Category Archives: Boeing 787

Defence Market Speculation: Boom and Bust in Aerospace Industry

Following piece is written by Rick Whittington, taken from Aerospace And Defense Picks For 2011 (17-12-10). Recently both UK and USA defence budgets were revised with further revision in defence policies. Recent retirement of RAF’s Harrier, and delays in F-35 has created a big gap within RAF inventory. Not only that Both BAe Systems and Rolls Royce has seen declines after recent Qanatas Incident. From civilian market, Seattle Time cites that as Boeing prepares to announce yet another delay for the 787 Dreamliner — at least three months, possibly six or more — the crucial jet program is in even worse shape than it appears. A top Federal Aviation Administration (FAA) official 10 days ago warned Boeing that without further proof of the plane’s reliability, it won’t be certified to fly the long intercontinental routes that airlines expect it to serve. Since then share prices are on continuous decline for Boeing. Among the 787’s lesser ongoing problems is “rain in the plane,” the term used for heavy condensation dripping inside the jet’s composite plastic fuselage. Yet that issue is piddling compared with the major flaws that have brought a wave of successive delays. Earlier this month, John Hickey, the FAA’s deputy associate administrator for aviation safety, visited Seattle and warned 787 executives that in the current state of the program, the jet cannot be certified for long-distance transocean and transpolar flights, according to a person familiar with the details. More on B787 can be found HERE

A fiscally focused trend in U.S. politics means defense spending may drop in 2011. Which aerospace companies will bust and which will boom regardless? Secular change in the U.S. political landscape augurs poorly for defense fundamentals, with fiscal rectitude offsetting China’s brusque ascent on the world scene–an ascent that would otherwise dictate modernization to offset an increasingly sophisticated major power. Following a near decade of above-trend reports, earnings of military suppliers are set for several difficult years, as hard-won margin gains in the Bush years reverse, revenues reduce and backlogs diminish. Just how far the decline will carry remains largely out of public view, as long-range budget details are classified, but Washington circles are already abuzz with steep funding drops in weapons modernization and force structure.

The company's original internal target for its own development costs was $5 billion. But with yet another delay, several Wall Street analysts estimate that fixing the litany of manufacturing problems, plus paying penalties to suppliers and airlines, has piled on an additional $12 billion to $18 billion.

Ongoing budget review, which in Washington goes on all year, is already producing shock waves in contractor circles as word leaks out of the bad news ahead. Actually, many had figured out the deteriorating trend two years ago when a new administration was swept into power, but most held their breath hoping the worst case wouldn’t develop. Unfortunate for the bull case, however, the Republican tidal wave this past election is distinctly tinged with fiscal austerity, with national security taking a back seat. The deleterious impact on defense contractors has finally begun trickling into Wall Street views and the stocks are rolling over.

Pure-play suppliers that have most benefited from the longest conflict in American history–the Revolution’s eight-year employment of Washington’s Continentals has been surpassed by forces in the field in Iraq and Afghanistan–are highly vulnerable to the downsizing that lies ahead. The likes of Lockheed, Northrop-Grumman, Raytheon ( RTN – news – people ), L-3 and General Dynamics ( GD – news – people ) face big funding cuts that seriously compromise earnings integrity and could even create black holes necessitating serious corporate restructuring. Past periods like this have seen steep valuation discounts for the pure-plays.

On the other hand, commercial aviation and industrial infrastructure companies continue to guide up as the business cycle recovery of nearly two years ago gains steam. U.S. business confidence began improving as Congress promised to change hands, meaning additional unfriendly legislation was averted and commerce-centric policies were brought to center stage. Tax cuts will now be followed up with fiscal restraint, incenting hiring and fixed investment projects. Until money measurably tightens, a virtuous cycle encompassing developed world capital goods exporters and consumers will continue to fuel aggregate demand and push earnings higher.

Many think the best plays are in emerging markets, as their growth is much stronger than in far larger, developed economies. Our view, however, turns this consensus perspective on its head, seeing domestic U.S. equities as the preferred plays where they derive principal impetus from global growth. Our favorites include a host of commercial aviation and industrial suppliers that benefit from rising trade flows, demand for aircraft passenger travel and freight. Multi-industry aerospace and industrial companies bring the best of both worlds.

Delay-plagued Boeing ( BA – news – people ) will eventually right the 787 and surmount prior decade outsourcing and partnering decisions that have severely hampered program efficacy. As investors await word on when flight tests will resume and the extent to which deliveries are rescheduled, good news from other quarters is helping offset the latest disappointments. Increased production of other airliner models enjoying strong margins, notably the 777 but also 737 and a re-engineered 747, as well as price hikes combine with ongoing reports of airline profitability and upgraded air traffic forecasts.

