BAE starts engine runs on first production Nimrod MRA4

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By Craig Hoyle

The first production example of BAE Systems’ Nimrod MRA4 surveillance aircraft began engine grounds runs at Woodford in Cheshire on 2 June. It should fly around September, the company says.

Dubbed PA4, the aircraft is the first of nine earmarked for the UK Royal Air Force now in build. It should make around nine validation and proving flights ahead of its delivery in November and receive release to service approval by the first quarter of next year.

The programme’s second operational-standard airframe underwent power-on in May and under current plans the entire fleet will be delivered by the first quarter of 2012, says Steve Timms, BAE’s managing director Nimrod.

BAE Systems
© BAE Systems

The RAF expects the MRA4 to meet an in-service date of December 2010, with this to be achieved with the availability of four aircraft and four trained aircrews at RAF Kinloss in Scotland.

“Our focus at Woodford is to deliver those four aircraft,” said Timms, speaking at BAE’s Warton site in Lancashire on 8 June. The first should arrive at the base next February to support training activities, as the service prepares for the retirement of its remaining Nimrod MR2s by 31 March 2011.

BAE is continuing to urge the UK Ministry of Defence to fund the conversion of its three development aircraft for operational use, but Timms confirms: “The current advice we’re getting is that this is a nine-aircraft programme.”

The company is assessing whether to table a bid using the three MoD-owned development aircraft as replacements for the RAF’s Nimrod R1 electronic intelligence fleet.

“We’re assessing what is the sensible way forward. There are a number of mission system options, and we are considering them,” says Timms, who adds: “They’ve asked us to do it quickly.” The RAF’s current three R1 airframes are set for retirement in mid-2012.


NTSB investigates American Airlines close-call at Chicago

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By John Croft

The US National Transportation Safety Board is investigating an operational error that resulted in two American Airlines jet aircraft coming within “0.35nm(650m) of each other horizontally as they approached parallel runways at Chicago O’Hare International airport in visual weather conditions on 1 June.

Due to an “air traffic control oversight”, the NTSB says, Flight 879, a Boeing MD-82, overshot the final approach course for Runway 28 while being vectored and continued northbound, “conflicting” with Flight 93, a Boeing 767 on final approach to Runway 27L.

“According to preliminary Federal Aviation Administration data, lateral separation decreased to 0.35nm and vertical separation was 0ft,” says the NTSB.

AA-winglet
© American Airlines


Regional airframers endure sluggish first quarter sales

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By Max Kingsley-Jones

Western regional manufacturers have suffered as slow a start to 2009 as their tier one rivals Airbus and Boeing during the first three months of trading. Their combined orders – Bombardier CSeries aside – failed to make it into double figures.

The comparison – only now possible as Bombardier has just released its fiscal year quarter one data (31 January-30 April) – shows that total net orders for the Canadian company, Embraer and ATR amounted to 55 aircraft, although all but five of these were for the CSeries.

The jet orderbook net tally was 49, which includes the 50 launch contracts for the 110/130 seat CSeries from Lufthansa and LCI and a net minus-one for Embraer’s E-Jet family. The Bombardier CRJ family ended its fiscal year quarter one period on zero, with an order adjustment of plus one/minus one between the CRJ900 and CRJ1000 respectively.

Bombardier
© Bombardier

Embraer’s single new E-170/175 order was offset by a two-order deficit for the E-190/195.

The turboprop sector fared slightly better than the established regional jets, with six net orders – thanks entirely to some sales success at ATR. Bombardier’s Q Series did not record any sales during its first quarter.

Seventy-one regional aircraft were delivered in quarter one of which almost two-thirds were jets. Embraer continues to be the most prolific producer, delivering 32 aircraft, but was only just ahead of Bombardier’s combined shipments (31 aircraft – 15 CRJs and 16 Q Series).

ATR had a slow first three months, delivering just eight aircraft (all ATR 72s).

