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:: December 2015 Letter ::

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Dear Fellow Year-End Industry Reckoners,

In my last year-end letter I compiled a list of 2014’s five winners and five losers in the aircraft industry. But my impression of the past year is somewhat mixed: I can think of companies that experienced both extremely good and extremely bad fortune. So, here are the companies who managed to get on Santa’s naughty and nice lists:

Bombardier Business Aircraft. A lot of bad news this year, culminating a multi-year process in which this important and profitable unit has been sucked dry for resources by a very thirsty CSeries, in much the same way that a proverbial giant vampire squid attacks a penguin. The Lear 85 went from “paused” to dead. Global 5000/6000 production came crashing down (BBD had been overbuilding these to bring in cash to feed the vampire squid). Worst of all, the Global 7000/8000 was delayed, giving Gulfstream’s G650 another two years alone in the ultra-lux-o-barge market segment.

So, what’s the good news? Bombardier’s October move to split the CSeries off into a joint company with Quebec Province effectively means that the vampire squid has been removed from BBA. By NBAA in November, there was a new confidence at BBA, which is now able to move forward with its own resources retained for its own new product development efforts. It may not regain the Number One spot from Gulfstream, but at least they’re back on track. Clearly, better management at Bombardier is paying dividends. And the squid? Well, it’s sharing a drifting life raft with the Quebecois Government. And it’s still very hungry….

Boeing Military Aircraft. What a year! It became obvious that the Navy will keep receiving funding for 12-18 Super Hornets or Growlers annually for at least a few years to come, with 12 more in the FY 2016 omnibus spending bill. Justin Trudeau’s Canada election win gives the Super Hornet a great chance there too. Most intriguingly, Israel requested a squadron of Silent Eagles, raising the prospect of yet another re-birth of the near-immortal and much-loved F-15. There was even talk of renewed USAF F-15 procurement. It’s hard to think of anything bad last year for BMA. Oh, except that they lost the all-important LRS-B competition, and they will need to do something to avoid oblivion in the next decade. Other than that….

Boeing Commercial Aircraft. Another record year in 2015! Another record year to come in 2016! A great product lineup! Oh, and the small problem that past management had been booking record profits from the unit while actually letting a toxic pool of deferred 787 losses build up to a dangerous level. The new CEO might need to deal with that metaphorical Superfund cleanup site this coming year, with uncertain financial consequences. Also, cheap oil might impact these ever-rising production rate plans.

Lockheed Martin Aeronautics. They co-lost LRS-B, which means they face competition for USAF combat aircraft resources (F-35A versus LRS-B procurement is the Big Emerging Budget Theme for the 2020s). And, Canada said it will look at alternatives to the F-35, the largest known possible JSF partner defection. But that FY 2016 omnibus bill added 11 more F-35s, which may be a record congressional fighter plus-up by value. Fort Worth delivered a record 45 F-35s in 2015, which is also the highest annual production rate for any LockMart aircraft program since 2004. Meanwhile, France’s air force, a core Airbus A400M customer, admitted that the C-130J was basically essential for some roles, and requested four. Sixty years later, the Herc is still a necessity for any military.

Cessna. To their great credit, they’ve been heavily emphasizing new product development, which is the only way to stimulate the dormant middle market. And they’ve had the good sense to prioritize new jets at the top end of their range, which is also necessary as Embraer rips into their core market. Hemisphere, announced at NBAA, is much larger and more expensive than anything Cessna has ever done. But…how can they make Hemisphere happen in five years? And at NBAA, they suddenly announced that the Longitude, also bigger than anything they’ve ever done, would get a new engine, but would still arrive on time in 2017. This too sounds difficult (again, with Hemisphere development also underway). Oh, and Longitude has been re-spec’d again, just as the Latitude had been re-spec’d three times. The overall impression: Cessna is a company that knows what it needs to do, but has a seriously hard time executing on it.

United Technologies. The company spent 2015 getting clobbered due largely to weak aftermarket numbers, which have been hit by very high jetliner production rates driving out older jets. And the Sikorsky sale? It seemed like a good business to own (for 85 years!) but at least they got a lot for it from Lockheed Martin. But the Geared Turbofan’s service entrance (on the A320neo) is a triumph for everyone involved, despite the inevitable up-front snafus. And, given plummeting fuel prices, UTC’s aftermarket business may turn up again as airlines keep their old jets longer than expected. Compared with 2014, jetliner retirements this year have turned way down (42% down year-over-year as of mid November).

Since I’m a compulsive year-end list person, I’ll also provide a quick update for my list of 2014’s winners and losers:

The Winners:
F/A-18: An even bigger winner (see above).
F-35: Up but also down (see above).
A320neo: Still doing great (see above).
A330neo: Not bad, but orders still arriving slowly.
Gripen NG: Not bad, with the Brazil order moving forward.

The Losers:
KC-46: Better (thanks to a successful first flight in September, and a Japan buy a month later).
A380: Worse. The more Airbus talks about a neo the more one realizes just how completely absurd an idea that is.
CSeries: Worse. And now in the hands of Canada’s new PM, Justin Trudeau. Perhaps it’s his very first crisis!
747: Worse. The latest cargo market numbers make it look almost terminal.
Scorpion: Scorpion?

This month’s Teal aircraft binder reports include the F/A-18, AH-64, CH-47, Su-30/T-50, AW109/169, JSTARS, B-2, and E-3/E-737. Have a great holiday season.

Yours, ‘Til I Read A List Of Ten Reasons Why Lists Are Useless,
Richard Aboulafia
 

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