Cessna Uses China To Move Into Large Jet Segment

Picture Credit: The Cessna Corp.

Cessna is teaming with China’s state-owned aerospace conglomerate Avic, a further sign that western aircraft makers wishing to gain greater access to a burgeoning consumer market will be manufacturing in China.

The U.S. aircraft maker has signed two separate agreements with Avic and its related companies. The first is to establish joint ventures “that will pursue various activities pertaining to the development of general aviation businesses in China, including the establishment of an aircraft service network in China,” says Cessna.
The second is an agreement with the Chengdu Municipal Government and Avic’s Aviation Techniques Co. “to enter into negotiations to establish a joint venture to produce mid-size Cessna business jet models, as well as a potential new product for the business jet market”.

The medium-sized business jet that will be made in China is the Cessna Citation Sovereign, followed by the Cessna Citation Latitude, Cessna CEO Scott Ernest tells Aviation Week at the Asian Business Aviation Conference and Exhibition yesterday in Shanghai. The Latitude is a new aircraft in development that is smaller than the Sovereign and is due to receive U.S. FAA certification in 2015.

Cessna is hoping the number of Sovereign aircraft on order from China will be so strong that the Chinese factory will be kept busy fulfilling Chinese customer deliveries, leaving its North American factories to fulfill Sovereign aircraft orders for customers elsewhere in the world, confirms Ernest.

Also the whole airframe for the China-bound Sovereigns at first will be made in North America. “Initially, it will be a case of bringing in the ‘green aircraft’ and then doing the interiors and paint work in China,” says Ernest. Cessna may later consider bringing in the wings and fuselage separately, so that China has the task of attaching the wings, he says. Eventually Cessna may make the main fuselage in China for Sovereigns sold in China, but that will be the extent of it, he adds.

Cessna already has experience in China on final assembly of aircraft. It has Avic’s Shenyang Commercial Aircraft Co. making Cessna 162 Skycatchers for the global market. Skycatcher is a light-sport, single-engine, piston aircraft. Cessna chose to make Skycatchers in China because the low cost base enables it to achieve the cheaper price point consumers demand for such a small entry-level aircraft.
“We’ve been working with Shenyang Aircraft for four years now and it has taught us that you have to be very good at working with people on the ground. That you need to have good technical support people on the ground to explain the different processes and that you have to have a good supply chain and logistics, so that the right products are coming in [to the factory] to ensure that it’s a succinct [manufacturing] process”, says Ernest.
Many of Cessna’s suppliers already are making components and parts in China, says Ernest, adding that he anticipates more will be made in future, especially now that Cessna has disclosed it will be assembling and later developing business jets in China.

Ernest downplays the cost benefits of China by saying that labor accounts for only 15% of the total cost of a business jet. But manufacturing in China does have its tax advantages. Business jets imported into the country are subject to value added tax of 17% and import duty of around 5%. One of Cessna’s challenges will be ensuring parts and components imported for the assembly of aircraft in China avoid these taxes. Ernest says this is one of the issues that will need to be addressed.

The project that is far more significant is Cessna’s deal to jointly develop and build a new, larger jet with help from Avic, which had spent more than a year searching for a partner to share this initiative.
“We were in a competition with several other aircraft manufacturers for the opportunity to work with Avic on this,” says Ernest, adding that “we feel we have a strong brand and the ability to develop business aviation, and general aviation for that matter, throughout China.”

This deal is important to Cessna because it gives it greater access to the China market and helps expand its product line-up. “My experience working at GE Aviation taught me it is always good to get in on the ground floor,” says Ernest, who became CEO of Cessna last May and was previously GE Aviation VP and general manager of global supply chain. He says, “China is a very good market that continues to grow. Having a local partner in that market gives you incredible market access.”


Flight Global

Air Force Cancels Embraer Light Attack Contract

The Air Force Tuesday cancelled its contract for a Light Air Support aircraft with Sierra Nevada Industries and Embraer, will reopen competitive bidding, and has announced an investigation into the way the previous bid was handled. The Air Force raised eyebrows in December when it kicked Hawker Beechcraft's AT6B out of the running for the $1 billion contract. That left only Sierra Nevada's assembled-in-Florida version of the Embraer Super Tucano in the competition and the contract was awarded a few days later. "While we pursue perfection, we sometimes fall short, and when we do we will take corrective action," Secretary of the Air Force Michael Donley said in a statement. Donley would not say why the contract was overturned, only that senior officials were not satisfied with the documentation supporting the award. Rep. Mike Pompeo, R-Kan., said a sudden reversal like this is rare and significant. "The Air Force does not do that lightly," Pompeo told The Washington Post. "This is highly unusual, which suggests that there is going to be a very broad re-look of the entire process."

