Airbus is expecting a "large order" from Chinese airlines by early 2009, the company's CEO Tom Enders said Sunday. Chinese aviation "next year will still see strong growth and we are expecting another large order -- maybe before the end of the year or Chinese New Year," Enders said at the opening of a new Airbus assembly line.

But the order news needs to be tempered. Airbus also plans to buy a billion dollars' worth of parts from China. Interesting that the value is not in Euros or Yuan, don't you think? Clearly the Chinese want the deal because they will steal every bit if Airbus' IP they can. Learning how to make the parts is the first step to assembling whatever they want later on.

So Airbus will get its order next year. Enders will look like a genius. And a decade from now, when all the "names" running Airbus are long retired, Airbus will find that it has a poor business going forward. Boeing is discovering that outsourcing is a two edged sword, and the edges are not equally sharp. Countries that make things are strong. The west should reconsider its love of outsourcing. The west is about to discover the cost of outsourced finances. The market teaches painful lessons.

In other news --

• UAVs coming to carriers - aircraft carriers
• NATO and the C-17 - wake up Antonov!
• Hello Sustainable Aviation Fuel Users Group
• Meltdown Monday - finance

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Antonov keeps on trucking. The word "truck" is not accidental. This winged truck is 50 years old and they still fly. Another air classic, right? Oh it gets better. Take a peek at this one. More on this wonderful looking An-2 can be found here. Imagine taking a 50 year old design and then trying it out for ground effects? But they don't stop there. Just like Viking is doing with the Beaver, Antonov is not done with the basic An-2. Take off that old radial and add a turboprop! Meet the An-3CX. Take a read here about how they continue to tweak this amazing design.

Like we say, old designs don't go away, they just get better.

In other news --

• Ryanair - delays=profit
• UAV shortage
• TF on A346 - pictures anyone?
• ACE ready to buy Air Canada
• German commandos storm KLM plane
• Alitalia breakthrough - labor blinks

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The collapse in Albuquerque looks like being offset by growth in Russia. Check out this story.

Of some interest is this part - "Eclipse said in a news release that the Russian state bank, Vnesheconombank, which is chaired by Russian Prime Minister Vladimir Putin". Hmm. Seems Putin is quite aerospace geek now. Since the Europeans stepped in at Eclipse it was only a matter of time before its center of gravity moved east, but this is way east. The failure of DayJet only hurried this along. Clearly getting out from under the FAA will be of some relief too.

Another gem - "Production at Eclipse headquarters in Albuquerque, New Mexico, is expected to continue in full." Right.

In other news --

• Questioning "green"
• The little bird rumor about Hawaiian
• Boeing's strike starts to irritate customers
• Huge Learjet order

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This news has got to have readers rolling on the floor! Hugo Chavez saves Alitalia! But that's what you get when you put an ad in the paper asking for a bidder, any bidder.

As you can see, Chavez has already hired a leading expert on customer service to improve matters for Alitalia. EU airlines must be quaking at the thought of Alitalia getting free fuel and its soon growing network of flights between the EU and Caracas.

We make fun of Alitalia every time we can, but this one tops them all.

In other news --

• Nigerian dreams
• Vultures start to circle Italy
• Airline brand destruction - Qantas
• Ryanair prepares for recession - excludes Italy

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The RAF's 18 remaining Nimrods may be doomed. A detailed study of a Nimrod discovered that two fuel lines were misaligned and that put stress on couplings that caused fuel leaks. The fuel line misalignment was discovered after the UK government ordered engineers to strip down a Nimrod to seek out fatigue or design problems. It was long believed that the fuel leaks were caused by metal fatigue, faulty fuel pumps or aerial refueling problems. Now it appears it was improperly installed fuel pipes.

The remaining Nimrods are considered too old (introduced 1969) to be fixed by anything short of a complete rebuild. The UK does not have the money for that. The UK is leasing two USAF RC-135 Rivet Joint planes in the interim. Many RAF people believe the Nimrod has better surveillance technology than the RC-135.