Then, there’s also some good news unique to Boeing on the defense front. Overseas sales of fighter aircraft and helicopters to Saudi Arabia and possibly India combine with potentially quite consequential F-35 delays and new generation satellites for both government and commercial customers. As the Chinese build increasingly advanced twin-engine fighters, the U.S. and its Asian allies must confront single-engine, multi-mission F-35s without commensurate aerial superiority. With the F-22 now cancelled and its production base dismantled, there’s no ready response other than more Boeing F-18s. The Navy is already getting extras and we’d guess others will line up behind.

Tag along suppliers to Boeing and Airbus, as well as a handful of business and regional jet makers, include predominantly civil aviation oriented Goodrich ( GR – news – people ), BE Aerospace ( BEAV – news – people ) and Spirit AeroSystems. Spanning a broad gamut of advanced capital goods and industrial materials are diversified suppliers Precision Castparts ( PCP – news – people ), United Technologies ( UTX – news – people ), Honeywell ( HON – news – people ), Eaton and Parker-Hannifin, each a proxy for global infrastructure growth. United Tech and Honeywell just issued bullish 2011 initial views that will likely see upsides as the New Year rolls out.

Then there are companies with greater military exposure, such as electro-mechanical automation supplier Moog, advanced composites supplier Hexcel ( HXL – news – people ) and electronics-denominated navigation, communications and avionics specialist Rockwell-Collins. Each of these should see non-defense segments outweigh prospective cuts in military spending. Other mixed suppliers straddling the two worlds that will have a more difficult time in the years ahead include Esterline, FLIR Systems ( FLIR – news – people ) and AAR Corporation ( AIR – news – people ). These shares could face growing headwinds, especially as U.S. troops begin to draw down in Afghanistan.

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Filed under AAR Corporation, Aerobatics, Afghanistan, Africa, Air Defence, Airbus A310-300, Aviation, Bae Systems, Barak Obama, Boeing, Boeing 737 next generation, Boeing 787, F-35, FLIR Systems, General Dynamics, Goodrich, Moog, Northrop-Grumman, Qantas, Saudi Arab, Seattle Times, Spirit AeroSystems, US Navy

Pakistan International Airlines – Losses Continue to Flow

Pakistan International Airlines (PIA)’s public relations team seemed to be very active this month. A month started with Russian airspace closure to PIA’s flights – The restriction came at a time when Russia had liberalised its airspace through historic relaxation of its airspace regulations. According to the sources, this was resulted due to PIA’s late move to airspace renewal on-time. Since, Russia is a quickest way to get to Europe, this move offcourse have serious implictaions on ill-fated PIA, who is already suffering badly when it comes to figures. The move will result in 15 to 20 minutes of extra flying time for most of the flights from Pakistan to Europe, the United States and Canada and back and increase the cost of flights. About 80 flights a week using Russian airspace for overflight will be affected.

Getting Figures Right

The state-run airline currently services domestic and international routes with a fleet of Boeing 777, Boeing 747, Airbus A310, Boeing 737 and ATR-42 aircraft. PIA suffered a loss of 135.8 million dollars in the first nine months of the year, according to its third-quarter financial report posted on the airline’s website. Accumulated losses stood at 88 billion rupees (one billion dollars). The national flag-carrier plans to induct 16 new aircrafts, lay off over 4,000 non-essential employees and double its revenue though aggressive marketing in the next five years. Ailing state carrier Pakistan International Airlines (PIA) is asking the government, saddled with its own mounting debt, to write off losses of 1.7 billion dollars to save it from looming bankruptcy – Now this is like putting an extra burden on billion dollar debt government.

Violation of airline safety conduct

PIA was created out of private airline Orient Airways in 1955, just eight years after Pakistan came into existence, and today has a fleet of 40 planes, a combination of Boeing 747s, 777s, 737s, Airbuses and ATR aircraft. Performing well until the 1970s when corruption and overstaffing hit company fortunes, PIA’s reputation was further battered in the 1980s as it failed to maintain its fleet. The airline recently imposed new rules to force pilots to fly on its terms, after a row over working hours and pension benefits led pilots to adopt an unofficial “go slow” protest leading to flight delays. Pilots said they were routinely forced to fly 12 hours per day, two hours more than the civil aviation rules allow, and occasionally for as long as 18 hours. Violation of airline safety conduct is something of a norm to PIA, but its not just PIA, the recent accident of Airblue also rasied the issue to retiring age of Captain and number of flights. To my knowledge of travelling with national flag, PIA operates B777, from New York to Karachi/Lahore – the route in past was operated by B747, who was used to make regular stops at Manchester to pick/drop passengers. This has not only reduced the operating life of the aircraft but also, cabin environemnt was no less than an attraction to newly board passengers like me, who see half of the cabin full of dead bodies. Excessive operation of used jumbos, resulted in 747 ban to European airspace, which finally resulted in grounding these plans. Now same routine is being adapted by B777. Worse of all, I have also travelled in PIA’s A310-300 who marginally meets the distance requirements of 3500 nautical miles distance between Manchester and Lahore.With 9 Boeing 777 in service (both long and extended range) why I had to travel on A310, I simply don’t know, may B777 were busy somewhere else. So far most of the planes operational in PIA including new 777 is active on conventional manual controls – some not even incorportaing the Glass Cockpit technology. Almost any new highly automated aircraft is brought down technologically by PIA engineers. Its not that PIA’s pilots aren’t interested in new technology, its PIA who is not bother to spend on training.