Of course, Hawker Beech welcomed the news. The company took the government to court to challenge the procedural process of the bid and that case is still ongoing. Hawker Beech Corp. Chairman Bill Boisture has been vocal in his battle with the government over the bid and said Tuesday's decision was welcome news. "We commend the Air Force for this decision and we believe strongly it is the right thing for the Air Force, the taxpayers and the people of Hawker Beechcraft," he said in a statement. Embraer, meanwhile, seemed taken aback by the move. "Embraer remains committed to offer the best solution to the U.S. Air Force and will await further clarification on the subject to decide next steps, in consultation with its partner, [Sierra Nevada Corporation]," the company said in a brief statement. Sierra Nevada spokesman Taco Gilbert told the Post the decision was a "big disappointment."

Aviation Week

Aer Lingus Expects More A350 Delays

Aer Lingus expects further delays in the delivery of the Airbus A350, CEO Christoph Mueller tells Aviation Week, and plans to begin talks with the airframer about a new delivery schedule for the carrier’s nine A350-900s on firm order.

Airbus late last year delayed entry into service of the aircraft by up to six months, with the first A350-900 now expected in the first half of 2014. The shift was due to the late completion of major components. At the time, A350 program chief Didier Evrard said Airbus wants to limit the amount of traveled work in final assembly, trying to avoid the issues that Boeing has faced in the 787 program. Mueller says he expects delays beyond the ones announced by Airbus. The airline is due to receive its first A350-900 in 2015.

The airline is nonetheless progressing with fleet planning. Mueller says the A321NEO would be the “ideal aircraft” for Aer Lingus’s transatlantic routes, which currently are served by four A330-300s and three -200s. The A321NEO would have enough range for the Dublin-New York and Dublin-Boston routes, but it could not be used for the Chicago service. The airline has not yet ordered new narrow-bodies. It currently has a one A319, 34 A320s and three A321s.

Aer Lingus managed to reach a €49 million ($66 million) operating profit in 2011, a much better result than anticipated at the start of last year and a margin of 4.7%. The profit was only slightly below the 2010 earnings (€52 million). The carrier attributed the success mainly to a 4.8% improvement in average yield per passenger. Revenues increased by 6% to €1.3 billion.

Demand is particularly strong in the business travel market, and the airline finds its long-haul, business-class cabin is becoming “too small.” The airline therefore plans soon to make an announcement about increased long-haul premium capacity.

Mueller says Aer Lingus has increased its market share in Ireland by 8% since 2008 and now has a share of 43.9%. The carrier has focused on more frequencies in core markets and reduced exposure to charter-type low-frequency destinations. That also has helped with improving connectivity at its Dublin base.

The airline plans to continue operating outside the global alliances, saying they are “too expensive.” It would reconsider if the cost of joining and maintaining membership decreased. Mueller still expects Ireland to proceed with Aer Lingus’s privatization this year, although that schedule may shift to early 2013.

He says he has only read in the press about Etihad Airways supposedly being interested in investing in Aer Lingus, but he cautions that another airline shareholder would only make sense if the arrangement did not have any negative consequences for Aer Lingus’s bilateral relationships with other carriers. Mueller says he is not sure that is the case for Air Berlin. Etihad recently bought 29% of the German airline, which is due to join the Oneworld alliance in March.

Aviation Week

Hong Kong Airlines May Cancel A380 Over ETS

 

Hong Kong Airlines Ltd. has threatened to cancel an order for 10 Airbus A380s in the latest escalation of tension over the European Union’s decision to extend its emissions trading system (ETS) to aviation, the South China Morning Post reported. The Hong Kong-based carrier, which is backed by China’s fourth-largest carrier, Hainan Airlines Co. Ltd., said it is under pressure to cancel its order for 10 A380s with a list value of $3.8 billion, the Hong Kong newspaper said.