The RAF is now in a quandary. Afghanistan demands such equipment and UAVs are limited in there abilities. There is no short term solution and successive UK governments' ignoring the RAF's needs has left the service in a hole. Probably the only option going forward will be to find another aircraft of the current era in which to install the Nimrod's surveillance technology. The RAF's larger non-bomber planes have invariably been hand me downs.

Do we see a chance here for Airbus? Could an A320 frame do the trick? Actually we think this would do the trick very well and at a stroke offer the world an alternative to Boeing's P-8. The A320 base is huge, ensuring parts for decades. The solution would ensure close ties between the UK and EU - a European solution that exploits the best of both sides. Now what we need is a leader to take this idea forward. Any suggestions?

In other news --

• BA suspends flights to Pakistan
• Air Canada's GoGo plans
• Oil price yo yo
• Russia & Georgia - again

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Last week FI had a story about Boeing doing studies along these lines and spoke interestingly of "tilting" the engine. As readers know, the CFM powered 737s already have an odd looking nacelle, with a flat bottom.

The GTF is something of an oddball design that may fit on a 737 even though it has a bigger fan than the CFM. There have been concerns that the GTF may be too "big" for the 737 on its current gear. Boeing could raise the landing gear but that would impact the fundamental design quite a bit.

Given the GTF has a main fan that is geared, it appears that the shaft could therefore be moved out of horizontal alignment. Just like that of a turboprop. For every six inches the fan shaft is raised, the fan has an extra foot of "space".

The CFM fan is 68.3 inches across and the GTF is at 73 inches. This difference is clearly within the 6 inches described and therefore sounds really feasible. There is no doubt that Boeing would get P&W to make this change in short order. Given the cost of P&W's hubris over the 737 once, it is fair to assume they will never make that mistake again. The GTF may be a lot closer to the 737's future than anyone had thought. As close as P&W is becoming to Airbus with the A340 test now, don't forget P&W and Boeing have common DNA.

In other news --

• SpinVox
• Here comes the B-3
• Airbus production & deliveries
• SkyEurope woes

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When US airlines started charging fees for bags, certain seats and so on, we thought the whole process would fall on its face. News recently that United is doubling its fee on the second bag to $50 caught us by surprise. Well, it seems United knows something we don't - these fees are working, very well. At Northwest, baggage fees bring in nearly half a million dollars a day.

Even as Southwest pokes fun at its competitors, the airlines charging the fees are seeing that air travel is more inelastic than they expected. Arne Haak, AirTran's SVP finance and CFO, says fees for seat assignments, checking a second bag, calling to make a reservation, changing or canceling a reservation and purchasing, exchanging or transferring frequent flier credits are generating tens of millions of dollars for the carrier.

Clearly the new revenue stream, now identified, will be exploited to the maximum. That means even if there is Southwest competition on a route or a foreign airline, US carriers will stick with these fees. We need to digest this information - but it appears people are more tied to their "airline of choice" than we expected.

In other news --

• Ryanair pilot hiring freeze kicks in
• Fuel hedges start to bite
• Qantas gets A380 #1 - please check it for FOD!
• Air NZ's tattoos
• V--2 power by the hour hurts Rolls Royce

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The Google phone - its here. Key item - this phone uses open source software. Google will unleash the planet's propeller heads to develop new features. Consequently these same people will be among the buyers of said phone. We expect this to unleash all sorts of things. Watch the mobile phone market over the next year - if this idea works (we bet it does), then the industry is about to experience fantastic creativity.

In other news --

• jetBlue rolls out free email
• Syria and Airbus start their dance - the retail deal of the decade
• Singapore gets A380 #6
• Putting lipstick on Olympic
• Meltdown Monday - Airlines
• Meltdown Monday - ILFC

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JAL said today it expects to receive its first 787 in October 2009, instead of the initial plan for August. JAL is one of Boeing's most loyal customers, also said there is no change in its plan to buy 35 of the 787s, with an option for 20 more. The airline said it expects to introduce the 35 787s by March 2017, a three year delay from the prior plan.

The announcement came weeks after JAL said it was worried about the possibility of a prolonged strike at Boeing. JAL said on Wednesday it would introduce 11 Boeing 777 and 767 aircraft from 2010 to March 2012 to compensate for the 787 delays.

