A380neo : game on!

Recently, Fabrice Bregier strongly hinted the need to upgrade the A380 to compete with B777X.

Overall, it would seem that neo philosophy is going to span full Airbus product line very soon with the A320neo set to fly in 2016, the A330neo that could be launched by 2017/8 and the A380neo.

Previously, we have been quite skeptical about the A380neo comparing it to the benefits of developing the A330neo.

However, in a context where wide-body capacity on Airbus side will be lagging with respect to Boeing, resources should be available from A350-1000 and A320neo (partially) and where in the end, A330neo development + A380neo development should amount to lower costs with respect to new development, A380 could be serious option to consider.

In any case, with B777X (and A350-1000 actually), A380 in its current version will be very difficult to sell…

BE Aerospace strategic options

On May 5th, BE Aerospace announced it was exploring strategic alternatives that could involve a sale of the company or one of its units.

Since then, there has been some discussion on who could be targeting BE Aerospace as described in Reuters article

Here, we would like to go over the different potential buyers, their financing capabilities and BE Aerospace strategic fit.

The potential buyers can be separated in 3 categories: ‘big’ Tier 1 suppliers ( United Technologies, Honeywell & SAFRAN), Aircraft OEMs (Airbus & Boeing) and direct BE Aerospace competitors (mainly Zodiac for cabin & WESCO Aircraft for distribution).

Please find at end of article some details of analysis results.

Overall, in case of global sale of BE Aerospace, main candidates are UTC & Honeywell with a preference for Honeywell as it is eyeing acquisitions in Aerospace and UTC made a huge acquisition already last year with Goodrich (~13 B$) -and also purchased RR share in IAE (1.5 B$). In case of separate sale of Cabin & Distribution business, it is difficult to see other candidates except Aircraft OEMs for distribution business. For competitors as Wesco & Zodiac, such an acquisition would completely transform its balance sheet dramatically increasing debt & leverage ratios which seems unlikely at this stage.

 

Financial   capability

Strategic   fit

Comments

Financing

M&A   strategy

Synergies

Market   (increased) access

Tier 1   suppliers

United   Technologies

++

+

++

+

UTC has already cabin interior business   and oxygen systems as well.
UTC Aerospace has made huge acquisition last year (Goodrich) and seems   focused on execution and internal growth at present

Honeywell

++

++

+

++

HON does not have cabin interior   business.
HON is eyeing >10B$ acquisitions till 2018 in mechanical components &   differentiated technos.

General   Electric

++

-

-

++

GE Aviation business focuses on engines,   systems & services which does not seem to fit with cabin interior   business but seems to fit with distribution. However, GE is focusing on   Alstom as mega-acquisition. It would seem difficult for GE to make another   bid for BE Aerospace at this stage. Should Alstom deal not happen, then this assessment   should be renewed.

Safran

+

-

-

++

SAFRAN acquisition policy is to   accelerate or establish positions in critical areas at justified price.
SAFRAN’s net debt today is at ~ 1 B€ and SAFRAN is focusing on propulsion and   aircraft systems around electrical aircraft: cabin interiors &   distribution do not seem core to their strategy.

Aircraft   producers

Airbus

++

+

-

+

Airbus or Boeing would not purchase   cabin interior business company serving equally both manufacturers.
As services are becoming the name of the game, distribution business could be   of interest.

Boeing

++

+

-

+

BE   Aerospace competitors

Zodiac  

-

++

++

Zodiac financing capabilities do not   allow for BE Aerospace acquisition (total or cabin business)

Wesco

-

++

+

-

WESCO could be interested in   distribution business but it completed HAAS acquisition in 2012. In addition,   BE distribution business is WESCO’s size& acquisition would completely   transform balance sheet

 

 

 

La configuration Ariane 6 continue de faire débat – Article Les Echos

Une autre article, cette fois dans ‘Les Echos’, sur le débat modularité vs non-modularité pour la configuration Ariane 6.
Dans ce blog, nous avons défendu les bénéfices de la modularité dans un environnement où les prix d’emport dépendent de la masse du satellite lancée. En effet, je ne suis pas sur que les opérateurs satellite soient prêts à payer le même prix pour embarquer un satellite de 3T ou de 6T alors que ce n’est pas le cas sur Ariane 5.