The total order backlog has fallen slightly since the end of 2008 from 861 to 845 aircraft. Embraer remains overall market leader with 393 orders, although Bombardier’s CSeries success has boosted its share of the jet sector from one-quarter to one-third.

ATR – although bottom of the overall regional airframer ranking – remains the clear market leader in the turboprop category with more than 60% of the backlog in that sector.


Regional airframers endure sluggish first quarter sales

Click here for more news / Clique aqui para mais notícias

By Max Kingsley-Jones

Western regional manufacturers have suffered as slow a start to 2009 as their tier one rivals Airbus and Boeing during the first three months of trading. Their combined orders – Bombardier CSeries aside – failed to make it into double figures.

The comparison – only now possible as Bombardier has just released its fiscal year quarter one data (31 January-30 April) – shows that total net orders for the Canadian company, Embraer and ATR amounted to 55 aircraft, although all but five of these were for the CSeries.

The jet orderbook net tally was 49, which includes the 50 launch contracts for the 110/130 seat CSeries from Lufthansa and LCI and a net minus-one for Embraer’s E-Jet family. The Bombardier CRJ family ended its fiscal year quarter one period on zero, with an order adjustment of plus one/minus one between the CRJ900 and CRJ1000 respectively.

Bombardier
© Bombardier

Embraer’s single new E-170/175 order was offset by a two-order deficit for the E-190/195.

The turboprop sector fared slightly better than the established regional jets, with six net orders – thanks entirely to some sales success at ATR. Bombardier’s Q Series did not record any sales during its first quarter.

Seventy-one regional aircraft were delivered in quarter one of which almost two-thirds were jets. Embraer continues to be the most prolific producer, delivering 32 aircraft, but was only just ahead of Bombardier’s combined shipments (31 aircraft – 15 CRJs and 16 Q Series).

ATR had a slow first three months, delivering just eight aircraft (all ATR 72s).

The total order backlog has fallen slightly since the end of 2008 from 861 to 845 aircraft. Embraer remains overall market leader with 393 orders, although Bombardier’s CSeries success has boosted its share of the jet sector from one-quarter to one-third.

ATR – although bottom of the overall regional airframer ranking – remains the clear market leader in the turboprop category with more than 60% of the backlog in that sector.


Japan makes another push for F-22

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By Siva Govindasamy

Japan is making a final push to buy the Lockheed Martin F-22 from the USA, and its defence minister has confirmed that Tokyo will consider alternatives including non-US fighters if the attempt fails.

“We are still seeking the possibility of acquiring the F-22, but if that does not work out, we will have to consider not just the [Lockheed] F-35, but others as options,” Yasukazu Hamada told the Kyodo News Agency. “As of today, we still want to seek the F-22.”

Within Washington, there are fresh calls to sell a fighter that Congress has barred from export due to its classified technology. US senator Daniel Inouye, who heads the Senate Appropriations Committee, supports a sale to Japan, the USA’s closest military ally in east Asia.

In a recent letter to the Japanese ambassador, Inouye reportedly revealed that an export version of the F-22, which will come without the most sensitive technology, could cost $250 million. This includes the cost of developing an export model, something that would take up to five years. Deliveries would begin seven to nine years after a contract is signed, according to the US Air Force estimate.

Lockheed Martin F-22
© Lockheed Martin

Japan has said that it wants to buy 50 fighters as part of its F-X requirement to replace its McDonnell Douglas F-4s, and the total bill for a Raptor acquisition could total $12.5 billion. Some observers, however, believe that Tokyo could go for fewer aircraft if it buys the F-22.

The unit cost would be much higher than the $150 million that the USAF paid for each aircraft in its last batch of four F-22s. US defence secretary Robert Gates said in April that the Department of Defense would halt production of the Raptor at 187 aircraft after ordering four more in fiscal year 2009.

Observers say that an export deal would allow Lockheed to keep its production line open and give Washington the option of buying additional F-22s in the future if it changes its mind.