The problem is, even the 767s and 777s are being delayed by the strike. Can there be any wonder why airlines around the world are keen on a multi-vendor relationship? Putting all your eggs in one basket has never been a good decision. Here we have, once again, an example of why this is not especially clever.

In other news --

• TAM selects OnAir
• Gatwick for sale
• Exciting biofuel news
• Spanair crash draft report

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Earlier this week we noted that perhaps the airline sector stocks might be ready for a good play as the price of oil keeps falling. Of course we had no idea what the Lehman fallout was going to look like. But perhaps our call was not too far off the mark.

In other news --

• United tests the demand curve again
• More winglets
• Alitalia - the fat lady doesn't sing
• Now its Olympic's turn
• The New York meltdown

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Yet another new thing to learn - get the back story here. Essentially what we learn is this; because of optimized flight from gate to gate, the airline saved 4,600L of fuel and saved 12 tons of CO2.

It is roughly 6,543 miles from Auckland to San Francisco. So the effort saved 1.42L per mile. Doesn't sound especially exciting. The 777-200ER burns around 2,200 gallons of fuel per hour. Or just under 6 gallons per mile, which is about 23L per hour. The optimized flight therefore saved 6.2% - not bad at all.

While we applaud any saving of CO2, its harder to quantify a $ value. Though from initial research into the buying and selling of carbon credits we have discovered that you can buy these for about $4/ton and sell them for nearly double or more. But we are talking here of say perhaps $100 in CO2 savings. Based on $1.66/L for Jet A, this flight saved $7,636. So while 6% is great, the dollar impact is somewhat muted.

However, commercial aviation is a volume business. If the 35 flights per hour landing at SFO all saved 6% on their fuel burn, then quickly we will see a serious number in fuel costs and CO2 savings.

In other news --

• After Ike - fuel costs are not the #1 worry
• Sabena comeback?
• Alitalia - the final scene (we hope and pray)
• BA cuts 1,400 managers
• bmi on the block?

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Does anyone know the story behind this picture? The airline nearly ordered this aircraft, but in the end stayed with Boeing. This is surely an image for the history books.

In other news --

• Hawaiian goes for winglets
• Nasty Ike
• X-47B - Northrop Grumman's amazing UAV
• Be-42
• Travel companies crash in UK

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Algal-Based Jet Fuel - Yes its a mouthful. But this is very interesting stuff. Anything that could reduce dependence on oil from nasty places is a good thing.

As the story states; In the U.S. alone, 1.6bn gallons of jet fuel are used every month. This is a huge market. Solazyme is currently producing thousands of gallons of oil so the opportunity is clear. As the PR puts it; "Solazyme implements a unique algal conversion process that allows algae to produce oil in large tanks quickly, efficiently and without sunlight. The process can employ a variety of non-food feedstocks, including cellulosic materials such as agricultural residues and high-productivity grasses including bagasse and switchgrass as well as industrial byproducts such as crude glycerol. The results are renewable oils that can be leveraged across a wide variety of industries and applications, which are nontoxic and safe."

This is clearly a group to watch. If they can scale their business quickly they are certain to make buckets of money. That is unless Big Oil steps in and pays whatever it takes to quietly put this technology in the darkest closet.

In other news --

• Another dead body traveling story
• The amazing C-130
• Canceling the tanker
• Boeing strike - first airline casualty
• Scenes from WAEA

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Air New Zealand is planning to give the bald facts on plans to speed up check-in for passengers -- literally. Air New Zealand said on Tuesday it is looking for 50 people willing to be a "cranial billboard" with a message temporarily tattooed on their shaved heads for two weeks advertising new speedy check-in services.

The airline said it will pay NZ$1000 per head, making it easy money for bald-headed frequent fliers. "How better to tell our customers that Air New Zealand is going to do something about (check-in times)... than through messaging they can read while they're standing in a queue themselves?" the airline's marketing manager Steve Bayliss said in a statement.

Better? How about the dumbest thing you've seen in years!

In other news --

• Rekkof - dream builder
• A330HGW
• Lufthansa and in-flight connectivity
• American loses a body

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Yesterday saw an wild ride in United's stock price. it would have been a fabulous moment to make money off a rumor. Except, the rumor was so plausible.