Ariane 6 configuration flexibility is an asset

Ariane 6 ‘frozen’ configuration was presented by CNES in July 2013 (see figure 1).

Ariane_6

Figure 1

As was already know, the presented concept was part of the ‘PPH’ family.The interesting factor of the final configuration is that it does not allow for any flexibility i.e it does not allow for a family of Ariane 6 configurations as broadcasted before (see figure 2).

A6 P7C

Figure 2

This final configuration is now under significant pressure due to uncertainty in commercial telecom satellites masses due to electric propulsion progress (notwithstanding the debate A5 ME vs A6!)

In this context, it is interesting to analyze benefits of having family versus having one fixed configuration.

In this article, we study 2 Ariane 6 scenarios & 2 satellite mass evolution scenarios

 Ariane 6 scenarios

  • Ariane 6 baseline: one configuration

4 P145 – H32 – Perf in GTO ~ 6.5 T

  • Ariane 6 ‘fagot': two configurations

4 P145 – H32 – Perf in GTO ~ 6.5 T

3 P145 – H32 – Perf in GTO ~ 3.5 T (tbc)

  • Ariane 6 ‘strap-on': two configurations

4 P145 – H32 – Perf in GTO ~ 6.5 T

2 P80 – 2 P145 – H32 – Perf in GTO ~ 3.5 T (tbc)

Satellite mass evolution scenarios based on FAA COMSTAC forecasts-

Note: revenues for each satellite class are included as well based on 20% margin vs 70M€ announced cost)

  • Baseline foreceast – No increased electric propulsion development

Mass class (T)

< 2.5T

2.5T – 4.2T

4.2T – 5.4T

>5.4T

%

13%

27%

20%

40%

Revenues

35.0

58.8

75.6

91.0

  • Alternative with enhanced electric propulsion development – With increased electric propulsion development

Note: revenues for each satellite class are included as well based on 20% margin vs 70M€ announced reccost

Mass class (T)

< 2.5T

2.5T – 4.2T

4.2T – 5.4T

>5.4T

%

25%

27%

20%

28%

Revenues

35.0

58.8

75.6

 91.0  

In summary

  • First of all, the analysis shows that it is not worth it to develop Ariane 6 ‘strap-on’ configuration as 2 P80 recurring cost difference vs 2 P145 is almost fully offset by 2 P80 amortization cost (assumption ‘strap-on’ configuration development cost é 300M€) & P145 reduced experience effect (Aerospace 85% experience factor).
  • Secondly, taking into account experience curve effects (Aerospace 85% experience factor) & additional development costs from Ariane 6 ‘fagot’ 2 configurations (300 M€ from additional qualification launch + specific developments), this alternative scenario should be economically more interesting than Ariane 6 baseline – see details hereunder, unless technical feasibility of Ariane 6 is not fully proven…

No flexibility ( one A6 configuration)

With flexibility ( 2 A6 configurations)

No electric prop. development Electric prop. development No electric prop. development Electric prop. development
4P145-H32 launches/ year

8

8

6

5

Recurring cost / launch

71

71

71

71

Direct costs incl. depreciation / launch

125

125

124

125

3P145-H32   launches per year

0

0

2

3

Recurring cost / launch

0

0

62

63

Direct costs incl. depreciation / launch

0

0

117

118

Total

Recurring costs -no Kourou costs

569

569

551

544

Direct costs incl. depreciation &   fixed costs sharing (Kourou)

996

996

979

978

Revenues

576

522

576

522

Profits vs recurring cots

7

-47

25

-22

Profits   vs direct costs incl depreciation

-421

-475

-403

-456

Note: A6 recurring cost has been adjusted to match 70M€ target at maturity (10 years of operations)