Enterprise Resources Planning (ERP) system

The national flag-carrier plans to induct 16 new aircrafts, lay off over 4,000 non-essential employees and double its revenue though aggressive marketing in the next five years. Under a five-year strategic programme, the PIA plans to acquire an Enterprise Resources Planning (ERP) system and implement it across the organisation to streamline business processes, strengthen controls and introduce financial discipline. An ERP is an integrated computer-based application used to manage internal and external resources including tangible assets, financial resources, materials and human resources. Under the programme, a sound system of internal controls will be established. The management is set to have a zero-tolerance policy for fraud and irregularities. A set of strategies will be implemented to turn around operations and make PIA a sustainable and profitable entity.Growth in revenue will be achieved through induction of new aircraft and expansion of the existing network. The airline also plans to pass on the increase in fuel prices to customers as it believes that the rapid escalation of airline expenditure in the recent past is mainly due to an unprecedented increase in fuel prices. Realising that retention of ageing 747 aircraft means continued increase in maintenance cost, the old aircraft will be phased out. Replacing the ageing 737 aircraft is a priority while the A310 aircraft will be replaced as and when financial resources allow investment. The 737NG or A320 are being considered as replacement. ATRs (short-haul European aircraft) will be acquired to increase frequency and capacity on socio-economic routes. It is planned to retain all types of 777 and ATRs in the fleet beyond 2014. During Haj season one 777 will be acquired on wet lease in each year from 2012 to 2014 when an A310 is also planned to be inducted into the fleet. Operational restructuring and human resource rationalisation is also part of the survival and turnaround plan as overstaffing is one of the PIA’s main problems which involves significant costs, clogs communications channels, diverts management’s attention from key airline issues and makes job responsibilities more obscure.

Enterprise Resources Planning (ERP) – if implemented it may serve the purpose, but I must point out that success of ERP implementation highly relies on investment in training (for IT personnel) as well as the coporate policy protection of the data, as well as controlling the way it is been used under ERP. I see this as a big transition, so big that I fear of the PIA implementation and data protection under ERP system. The blurring of company boundaries can cause problems in accountability, lines of responsibility, and employee morale. Furthermore, Once a system is established, switching costs are very high for any partner (reducing flexibility and strategic control at the corporate level).

Many have blamed privatisition and years of bad planning for the fate of PIA, it is actually the years of corruption, nepotism, bad management and poor planning, that is truely responsible for the loss the airline is suffering today.

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Filed under Airbus A310-300, Boeing, Boeing 737 next generation, Boeing 777, Boeing 787, Engineering, Flight Global, Flight Simulation, Foreign Office Pakistan, Global Aviation, Islamabad, Manchester, Ministry of Defence Pakistan, Orient Airways, Pakistan, Pakistan Aeronautical Complex, Pakistan Defence, Pakistan International Airlines

Boeing 787 simulator preview

While public has a long wait to see 787 dreamliner, The Canadian manufacturer CAE has been busy building 787 simulators. The extensive report on the new simulator CAE 7000, being built for Continental Airlines (Boeing domestic launch customer), were published in Flightglobal.

Visual cues are an essential part of piloting and its simulation. Continental is to use a Rockwell Collins visual display for its 787 simulator. Tactile cues also play a significant role. As with the Airbus A330 simulator, the 787 has CAE’s True Electric Motion system. Developed in co-operation with Moog, the all-electric system promises smooth and quiet articulation. In an added nod to efficiency, it requires just 25% of the power needed to run a comparable hydraulic actuation system.A beauty of the simulator is its Cockpit layout, which is classic Boeing, a space where any 777 pilot would feel right at home. Two welcome additions to the flightdeck are the electronic flight bags, located on the sidewalls and the Rockwell Collins head-up displays.

The up to date progress of the simulator, and detailed article can be accessed form http://www.flightglobal.com/articles/2010/08/26/346652/video.html (Source Flight Global)

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Filed under Aviation, Boeing, Boeing 787, Dreamliner, Flight Simulation