United Airlines parent UAL said Monday that a Chicago Tribune story, apparently published in error, claiming it had gone into bankruptcy was untrue. The company responded to the Tribune story -- posted on Monday on the web site of another Tribune newspaper, the South Florida Sun-Sentinel. The story was from December 10, 2002, when the airline entered Chapter 11 bankruptcy, from which it emerged in 2006. But for a simple reading of the dateline, United's stock tanked.

Shares of UAL fell 76% to $3 before trading on Nasdaq was halted on Monday. The stock was still down 4.2% at $11.78 after trading resumed. Even once it was clear the rumor was just that, the market remains concerned and has not bid the price up again. Boy, does that tell a story. There is a palpable lack of confidence in the firm.

In other news --

• This would be a perfect time for Airbus' workers to strike
• OPEC and demand elasticity
• Airbus' sticky order book
• Flybe's great results

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For those of you watching TV, you will have noted that Iraq's military increasingly are toting M-16s rather than the ubiquitous AK-74. (That's not a spelling error) Now comes news the Iraqi's want F-16s too. Maybe its the number 16?

Now this fighter, in Iraqi hands, would potentially impact the local military balance, or what constitutes as one. Trouble is, even the less modern versions, of which there are many parked in Pima the US would love to sell, would create a new set of challenges. Older models can be had for under $50m each while the latest versions go for about $75m. But its not the money - Iraq is once again a rather rich country and, given the neighborhood and likely drawn down of US forces, wants its own protection in place and fast.

It would take at least five years to train Iraqi pilots and ground crews to effectively use and maintain such aircraft. Note that the US has been making extensive use of civilians for its MRO in Iraq. So there will probably be problems.

Moreover, historical experience in Arab countries is that buying high tech warplanes create personnel problems. Pilots are typically selected for their loyalty to the government rather than for flying skills. Ground crew jobs pay well and are frequently given to loyal supporters of whoever is running the government at the moment. Therefore high-tech fighters tend to be flown by substandard pilots, and not available for operations as much as in Western air forces. As is seen in Iran, the neighbor creating the most manifest fear for Iraq.

But these issues will not mean anything less than enthusiastic support for the sale by Lockheed Martin, who would love another customer in the region. Because weapons are like tobacco - they are addictive. Lockheed will get to sell lots of training and support services. Since Iraq might get Block 50 F-16s, Kuwait obviously needs Block 60 versions, right? Watch the stock price of Lockheed Martin people. Iraq also wants six C-130s.

In other news --

• A rough week for Airbus and Boeing
• Alitalia gets more attention
• jetBlue on eBay?
• Some legal advice for winter

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Here's the official story. The idea of a replacement for paper is compelling. In the US, Continental and Delta have been experimenting with this. Finnair has been offering boarding passes via SMS for a while. Similarly in Japan you can even buy your ticket via mobile phone.

We are delighted with this progress because with the elimination of each media change you will note the airline requires less technology to support. For instance, in this case, when the printer fails and the airline has to hand write out boarding passes. With each new automation step we are likely to see the process of getting from the check-in to airplane seat go faster. Moreover, as we move towards a more digital environment, not only can the process be improved - it becomes cheaper and more easily secured.

In other news --

• BA's 777 crash - report
• Brussels attract more attention
• A400M delays
• Ryanair and EasyJet August numbers

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Global airlines are set to post losses of $5.2bn this year and $4.1bn in 2009 as high oil prices take a toll on the industry, IATA said on Wednesday. "The difficult business environment is expected to continue," IATA DG Giovanni Bisignani said. "The situation remains bleak." IATA's latest forecasts are based on an average crude oil price of $113/barrel in 2008 and $110/barrel in 2009. This is a huge turnaround - in 2007 the global airline industry made profits of ~$5.6bn. The reason the news looks so dire is because despite a softening oil price, the major economies are all slowing rapidly. So while lower fuel prices are of welcomed, passenger traffic is off. Indeed, Bisignani pointed out that air cargo declined 1.9% over July 2007 in a second straight monthly decline. And in the Asia-Pacific region, which comprises more than half of the world air cargo market, freight traffic dropped 6.5% year-on-year in the month. Of course the perfect scenario is at play here. But Bisignani also thinks that the airline industry could break even in 2009 if oil prices declined to an average of $95/barrel. What happens if oil hits that price sooner or goes even lower? IATA it should be remembered is out to defend airlines first. Its scenarios therefore paint the picture th industry wants to present. While IATA therefore defends its members this report ignores the fact that the industry's customers are increasingly treated awfully. It ignores the fact that industry employees are suffering through layoff threats and reduced income. Its too bad the IATA report does not dwell on how many of its members suffer more from poor management than high oil prices.