“We cannot do something which is against our country’s interests,” it quoted airline president Yang Jianhong as saying.A spokeswoman for Airbus said the Hong Kong Airlines orders “have been placed in the order book and they remain there”.Others officials declined to comment. “I cannot confirm this and I have no comment on this,” said Kenneth Thong, Hong Kong Airlines’ head of corporate governance and international affairs.

In Brussels, Isaac Valero-Ladron, EU spokesman for climate action, said the European Commission does not comment on “possible commercial decisions.” Plans to announce the high-profile A380 deal between Airbus and Hong Kong Airlines were called off at the Paris Airshow last June because of China’s anger over the ETS, industry sources said. But Hong Kong Airlines confirmed its A380 order some months later.

So far, China Southern Airlines is the only mainland Chinese airline to order the A380. Two of the five planes it ordered are already in service on the Beijing-Guangzhou route. In February, China banned its airlines from participating in the European Commission’s ETS unless they were given approval.
At a daily briefing on Thursday, Chinese Foreign Ministry spokesman Hong Lei repeated China’s opposition.

“The facts show that Europe’s actions are unpopular and will have no effect,” he said. “We hope that Europe can face squarely the international community’s concerns and devote themselves to solving the issue, not further complicating it.”

NetJets Maintaining Profits With Lower Costs

Higher revenues and lower aircraft maintenance costs are driving NetJets’ profitability despite slower aircraft sales, says NetJets parent company Berkshire Hathaway. NetJets reported pretax earnings were up 10% to $227 million in 2011, a performance that Berkshire Hathaway Chairman Warren Buffett says was particularly impressive because sales of new aircraft shares were slow during most of the year. NetJets did see an uptick in December “that was more than seasonally normal,” he says, but it’s still unclear whether that improvement is sustainable, Buffett says.

Along with still slow aircraft shares, revenue hours flown in 2011 were about the same as in 2010. But the Columbus, Ohio-based fractional ownership aircraft provider brought in higher revenues from adjustments to the aircraft operating costs that are passed on to the customers, along with slight increases in rates.
Berkshire Hathaway also credits lower aircraft maintenance costs for the improved 2011 earnings. The drop in maintenance costs stems from a 10% reduction in fleet size. However, NetJets is still incurring impairment charges from the disposition of aircraft, along with fees for the cancellation of certain aircraft purchase commitments. Since 2008, NetJets has shrunk its fleet by 20% and lowered its operating cost structure.
At the same time, NetJets has laid out a plan to overhaul its fleet with newer models over five-plus years, including firm orders from Embraer for 50 Phenom 300s and from Bombardier for 50 Global aircraft. The Embraer contract includes options for up to 75 more, and the Bombardier contract has options for up to 70 more.

Berkshire Hathaway believes these changes have positioned the company to operate profitably in the future. “A few years ago, NetJets was my No. 1 worry. Its costs were far out of line with revenues and cash was hemorrhaging. Without Berkshire’s support, NetJets would have gone broke,” Buffett says in his annual shareholder letter. “These problems are behind us, and [NetJets President Jordan Hansell] is now delivering steady profits from a well-controlled and smoothly running operation.”
Also improving profits in 2011 was NetJets affiliate company FlightSafety International. FlightSafety’s revenues were up 8% for the year as demand for training increased in both the business aviation and regional airline markets. Government business, however, was down in 2011. While revenues were up 8%, earnings increased 16%, in part from FlightSafety’s ongoing cost containment efforts, Berkshire Hathaway says.


Aviation Week

Boeing Targets June For 787 Surge Line Startup

Boeing will activate the 787 surge line at Everett in June as it continues to ramp up production to five units per month by year-end. Confirming the long-expected move, Pat Shanahan, senior VP and general manager of Airplane Programs at Boeing Commercial Airplanes, says the additional capacity is “risk protection.” The surge line is being put together at the former site of the 767 assembly area in Building 40-24.

As recently as last summer, Boeing described the surge line as a precautionary move and suggested that it may not be required. Now, with delays continuing to affect the production rate and only five 787-8s in service, the company sees the activation of the surge facility as vital to reaching its delivery targets for 2012.

“When we go to the 787-9 we’re rate protected if we want to run the -9s down one line and -8s on the other,” says Shanahan, adding that while the existing line rate is at 2.5 per month, the supply chain is “already performing at 3.5 per month.” Speaking at the Barclays Capital Industrial Select Conference in Miami, Shanahan says in terms of ramp-up and overall development “the pendulum has finally shifted from risk to opportunity.Beyond development, it’s been pretty exciting retiring the risk around the development on 747-8 and 787. Certification last year was a real watershed for us, and now there is a real focus on enter-into-service.”

