18 January 2008

More on BA038. Airframe headed for Steptoe and Son.

Despite the great performance of the BA flight crew:
Captain Peter Burkill
Sr FO John Coward
FO Conor Magenis
...It is unlikely that the British Airways 777 is salvageable. It is currently being chopped up in situ into chunks small enough to haul away. With the collapse of he undercarriage and the significant impact on the engines - the latter are also likely not to be candidates for reuse.

As far as we can tell according to several databases this represents only the second 777 to be removed from flying. The first - an ex Varig 777 was so clapped out when returned to the owner that is was sold for scrap. Out of a total of 687 delivered that is not a bad record.

It shows the robustness of the design and it cannot be stressed strongly enough the correct interaction of the major factors: Crew training, Airplane strength. For BA with 43 -er make that 42 of both GE (29) and RR (16) powered airframes, they and all other operators will want to know what happened.

So do we



Toppling the Giants - USA and Expedia

OK this was a somewhat misleading headline but it made you look!!!!

2 reports published today show how the world is changing.

In online CHINA finished just behind the USA and will easily pass the former leader in a matter of days as the world's largest Internet market. Lest we think otherwise it is not a fair comparison. These are in total numbers and of course the definition of the experience in a Chinese Internet cafe is vastly different from the high-speed surfing we can do at home in the USA. Still a seismic shift and we should all bow for a moment and reflect. OK? Done

In the UK Hitwise is reporting that longtime travel category leader Expedia UK (which I had a "small" hand is starting) has been knocked off its perch by TUI/Thomsons of all people. That was definitely interesting!

So changes abound



17 January 2008

Air Union Appoints DG; moves closer to integration

Air Union the Russian association of several airlines anchored by KrasAir has approved the appointment of Boris (no relation to Roman) Abromovich as Director General. Last May they approved the creation of the holding company that will formally integrate the alliance into a single legal entity.

The current partners also now own Malev (Hungarian Airlines) as well as its Russian component carriers: Domodedovo Airlines, KrasAir, Omskavia, Samara Airlines, Sibaviatrans.

Air Union is emerging as a strong challenger for the number 2 slot with Sibir S7 (Formerly Siberian Airlines). With the formal creation of Air Union there is clear water between the top 3 groupings and the rest of the remaining pack of Russian carriers. The three players are:

Aeroflot - Russian International (including Aeroflot Nord)
Sibir S7
Air Union.

These 3 are now the leading domestic airlines. The only other carrier of note is the independent airline TransAero who now seems to make most of its money shuttling its ancient 11 747s (200s, 300s and a single -400) between cold weather locations in Moscow and St Petersburg and warm weather locations in Egypt.

The Russian market after falling from a high of 160 Million pax at the height of the Soviet Union to below 4 million pax is now running a respectable 40 million pax a year and very strong growth.

Maturing is setting in. With the strong restrictions on the purchase of Western Airline equipment - it seems likely that these 4 players will dominate the market for some time to come.

Ryanair to Scrapers - DON'T!

Ryanair is getting tough with agents again. Despite conciliatory noises from Easyjet to open the door to the Travel Trade - Ryanair is talking tough (probably with a few expletives thrown in!)

Rather than just hitting the agencies themselves they are targeting selective technology providers. We understand that Comtec and Traveltek were both selected out for action. The latter (who also powers Dolphin Dynamics scraper) represents about 70 UK Travel Agencies. Said that last year 30,000 clients booked through the system.

Ryanair clearly doesn't care. With 50 million total pax flown this is an insignificant number.

Clearly this represents the difference and divergence of the models being pursued by the 2 leading LCCs. We have said many times that the LCC model itself will fracture and that the purists will continue to defend their direct channels to the consumer. The Hybrid Value Carriers - HVCs, and we clearly see that EasyJet fits that profile, are going to start doing certain things like opening up subtle avenues in the travel trade channels.

Michael O'Leary to the Travel Trade - 2 fingers up!

So the 787 is going to be late....

That as your humble writer is not new news. But there are some subtle issues that Boeing has finally come clean about.