Gates, however, opposes the sale and believes that Japan should instead consider the F-35, which has less stealth capability. The Pentagon, reiterating that US laws do not allow F-22 exports, adds: “That’s why the secretary made the further point to his Japanese counterpart that the F-35 is the plane which we are pursuing and the plane that we would recommend the Japanese focus their efforts in terms of procuring in the future.”

Apart from the F-22 and F-35, Tokyo has also asked for information on Boeing’s F-15SE and F/A-18E/F Super Hornet, and the Eurofighter Typhoon as part of its F-X process. It could choose one of these as an interim solution in the event of delays to the Joint Strike Fighter.


Upbeat financing outlook could falter

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By Laura Mueller

Financiers and manufacturers are bullish about the state of aircraft financing, no doubt, due to recent aircraft order adjustments. However, this sentiment could prove short-lived.

Complicating matters is the fact that the aviation industry will call for capital above and beyond this year’s estimated $68 billion financing requirement for new aircraft – a concern not reflected in any funding gap calculations.

There is also worry that export credit support, which has been gold dust for many, is creating an unlevel playing field that could threaten second-tier credit airlines.

In addition, the relatively attractive pricing tied to export credit financings could be under threat if the USA and the UK lose their AAA credit rating.

Sipa Press/Rex Features
© Sipa Press/Rex Features

Yet for the time being, and despite an increasingly worrying financial outlook, the aviation industry remains eerily upbeat about securing funds for its future needs.

UNCERTAINTY SOFTENS

“This year is looking a bit better, the funding gap is progressively closing and aircraft delivery postponements and order cancellations are helping to alleviate the gap,” says Christian McCormick, head of aviation finance at Natixis Transport Finance, speaking at Commercial Aviation Online‘s Inside Finance event in London last month.

McCormick recognises funding could be a problem in 2010, but acknowledges there is “still room for other measures to be taken” to help bridge any shortfall, such as additional vendor financing. “Airbus and Boeing have admitted they haven’t pulled their guns out yet,” he says.

Volker Fabian, head of aviation finance at HSH Nordbank, is confident every “needed” aircraft will attract capital. “My view is that airplanes that are needed in operation will get financed through export credit, commercial loans, other financing or by the manufacturers, but those airplanes that are not needed, won’t be produced,” he says.

But even if the manufacturers wanted to rescue every customer that comes to them cap in hand with vendor financing, the issue of sales recognition could prevent them from doing so. “Sales recognition is a powerful mitigant to a significant increase in customer finance,” says DVB bank board member Bertrand Grabowski.

“The issue is very simple – under US GAAP (Boeing) or IFRS (EADS) [accounting measures], the seller of the equipment can only claim for a true sale if the transfer of title and payment comes with little or no strings attached. Thus any direct financing, but also residual value guarantee, backstop financing etc, can prevent Airbus or Boeing from increasing its revenues on a given sale.”

To date Boeing has recorded 58 cancellations, 32 during the first quarter, mostly 787s, and has financed four aircraft, whereas Airbus has funded one delivery in the first quarter and cancelled 14 orders.

As expected, the manufacturers remain positive about the industry’s ability to source funds. “The body language in the corridors in Toulouse isn’t too nervous so far,” says Christophe Million-Rousseau, senior director of customer finance at Airbus. The manufacturer will double the amount of vendor financing on offer this year to about €2 billion ($2.75 billion) compared with 2008.

Tony Simpson, director of Boeing Capital, describes any potential funding gap as “manageable.” Boeing Capital plans to offer up to $1 billion in new financing in 2009.

However, neither Airbus nor Boeing has pinpointed how much vendor financing they expect to offer in 2010.

LIQUIDITY CRUNCH

The short supply of liquidity has resulted in a sharp increase in pricing on aviation financings, but those banks that remain active in this sector are not rubbing their hands together at the juicy fees they are raking in.

Instead, these financiers are fretting about their balance sheets and whether their aviation department will survive the next cull as banks restructure.

