The A220's Path to Benchmark Reliability and Opening New Markets

Transcript

Benjamin Peiron:Good afternoon. Thank you. We are really grateful today to have the opportunity to give you some insight about the entry-level aircraft of our full Airbus product line, which is the A220 family. My name is Benjamin Perron, and I'm in charge of single-aisle marketing at Airbus. And to make this discussion lively, I am really happy to welcome on stage Robert Lüderer, the newly recently appointed Chief Commercial Officer of LOT Polish Airlines. Congratulations, Robert! We are extremely proud to get LOT on stage with us as a new member of the Airbus family. Family and starting with 220 orders. Also today, we have the pleasure to welcome Kahal Kyle, SVP Marketing at Azora. Azora, one of the fastest-growing lessors focusing on high-technology aircraft on the small single-aisle segment and a very strong partner of ours on the 220. They just recently delivered first aircraft. to our latest new operator, Air Niugini, as an example. And I would like, before we go into the panel, to spend a few words as well on— to introduce the A220. A220 is the only clean-sheet single-aisle that delivers worldwide today. This is an aircraft that takes efficiency, obviously, from its engine, the Pratt Whitney turbofan engine, Pratt Whitney 1500, providing highest bypass ratio, lowest fuel burn of the industry, but also from its airframe, as the aircraft has all 21st century technologies that make him look like our very own A350, as you see, but also using advanced materials, 40% composite, and also starting from a blank sheet has allowed us to design, the best cross-section for the market it is intended for, which is a true single-aisle cross-section, 5 abreast, providing large seats, large bins, large windows with a space and lightful impression in the cabin. This aircraft is a young programme, less than 10 years, and as you know, Airbus acquired the programme from Bombardier in 2018. But A220 is not just a name tag on the CSeries. Airbus has significantly enhanced the product since 2018, enhancing seating capacity and also the range, giving now up to 7 hours flight time on this aircraft, but also developing the industrial system with additional final assembly line, pre-final assembly lines in order to boost the production rate. and give early availability of this aircraft to the market. So following this quick introduction, my first question will go to you, Robert, as a new upcoming operator. Simply, what are the key attributes of the A220 products that drove your selection?

Robert Ludera:Thank you for this question. There are a few practical items that brought us to this decision. First of all, we recognize— we have recognized the economics of, of, of the aircraft, of the engines, of the new technology, of the new generation of regional jets. And A220 brings this new economics to completely new levels that were not achievable with, with the older generations. So economics is the key aspect for all the airlines, especially in such a competitive environment like, like our country, our region, Central and Eastern Europe, is. So that's, that played a key role. Secondly, it's according to our analysis a right capacity match to our markets, to our, to our destinations, not only for the current network but for our future profile, for our future plans of our network. We are not selecting the aircraft for, for, for 2 years or 4 years. We are selecting aircraft for, for dozens of years and more. So we, we had to take a look on what is our future at the new airports that will serve our Warsaw hub and, and Poland in general. It was also important to recognize the, the range capabilities and the, the noise footprint and the extraordinary comfort for the passengers that, that, that the aircraft brings.

Benjamin Peiron:Thank you, Robert. And, Cahal, from taking an investor angle, how did the clean-sheet design A220 influence also your decision to go for this asset? Sure.

Cathal Kyle:Good afternoon, everyone. So we're actually very much like an airline and also very much not like an airline, because as an investor, we're really much focusing on, I would say, asset resilience. We take— we're taking a long-term view. So when it comes to a clean-sheet design, that's fantastic. It is what it is. Anything is possible. But the things we look at are versatility. So that meaning looking at the airline, the unit cost economics of the aircraft, payload range, and of course the capabilities within the cabin, what you can offer. So Why is that important? Because it's very important to our customers who are airlines who need that. Other things that are important to us as well is the ecosystem. Where is it coming from? So on the A220, Airbus is the number one leading manufacturer, aircraft manufacturer. So that gives us a lot of comfort that you have a true partner who's going to stay in the product and invest in the product and continue to evolve that product. over its, over its lifecycle over 25, 30 years. And lastly, liquidity. And liquidity is based off the pre— 2 previous attributes, but also market demand and how that asset can serve the market needs globally from a macro perspective.

