#bombardier

If Mitsubishi studied pigs and aviation closer

In 2007, CM suggested that the Mitsubishi Regional Jet (MRJ) was doomed to failure at the concept stage.

All the tea leaves were there to be read. A simple study of the widely available Boeing & Airbus 20-yr commercial market forecasts at the time revealed how the regional jet market was set to shrink 40% in favour of larger jets.

Yet the Mitsubishi Aircraft Corp (MAC) pushed on ahead regardless hoping for a 20% share of a collapsing market. What would possess a company to target a dying segment with a product that wasn’t a game changer? A plane that promised to use composites to reduce weight yet was forced back to conventional alloys and to resize because customers had no demand for the original design.

With 90% of the regional market occupied by Bombardier and Embraer, airlines get great efficiencies by sticking to the same brands during upgrade cycles – minimal marginal costs required to train ground staff and pilots. For airlines to pursue a brand new aircraft that offered little in terms of superior economics nor extensive after sales services, it was always going to be the Achilles’ heel for MAC.

Airlines would not only take on extra costs to train existing staff, but would run huge financial risks with leased MRJ’s (now called the Spacejet to rebrand the failure) if they needed to downsize fleets because there would be next to no other airlines to sell or release them to unlike Bombardier & Embraer. Pilots who chose to be certified to fly the Spacejet also risked limited career options if an airline collapsed.

So it is refreshing to read this great summary on Wolf Street of how terribly the aircraft program is (not) progressing in 2019.

It would make a great Harvard Business Review study on how not to crack into a market.

Lewis Hamilton’s life had no meaning

One’s heart must bleed for Lewis Hamilton. The soon to be 6x World F1 Champion said,

I want my life to mean something and honestly up until now my life’s had no meaning...” until he went vegan.

CM is finding it hard to reconcile how Lewis believes a life spent at the pinnacle of motorsport, flying around the world on a private jet (which he recently sold), galavanting with bikini-clad supermodels on luxury motor yachts and torturing Pirelli tyres as he gives joy rides in Mercedes AMG sports cars is somehow a life without meaning!? CM is sure many would gladly take his place.

Could his veganism be the problem for turning him into a limp-wristed Extinction Rebellion activist in the making? To think of how his fossil-fueled life has led to a monster carbon footprint…no doubt he has the means to calculate and pay the offsets…

As Jo Nova recently noted,

Meat is a good (as in “the only”) source of Cobalamin, known as vitamin B12, which your body uses to make the myelin sheath on nerves among other things (it’s the insulation on your personal electricity grid). The side effects of not getting enough include:

demyelinisation of peripheral nerves, the spinal cord, cranial nerves and the brain, resulting in nerve damage and neuropsychiatric abnormalities. Neurological symptoms of vitamin B12 deficiency include numbness and tingling of the hands and feet, decreased sensation, difficulties walking, loss of bowel and bladder control, memory loss, dementia, depression, general weakness and psychosis. Unless detected and treated early, these symptoms can be irreversible.” — Zeuschner et al 2013″

Lewis understands the laws of small numbers in motor racing. 1/1000th of a second can be the difference between winning and coming second. He should take solace to know that animals make up 13% of the methane in the atmosphere. Methane is 722 parts per billion in the atmosphere. So animals – of which cows, sheep, pigs and chickens make a proportion of the total – are responsible for 0.000009386% of the atmosphere. Good luck beating that Lewis. Not even the Rolex timing device in F1 can measure a race with that small a margin.

Although, Lewis apparently wants to be a part of the solution.

That is the simplest thing to do. Quit the championship today dear boy! Forgo the sixth title even though it is one race from your grasp. That would be the ultimate gesture in finding a solution.

Naturally, he will continue on with his £40m per year Mercedes contract that expires end 2020. Perhaps he wants to beat Michael Schumacher’s record of 7 titles before he truly commits to a solution. Woke!

CM suggests he has a steak and just keeps on racing. F1 is such a boring sport now so having a clown on the grid can only add to its appeal. Alternatively, Lewis,  you could speak to the Mercedes F1 catering team manager to ensure that the fat-cat corporate clients and their mistresses can only dine on vegan offerings inside the entertainment chalet.

Mitsubishi Jet facing cancellations

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In 2009 CM argued (in a former life) that the Mitsubishi Regional Jet (MRJ) was doomed to failure. It was answering a question that no one was asking. It seems that one of its customers, Eastern Airlines, which originally placed 40 orders found itself in receivership and its new owners do not seem to have any intention honouring Eastern’s order book. With a total order book (including options) of 447 MRJ aircraft, this would be a big dent. The plane has been beset with delays, material changes (it was to have carbon composite wings but it was deemed too expensive so switched back to alloys, increasing weight hence hurting economics) and the realities of the industry.

1. Demand – Both Boeing & Airbus publish detailed long range fleet forecasts every year. They are both in agreement that regional jets (50-100 seats) have little future forecasting they’ll represent a total of 3,000 orders in the next two decades. Around 8 years ago that forecast was 5,000.

2. Incumbents – Embraer and Bombardier dominate the regional jet market with some 80% share. Mitsubishi is looking to beat the door down in an industry where risk is not wanted. The Chinese are entering the market with the C-919 and the Russians with the Sukhoi Superjet. Mitsubishi wanted a 20% share. Of 5,000 units that’s 1000 units they banked on. At 3,000 that’s only 600 units their share target would hit. Boeing and Airbus are offering slightly smaller versions of the 737 and A320 series to cater to the market that would normally buy an RJ.

3. Pilots – well most pilots are certified to fly only one type of commercial plane at any given time so Mitsubishi needs to make sure it’s planes can have a supply of pilots to fly them and airlines need to take a bet on expansion. Same goes for ground crew training.

4. Existing fleet – if a regional airline wanted to expand, if they used Embraer ERJ-145s it is better to get more of the same as the economics are well understood. Also the pool of pilots is likely more accessible. Route gaps need to be filed as soon as possible so waiting 12 months to get an MRJ may not work for an airline.

5. Residual values – when airlines get into financial turbulence, sometimes fleets need to be trimmed. Having a ‘liquid’ fleet which is easily placed at another airline helps balance sheet (relatively speaking). The best example was the GE engined 747 (60% of market) which sold at a premium to the Rolls-Royce engined 747 (15% of  market) in the used market because very few airlines used RR. A fleet of MRJs may have few homes to go if airlines need to part with them quickly. Airlines know this so it is likely that Mitsubishi is providing such residual value guarantees to bank in the orders.

However if Mitsubishi keep losing orders then the airlines that intend to use them may switch away on the basis that the risks down the line are too great. Regional airline budgets are thin. Risks are avoided at all costs.

The MRJ will likely fall foul of the Mitsubishi YS-11 of the 1970s. Great concept but poor execution on the basis of not having a big enough grasp of the industry dynamics. JAL and ANA will likely he asked to do national service on top of the initial tour of duty to support the plane.

The ground’s the limit.