The surge line replicates the existing 787 assembly line in the adjacent Building 40-26 and, together with the Charleston facility coming on stream this summer in South Carolina, will be part of a planned ramp-up to 10 airplanes per month by the end of 2013. The jump to 3.5 per month is expected “within a couple of units, and we’ll be ready to go there,” he adds.

Accelerating the rate hinges on receiving parts 100% complete from Wichita and Charleston, as well as clearing the backlog of aircraft yet to be completed at Everett. The large sub-assemblies that make up each 787 are now arriving “100% complete,” says Shanahan, who adds that “the cut-off of when we’ll be completing aircraft in the factory will be in the [line number] ‘60s,’ and we’re on plan to do that or maybe improve on that.”

Despite the recent shim issue, which he confirms will take between 10 days and two weeks per aircraft to complete in parallel with other completion tasks, Shanahan says the “No. 1 priority is to get to rate. We carved out a separate production system to focus on the already built aircraft, and those are in various stages of completion. The work remaining on the latest is finishing the interior and running functional tests. With the earlier aircraft we still have some secondary structure to complete, some rewiring to do; we have interiors to complete, and we still have to do some functional testing.”

Of the roughly 40 aircraft involved, Shanahan says the most recent off the line have 500-1,000 jobs remaining to complete, while the earlier units have 5,000-7,000 jobs. “It’s an order of magnitude difference,” he adds.

Detailing the shim issue, Shanahan says the gap between the fuselage skin and support structure in the aft fuselage occurred at the tapering end of a longeron 18 ft. long and 8 in. wide. “The shim is about the size of legal paper–roughly 17 x 8 in.–and is about two sheets of paper thick. When the shim is installed, “we have to jack [up] the aircraft and remove a fastener and it just takes time–there’s no complexity–it's just work and it's time we don’t have.”

Aviation Week  

United Seeking Damages For Delayed 787s

United Continental Holdings for the first time confirms it is seeking damages from Boeing for 787 delivery delays.
The operator has 50 firm orders for the 787, a legacy of the Continental Airlines-United Airlines merger in 2010. The first batch of aircraft are 787-8s from Continental’s order, which originally had expected to add its first 787 in March 2009 before Boeing initiated a series of program delays.

The latest delay hit United in October, when sources confirmed to Aviation Week that Boeing was having issues completing 787s rolling off the production line. That problem forced United to revise its 2012 delivery expectation down from six 787s throughout the year to just five, all to be delivered in the second half of the year.

Now United, in its 2011 10-K report filed late Wednesday with the U.S. Securities and Exchange Commission, reaffirms its 2012 delivery schedule of 19 Boeing 737-900ERs and five 787s. But for the first time the airline also says it is seeking damages for the delays.

“The company is currently in discussions with Boeing over potential compensation related to delays in the 787 aircraft deliveries,” says United. However it adds, “The company is not able to estimate the ultimate success, amount of, nature or timing of any potential recoveries from Boeing over such delays.”

This confirmation follows some highly publicized claims for damages against Boeing for failure to deliver 787s on schedule, with financially troubled Air India reportedly seeking a seven-figure compensation package. Air New Zealand also has confirmed it is in talks with Boeing about compensation, while other airlines are understood to have taken 767s as temporary replacements for their delayed 787s.

Boeing, which does not comment on such negotiations, makes little reference to the issue in its own 10-K from Feb. 9, although it acknowledges that “a number of our customers may have contractual remedies that may be implicated by program delays. We continue to address customer claims and requests for other contractual relief as they arise.”

Aviation Week  

Boeing Expands GoldCare to 747s

With a new service mark and an expansion of its GoldCare life­­- cycle support program, Boeing Commercial Aviation Services (CAS) is signaling a strong push to capture a major share of an aircraft services aftermarket it estimates will be worth $2.3 trillion over the next two decades.

Photo Credit: Boeing Images

Senior Vice President Lou Mancini says CAS has fashioned itself to offer materials, fleet, flight and information services that constitute a “mirror image” of how airlines organize their maintenance, repair and overhaul (MRO) operations. Those four services rely on proprietary aircraft design data to give Boeing an edge, such as in the Boeing Converted Freighter program shown below. CAS accounts for about 15% of Boeing Commercial Aviation’s total revenues, Mancini says, which means in 2011 it brought in $5.43 billion.