Benjamin Peiron:Well, thank you. And talking about liquidity, and thanks to your trust and the one of our 30+ customers on the A220. It's become a worldwide success. We are really, really happy that we delivered actually 2 weeks ago the 500th aircraft already, many more to come with more than 950 orders. But I mean, those figures are great and we are happy with this market position, but we are not sleeping on our laurels. Like the A220, As a clean-sheet design has also had teething issues. And we've put a very top priority in Airbus to fix those with our operators in order to restore some certainty in operations. So now we have the solutions under implementation to solve those issues, and we can observe on the flying fleet that we are reaching a turning point. So if we project ourselves, because investments are long-term, on an aircraft that delivers in 2027 actually will reach the same benchmark reliability levels as we have on our other single-aisle family, the A320neo. And we'll see the aircraft operating in a very different ecosystem in terms of engine, as we have evidence from our partner Pratt Whitney that they will have by end of this year solved the long-term AOG issues. Meanwhile, they will have enough spare engines to keep the fleet flying. So, Carhal, as being very close to many operators, can you say also a word of what's the feedback you've gathered from them lately on the in-service behavior of the aircraft?

Cathal Kyle:Yeah, so first and foremost, I like everybody who flies that aircraft largely loves the aircraft, from a passenger perspective, but also from the operators. It's delivering on the fuel burn advantages. It's delivering on the cabin comforts. And when the aircraft's flying, they're really happy and the operational reliability is fantastic. However, we can't ignore the fact that there's been challenges and some, some of the airlines have, looking backwards, have really suffered and particularly driven by the engine issues from Pratt Whitney globally on the G2F. But I can say that that has been evolving, and there are solutions that are, that are actually being embodied on the aircraft as we speak. And then there's a plan of going forward. So we have seen a significant improvement in turnaround times, in the availability of engines, and looking forward in terms of trajectory for this aircraft looking forward. And again, you have to You have to think of an aircraft investment and the decision that an airline makes. So like, as you were saying, Robert, you know, this is a long-term decision, 20 years maybe in the fleet. And in terms of those challenges, I really do see— I think we've gone past a bottom point.

Robert Ludera:Mm-hmm.

Cathal Kyle:And I have a lot of hope going into the coming months and years. The same is to be said about maintenance and MRO. There's been a shortage of parts, as we— as was discussed in the previous panel. I have seen improvement there as well. Azura, we've been a part of that. So we really believe in, in, in this aircraft, and we're continuing to invest in, in new technology aircraft, small narrowbodies. We have another aircraft on our books. I won't say it because— But we believe in that size of aircraft, and we believe in the technology on the engines and the solutions that are coming forward. So on our side, for example, we've been providing more spares and engines. We've been buying spares. We actually acquired some older A220s. They're actually quite young, but it was one airline that decided to, you know, move into another aircraft type. And, and that's been to our advantage. We've been helping the existing operators with extra capacity, but also on the engines and, and with spare parts. So we have solutions for the immediate concerns of operators, but also going forward for operators that are making that decision to make that massive long-term investment. We're a partner along with the— I think it very much requires a partnership along with the OEMs, Airbus and Pratt Whitney.

Benjamin Peiron:Yeah, and Robert, as a new operator, what gave you comfort when selecting the aircraft for deliveries next year that you will reach such benchmark reliability performance?

Robert Ludera:Reliability and performance, of course, are key aspects that we paid huge attention, maybe, maybe even much bigger than, than the other airlines did. Why is it so? Because our experience from the past of introducing new aircraft types learned, taught us a lot. We were the first European airline to introduce MAXs. We were the first European airline to introduce 787s. We had huge issues, of course. Those aircraft have had, have had Teething issues, huge ones sometimes. By the way, we are also launch customer of Embraer E-Series, E-Jets, E-Jets E1s back in 2004. That was an exceptional— exceptionally smooth introduction on the other hand. But the 737, 787 experience proved— proven that we need to pay extraordinary attention to reliability. We spent a lot of time with Airbus, with you, with Pratt Whitney to make sure that the product, that the aircraft type is mature enough. We are not an early bird in terms of acquisition of this aircraft. We were convinced that the developments that you are making, that Pratt is making, are addressing the issues that that were solved. We, we perceived the aircraft as, as, as a ready-to-market solution for us, even under such, such tight environment, such, such a cautious approach towards new, new technologies. That's one thing. But secondly, also very important thing is the ecosystem that you both mentioned, making sure that there is a right ecosystem, not only the product itself, was similarly important. That, of course, must have been reflected in the contracts, guarantees, warranties, entry into service package. But similarly with all the other service providers, also contract with Pratt Whitney, that entire ecosystem has to be provided and in place in order to make us comfortable with Thank you.

