a large commitment would dilute much of the potential commonality benefit.
Engine Alliance is considering a huge range of options for the GP7200 – including a new centreline engine – to retain Emirates’ A380 business.
Also in the commercial sector, Pratt & Whitney will earn US FAR Part 33 certification for its PW1100G geared turbofan, which is spearheading the US company’s bid to relive past glories in the single-aisle airliner market.
Arch rival CFM International will achieve the critical milestone of flying the Leap-1A turbofan – destined to power the A320neo – as it prepares to ramp up production of its first ever all-new product. The Leap-1B version for the 737 Max family will enter bench testing.
During 2014 the industry will gain deeper clarity on whether P&W’s geared architecture will win out over CFM’s approach of broadening the application of exotic, high-temperature materials to wring significant efficiency improvements from a more conventional engine configuration.
In the business aviation segment, look out for the PW800 – which shares a common core with the PW1100G – to win out in the battle to power Gulfstream’s long-rumoured P42 all-new replacement for the G450.