The biggest decision is to wait before making a decision on the production start up, ramp speed and full production dates.

The decision for production and setting a date is going to be much later - don't expect this until late Q3 at the earliest. Our betting is that first deliveries wont be until Q2 in 2009. We are projecting about 40-50 deliveries in the first year. Well below the 109 Boeing originally projected.

We are all going to see a much chastened Boeing for a while. They have yet to get things right. The issues now remain:

The supply chain is not yet ready. Already some of the supply chain partners are saying that they will not be able to meet Boeing's targets.

The design is "soft" frozen. Boeing doesn't as yet have a full set of plans to work with. If all the pieces had been delivered as envisaged then this would not have been too much of an issue in delivering Aircraft 1 for flight testing. However now Boeing has had to take back control of certain sections (remember the Italians!) they need the full documentation and guess what... they don't have it all... So the "Traveling Work" is both more complex and time consuming than was allowed for.

Oh yes and Rolls has a problem with Fuel burn. They are still 2%+ off targets.

At least Boeing is (kinda) coming clean on these issues. There are others. There is no clear path out of here. Let's hope Pat Shanahan and his crew are left alone to do their job. His 90 day honeymoon is well and truly over.

My admonishment is the same... take the time.

That was extremely lucky!

The BA pilot of BA038 PEK-LHR who managed to get the 777 down this morning at LHR deserves a medal. While we don't have the full details as to what caused the power failure - a rather large aircraft and a crew who had been flying for many hours is not exactly a recipe for success. But these guys did it and more power to them.

Now of course there is chaos at LHR with one runway out of action. Many flights have been cancelled today - over 200 mostly short haul.
www.bbcnews.com has the best pictures.



The year is starting with a bang... Thoughts on DL-NW + AF/KL

Those of you who are regular readers know that I am personally opposed to the idea of a DL+someone else merger. I just cannot see the logic in the near and probably long term for such a Union.

So for the next 2 weeks (that's DL's time line) actually 3 months is more likely! We are going to be subjected to the constant war of words between the protagonists.

As we noted in our 200 predictions - the market in the USA is ripe for investment from EMEA (that's both Europe and the GCC states). Finally someone else agrees - the WSJ today described the first thing that Richard Anderson did after leaving Friday's Board Meeting where he secured the OK to negotiate with NW and UA. Where did he go? Paris.

AF/KL holds the key card in this conversation. They are the biggest player in the world and their JV with DL and NW separately makes the union a good tie. HOWEVER I stand by my statements earlier. This is not good for the two players. NOR will it be good for the customers and staff.

As for the alternatives - UAL is a basket case and no one should touch it.

But the impact of the DL+NW merger will be far reaching and not necessarily good. Fortunately it seems that Senator Oberstar seems to agree with me. Fortunately he comes from Minnesota so he has a vested interest in not seeing it happen! Oh yes he is a Democrat which almost counts for something these days.

I stand by hope that this will be resolved not by a full merger but by a combined alliance/JV which makes much more sense.


16 January 2008

BA's OpenSkies - Divine Inspiration or Crass and Stupid?

Listen to the Podcast of Addison, Doug and yours truly debating the merits of BA's OpenSkies.


15 January 2008

Could Microsoft be heading for a Split of a different kind?

Normally the faithful like to gather around the water coolers and offices on the Campuses around the Puget Sound and ponder a stock split. Actually since that hasn't happened in such a long time - many Microsofties have not even experienced the joy of a Stock Split.

However there is clearly a changing of the guard going on. With Bill leaving some time this year and Jeff Raikes announcing his retirement - we are seeing also a host of senior and middle level long time leaders leaving.

Perhaps it just isn't as much fun anymore.

However I believe there is another reason. With MSFT being so widely held it makes it very hard for there to be any major stock movement. Stock buybacks and other normal behaviour have done little to move the old stock clock needle of late.

I think the company is headed for a SPLIT. With the company being spun into 4 major divisions.

1. OS and Enterprise infrastructure services (aka Windows)
2. Desktop and Web Apps (aka Office)
3. Online Services (aka MSN)
4. Entertainment. (aka Xbox)

Some smaller businesses like MCS - Microsoft Consulting Services would be spun out along the way - but these are the biggies.