Benjamin Peiron:And with the other side of the coin of having a young programme is that it has a lot of growth potential. And so with the maturity level being reached on the A220, on Airbus side, we keep developing the product. Obviously, we are going to introduce an increased seating capacity on the A220-300, up to 160 seats.

Cathal Kyle:Thank you.

Benjamin Peiron:60 packs in high density. We are going to introduce a new large XL bins on the product this year, which is inherited from the A320neo design, and also implementing the Airspace Design Language on the A220 family, and also working on some performance developments of the aircraft. And as well, an airframe modification that will further allow to enhance durability of the engine with an enhanced climb derate. As we know, these new technologies engines are the ones that are most affected during the climb phase. So these developments are underway. And of course, it's no secret that the A220 is also a stretchable aircraft. We, Airbus, are looking at concepts to stretch this aircraft because there is a demand from our customer base to have an additional member in the family that would give them growth capability. And if we talk about our customer usage of the A220, we have a very different, diverse landscape of customers from hybrid low-cost legacy carriers, small carriers, and they all benefit from the flexibility of this asset on their network, be it a breeze using the aircraft to develop new point-to-point routes thanks to the trip costs, low trip costs of the aircraft, but also taking advantage of the seat count to up-gauge. Being a legacy carrier using the aircraft as a hub feeder like Air France, Delta, Swiss, many others, because the aircraft has the right cabin to ensure seamless passenger experience throughout their network, has the right economics, and also in most cases they use the A220 family to replace several types and simplify their fleet. But also small carriers like we quote here Air Niugini, who is using the aircraft on very short domestic routes with short airfields requiring performance and also opening new international routes into Australia with the A220. Carhal, as you've been involved in many placements of this aircraft to operators, how did you observe how operators used A220 flexibility to develop their network?

Cathal Kyle:Yeah, so you kind of answered the question for me.

Robert Ludera:Thank you.

Cathal Kyle:No, so on our side, when we're, when we're marketing an aircraft, we just don't just market the product. You know, we— you've already given an overview of some of the attributes of the A220. It's new technology. It's the newest technology aircraft. out there, and with, you know, state-of-the-art cockpit, etc. But it's more about the capabilities, as you said, and what type of operation environment the aircraft can fly in. And so we've got different types of operators. You've got the mainline carriers. So Breeze is a customer of ours, Delta. They're very— 2 different, very different operations. You know, one is point-to-point, Breeze. Some are flying short sectors, long sectors. You know, so there's, there's a lot of versatility there, whereas Delta's using as a feeder for its massive network domestically and in the US. And then in Europe, we've got other smaller carriers, the small operators. I think that's where it's quite interesting as well, where it's a gateway into narrow-body operations. And so you might have an operator that's like more familiar to regional operations and flying from 50 to 100-seat segment but might want to go up to the 100 to 150. It gives it that capability to do that, to operate those smaller, thinner routes. So we've got, for example, it can also be a great aircraft for an airline that wants to start up operations in new markets. So we've got Anamo Wings in Romania, which is quite an interesting market in the sense that there is a great opportunity there, I would say, for a local carrier to reach really make a foothold in that market. So they've chosen the A220 to do that. And that's the, you know, that size of aircraft, 100 and around 120 to 150 seats, is perfect aircraft for them to allow them to fly in those thinner routes. And so they can fly domestically, but also then open up routes into Europe. We've got other carriers like in Cyprus, a little small little island nation that is effectively— it's in the European Union, but if you look at it on the map, it's effectively in the Middle East, just right opposite Lebanon, flying into Beirut and into Tel Aviv. Obviously difficult moment for them at the moment. So we all hope that things will change there for many reasons and for our industry. But it's just the versatility that it gives and the cost economics. And so, you know, you can— it depends on how you use the aircraft. So again, you might be focused on unit cost or you might be more focused on trip cost. And that, that the A220 allows you to, to, to do that and fly profitably.

Benjamin Peiron:Thank you, Karl. I'm displaying here a range circle of the A220. out of Warsaw, just to show the full potential. But Robert, can you tell us a bit more how you plan to use the A220 on your network?