A US-based hedge fund warns the diminishing supply of liquidity is already forcing airlines to turn to expensive sources of capital, such as hedge funds, and during a time of falling revenues that could prove disastrous.

Lufthansa
© Lufthansa

“The request for proposals currently on my desk are from good-credit airlines with attractive aircraft and are from names I’ve never seen before,” he says. “I think that says a lot about the scarcity of capital in the market.”

US and European export credit agency support, which typically guarantees 85% of an aircraft’s financing, is a tool that is in increasing demand. However, its availability is being viewed as a mixed blessing.

On the one hand, it is proving the saviour for many airlines and lessors that are searching for attractive priced financing during, arguably, the worst financial crisis since the Great Depression.

However, export credit support is also considered by some to be a form of financial market distortion. “Export credit financing is an unfair practice as certain airlines are excluded from that method of financing, which creates an unfair financial market,” says Lufthansa’s head of corporate finance Markus Ott. “There is no need for governments to step in. We need to lean to become a normal industry and behave like a normal industry.”

Lufthansa and other German, French, Spanish, UK and US airlines are not eligible for export credit financing on aircraft that are manufactured in their respective countries under the home country rule.

As a result, carriers such as Lufthansa must finance Airbus aircraft in the commercial markets, through other sources, using internal cash or with the manufacturers, which can result in more pricey deals than compared with export credit transactions.

Ott argues that parties unable to access export credit are at a competitive disadvantage compared with colleagues which are operating in the same markets but with access to a plentiful, and currently cheaper, source of financing.

In addition, certain market observers believe that the real financing squeeze will come from second-tier airlines, which do not qualify for export credit support, but who also can not attract first-tier pricing through other financing means.

“This is where the real pain will be felt because these guys can’t get relief from the export credits or the commercial market and during a difficult operating environment,” says a financier.

However, even those airlines that are eligible for US Ex-Im Bank and UK ECGD export credit could also see a rise in pricing if the UK and the USA lose their AAA sovereign ratings.

“A lower rating would require that banks apply capital to the export credit loans and that would be more costly. With the AAA sovereign rating, capital is zero,” says Natixis Transport Finance’s McCormick. He adds: “It would be a concern for airlines that would have to pay more as the banks would compensate by increasing the margins.”

HIDDEN PRESSURES

While there may be an air of optimism surrounding long-term aircraft financing, pre-delivery payments (PDP), or aircraft deposits, which are not included in the $68 billion financing requirement, are proving a harder sell to the financial community.

Million-Rousseau at Airbus describes lender appetite for PDPs as “very limited.”

During the good times of cheap liquidity, financiers were attracted to the PDP business partially as a means to lock-in the longer-term financing of the aircraft.

However, according to a European banker, given the current market where liquidity is tight, there is a preference to lend into a secured aircraft transaction rather than provide PDPs as this form of financing is generally considered not as capital efficient.

Another drain on funding for the sector will come from refinancings, again a figure which is not accounted for in the industry’s $68 billion financing bill, but considering the scarcity of liquidity, is a significant capital requirement.

Jose Abramovici, global head of aviation and rail at European bank Calyon, estimates refinancings could reach $4 billion this year and includes the standard requirements for airlines, but also the refinancing of merger and acquisition deals, such as a lessor portfolio sale, where there is a change of ownership covenant.

Although a loan that does not get refinanced could cripple an airline or an operating lessor, bankers at Commercial Aviation Online‘s Inside Finance event agree that lenders will be pragmatic and choose to work through any refinancing hiccups, but this is likely to be costly.

The main reason for this dedication is not necessarily customer loyalty, but because financiers do not want assets returned in a downturn. “No-one wants to pull the trigger because this is not the right time to do so,” says Abramovici.

Another European banker adds: “The original financiers will simply agree to the refinancing as the alternative could be bankruptcy – and nobody wants that.”

Commercial Aviation Online tracks aircraft financing worldwide. Find out more about CAO