In other news --

• NY auctions back on
• Boeing vs IAM
• Big CSeries order coming?
• Austrian is no ugly duckling

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Gustav did not manage to cause the US's oil production much damage. The FT says it well, "Oil prices sank to a five-month low of just more than $105 a barrel on Tuesday as traders turned their sights on signs that slower growth was spreading beyond the US into Europe, Japan and even emerging markets."

So dizzying has been the fall in oil prices that Iran is trying to get OPEC to bring forward production cuts. The difficulty here is that oligopolies don't always react in concert. It is easier to get cuts in place as prices rise; everyone benefits instantly. But when prices fall, oil producers try to sell as much oil as they can at a higher price today knowing they might get less tomorrow. Moreover, any production cuts take a while to implement and as we have seen time and again, OPEC members cheat on production cuts. To complicate matters, numerous oil states have spent huge amounts of money on infrastructure developments - spending future oil revenues that may well now not materialize. It would seem then that the forces favor increased oil supplies and still lower prices.

The recent oil spike was called the "largest transfer of wealth in history". Even with lower oil prices, the shock has certainly impacted the US consumption. Americans, long used to cheap oil, now are much more likely to conserve consumption - and importantly, keep doing so. The weakened US economy makes being frugal in all things a good policy. Truck sales fell off a cliff, and the US auto makers are struggling to sell big cars with poor fuel consumption. The Hummer is dead.

The rapid reaction in the US proves that its economy, despite its size, has the ability to react quickly. Even as US airlines try to get fare increases to stick, forward passenger volumes are looking weaker. Again this is more economic cycle driven than oil, but it demonstrates consumers' willingness to modify consumption fast. The American lesson is not lost on other nations. We expect to see continued focus on fuel efficiency in transportation, even if oil goes under $100/barrel. The recent spike taught everyone a good lesson.

In other news --

• United's about face
• Boeing's big vote
• New Airbus factory in Germany
• Ryanair revives Ar Lingus takeover

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According to AFP, in 2006, Norwegian F-16s carried out 13 emergency take-offs to "identify" 14 Russian planes. A year later, the number of emergency take-offs leapt to 47, with 88 Russian planes "identified".

Obviously Russia has more money now to pay for these training missions. However, the Georgian experience and subsequent saber rattling leaves many in the EU wary. Much of the EU is dependent on Russian gas and this has split the EU's response to Russia. Russia has therefore an unusually lucrative time to make these training flights - test NATO response times, rattle a few nerves and generally remind everyone that Russia really is no friend of Europe at all.

In other news --

• Oil and hurricanes
• Northrop Grumman and the tanker
• Kingfisher's wings stretch
• Branson eyeing Gatwick
• Abu Dhabi eyes BAA breakup

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In a move possibly more to irritate than be taken seriously, it is reported that BA has "registered" its interest in Austrian. There is clearly a visceral interest in making the Germans nervous; the Lufthansa machine has been rolling over airlines across Europe with uncanny ease.

Of course the idea of a three city solution (LHR, MAD and VIE) would provide a powerful spread. But it is unlikely. The truth is, BA should have been more serious about this deal a while back. It is find LHR increasingly tough and its Spanish activities have taken a lot of time to gel. Meanwhile AF/KLM looks like coming back into Alitalia, emboldened. Lufthansa is quietly going about becoming a colossus.

Perhaps WW's team now sees the importance of making a run for it. If BA is serious about Austrian this will be a fascinating deal to watch.

In other news --

• Emirates takes two 777s today
• On rudeness
• Alitalia news
• Meet Archos
• Boeing wins one - CSAR

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