Steve - time to o it - it will realize a lot of shareholder equity and create competition for the marketplace.

The 4 businesses would generate significantly more market value that the core businesses do today.

Something to think about - eh Steve?

Airline Stocks - ever get that sinking feeling?

Airline stocks are going to take a pounding in the USA market for he next half year at least. Probably longer.


The simple answer is "It's the economy, stupid!"...

The longer answer is there are not enough fundamentals to make airline stocks sexy. All the sectors are under pressure: Network Carriers under-performing, Regionals and Contract Carriers (Like Mesa and Republic), Even the one time darling jetBlue is cutting planed capacity as indeed is Southwest.

So Delta is hoping for a sexy quick win in its proposed merger with either Northwest or United.

I will say it again - JUST SAY NO!

The merger of Delta and Northwest is a union made in hell. DL and UA would be torture for everybody concerned except for Glenn "Gordon Gekko" Tilton.

Corn futures look good...........

Europe Soars as USA Stalls - 1st Quarter Traffic Estimates

We are seeing some extraordinary growth numbers coming from the global growth of air traffic. Frankly we are having a hard time believing these numbers.

Global headline growth is predicted at nearly 10% in quarter 1 with a slackening off in the second quarter. This is all the more astonishing given that the US market is at most optimistic flat or continuing its slide since August 2007. In December the US market fell 0.6%.

We believe there will be a number of contradictory indicators over the next year. Today for example - and unjustified in logic - we saw UK based EasyJet's shares take a tumble. We have already seen a pull back in flights flown for the quarter from the US Network Carriers. Yet at the end of the quarter March 30th will see the largest expansion of Transatlantic flights in one day ever. The opening of LHR to OpenSkies will result in over 16 new Transatlantic flights from current non-resident airlines.

It will be a season to watch - just like American Idol that starts this week

Boeing vs Airbus - Tanker (PR) Wars

Monday was a great day for people who read and write blogs. Boeing and Airbus were having a bad PR haircut day.

Airbus is trying to win (against the odds) the Tanker contract based on the A330 Airframe. Boeing is trying to keep the contract based on the 767 Airframe they already won once but were disqualified due to some rather nefarious practices which resulted in Jail time for two of their former execs.

So Airbus thought they could raise the stakes by offering some political value in a backdoor offset. The offer is to position an additional A330 civil production line (for Freighters only) at the same plant in Alabama. Currently Airbus has a backlog of 65 of these aircraft.

So back to the war - yesterday was Airbus's big announcement. All the politicos who wanted news ink showed up. Hoping for some good positive stories to put the pressure on the Tanker Selection Committee to choose the European subsidiary of EADS rather than the normal US Contractor choice.

Some little dickie birdie decided yesterday was the perfect day to look at Airbus's first military program - the A400M and see how well they are doing. Or not doing as the case may be. So rather than Airbus scoring a nice PR coup - the focus in the papers this morning was on Airbus's problems not the positives.

The article that appeared in the Wall Street Journal today was less than complementary about EADS's Airbus division. Pointing to Project Management, Politics and Technology complexity as the chief causes of the A400M's woes.

In here is a little nugget that everyone should be paying attention to; a global supply chain for aircraft is by no means a trivial task even for experienced hands such as at Airbus. For Boeing there is a lesson here too. The long software integrated supply chain has incredible complexity and is very hard to get right particularly when politics and expedient choices are made.

Lessons learned. I think we will all so some more rhetoric before the decision is announced. Even then it is likely to get appealed.

News Trickling out - 787 delays are more serious

The Wall Street Journal will publish an article tomorrow on the 787 delays. They are saying what we have been hearing for some time that the Q1 first flight is not going to happen with even an end of June a tough date.

Perhaps more telling is the longer term implications. IE what we have been saying for some time that the production schedule is still way too ambitious.

We believe a more prudent approach would be a slower ramp rate is advisable which would push full initial production to 2010. Boeing's stock wont like this but the plane will do better for it.

For early ship-sets this could have some serious implications.