At last week’s Singapore Airshow, however, Lufthansa Technik Chairman August Wilhelm Henningsen cautioned against aircraft makers being in aftermarket services. “They should concentrate on building the aircraft,” he says. “The [MRO] industry is more overserved than underserved.”

Singapore Airlines Cargo says it will use GoldCare to manage engineering and planning services for its 13 747-400 freighters. GoldCare was launched in 2005 as a blanket protection program for the 787 and subsequently was expanded to include the 737NG series. The move to cover 747-400Fs will not be the last for GoldCare, says Mancini. “I really see it being used on all our fleets.”

GoldCare met a tepid response from 787 buyers, who apparently found Boeing’s approach overwhelming. GoldCare was subsequently reorganized to offer a more “a-la-carte” approach but has yet to gain wide-scale acceptance. Prior to SIA’s signing, GoldCare had attracted only one user, Tui Travel, which fit the early likely subscriber profile—a smaller fleet-owner without an extensive maintenance base to care for a new-technology airplane like the 787.

Boeing launched Boeing Edge to distinguish its after-sales services. It will cover OEM product support and four core service capabilities: Material Services, Fleet Services, Flight Services and Information Services. The name is meant to convey that customers gain a competitive edge by using Boeing’s services and support.

But Lufthansa says it is the one with the competitive advantage in providing MRO services. OEMs “know the strengths and we know the weaknesses” of their products, it says. Successful support is all about managing those weaknesses.

Aviation Week  

Boeing Decision On 787-10 Likely This Year

Boeing hopes to make a decision this year on the 787-10 and aims to ensure that this larger-capacity 787 avoids cannibalizing sales of the 777, another family of Boeing aircraft that also may be getting new models, the 777-8X and 777-9X.

Boeing Commercial Airplanes CEO Jim Albaugh said, “We will do the 787-10 by all likelihood. We’re now working through design concepts. Assuming the customer interest is there, later this year [a decision will be made], and we will have something to offer toward the end of the year.” He says the 787-10 will have a shorter range than the -9 but will be able to carry 40 more passengers, so “the economics are very good.”

The fact that the 787-10 is a stretch of the 787-9 means it will be in the realm of the 777 in terms of seating capacity. Albaugh, however, suggests otherwise. “We think we’ve got a good separation between the models. There’s 15% separation between the models. We’ve spread the sizing between them, so we don’t cannibalize any one aircraft.”

There have been some reports about a 777-8LX model, which promises more range, but Albaugh is dismissive. “I’ve seen something on a chart mentioning that, but I am focused on the 777-9X and 777-8X,” he says, referring to the new stretched version of the 777-300ER and 777-200, respectively. Albaugh was speaking to Aviation Week in Singapore yesterday during a media roundtable.
Industry executives tell Aviation Week that Boeing recently issued a request for proposals (RFP) for a powerplant for the 777 aircraft in development. Albaugh would neither confirm nor deny that such an RFP has been issued.

He says the 777-8X and 777-9X are hugely important to the company. Boeing sold 200 777s last year, and the aircraft is unbeatable in terms of efficiency, asserts Albaugh. But he also says Boeing is mindful of the fact that Airbus is planning the A350-1000, “so we want to ensure we continue to have the more capable aircraft.” Capability refers to many factors, such as range, dispatch reliability, maintenance costs and cost per seat, he adds. He declines to disclose details on the 777-9X, except to say “it will be a significant improvement over the 777-300ER.”

As for the 737 MAX, Albaugh says, “I hope we can have a couple of thousand orders before we deliver the first aircraft.” Boeing already has secured firm orders for the 737-8 and 737-9. Albaugh says it also has secured a 737-7 customer, but has yet to disclose who that is.
Albaugh declines to say when the 737 MAX specifications will be locked, but asserts they are already effectively firmed up because Boeing is giving MAX customers guarantees when it comes to the specs. He also says, “I don’t want to over-promise and under-deliver. I want to ensure that it is on spec and delivered on time.” Boeing has learned from the lessons of the 787 program, he adds.
Boeing has started delivering 787-8s, but has had to do some post-production fixes to the aircraft in response to concerns about delamination.

Aviation Week