Robert Ludera:Of course, I can share some insights, but not, not too many details because of still not announced decisions how to deploy and in what phases. But, but of Of course, this range gives us some, some additional opportunities which maybe will not— we will not use at the very beginning because initial aircraft will rather replace the smaller units. We will upgage the, the, uh, the existing, uh, regional just to, to, to get the, the cost unit— unit cost benefit. But ultimately, uh, we currently opened a lot of destinations, uh, in a range of 4, 5, and plus hours that we currently have no alternative than deploying full narrowbody. So that might be an option to, to, to, for example, counter seasonality, use narrowbodies and regional jets to, to, to, to, to address the, the lower demand because of northern hemisphere and, and seasonality of the markets. Um, definitely the, the unit cost is, is a key aspect. So that's something what we, what we count for, what we, what we believe is, is a key factor in such a competitive market like Polish, uh, Polish one and Central and Eastern Europe. What is also important is, is the right matching of, of supply towards the demand. So that's, that's, that would play a key factor in our decision-making. Having observed over the recent years, not 2, 3 years, but 10 years or a dozen years, a huge development of Polish market. Just last year, it was 15.6% growth of passengers year over year. This year, we were expecting 12%. Of course, the current crisis will make it more difficult to achieve such figures, but we needed to account for that growth.

Cathal Kyle:I see.

Robert Ludera:growth. We needed to account for that growth for future. So the capacity match, we thought this is the right tool to address the growing market and the new opportunities that, that we foresee when we, when we have new airport in place that will serve Warsaw, Poland, and the region. That new airport will open much more room for growth for us. That's, that's something that we also anticipate and, and reflected in our decision-making. But in the meantime, that will be also an important mean for growth in existing markets. Warsaw Chopin Airport is constrained from the number of movement point of view. That's why in the interim period, in the short term, the room for growth is rather upgage the aircraft and to grow in frequencies. So this aircraft is a means for achieving that. Those are the key aspects that I would point out in terms of network planning.

Benjamin Peiron:And the last question I have is going back to a stretch variant. How would you see that in your fleet going forward, this potential capability to have another member of the family, a bigger member of the family.

Robert Ludera:First of all, I very much hope that, that you will take the decision soon because that can definitely even further exploit the, the opportunities related to unit costs. We are awaiting some, some more insights, more feedback, but, but we would love to have that choice.

Benjamin Peiron:Same for us. Well, thank you very much. I think we would be Happy and open to have any question from the audience, if any. Otherwise, yes, please. Sorry, I didn't hear the question.

Cathal Kyle:Retrofit the A160, the current fleet.

Benjamin Peiron:Okay. The 100— the way we will reach the 160 seats is by adding a second overwing exit on the aircraft. So the structural provisions for this second exit have been there from the beginning on the aircraft. However, this requires a cutout of the fuselage. So nothing is impossible in retrofit, but it's not a simple retrofit for the A220.

Robert Ludera:Okay.

Benjamin Peiron:for the current fleet. And this option we plan to make available from— for a line fit from 2028. And the main purpose, of course, is to enlarge the market, addressable market of the A220 towards low-cost carriers.

Robert Ludera:Thank you very much.

Benjamin Peiron:A question to you for LOT Polish.

Robert Ludera:Aren't you afraid that you are lacking small aircraft? You now have the smallest Embraers in your fleet. You're upgrading to the A220-100, which will be the smallest then. But is your network changing that much in the next few years that you don't require the smaller regional jets? Thank you for that question. First of all, we will cooperate and continue cooperation with Embraer for a couple of years to come. This transition process will take some years, so, so definitely we, we value the product, product, and we will be operating Embraers still for, for a couple of years because the entire transition of, of 40 orders firm and, and 44 options, it will take years. So for, for the next couple of years, we have the solution. Of course, ultimately, uh, we, we keep raising such questions, but, but having observed Polish market development, uh, we hope that, that it will maintain in that, that pace. There is further room for growth. The demand keeps coming in spite of, of many challenges. I, I have referred to, to market growth that we have observed in the past. That's not a forecast, that's actuals. So, uh, so definitely that's an expectation, but in case it doesn't come, we are ready to, to optimize our networks. Of course, there is some room for that in terms of, of frequency to, to, to, to, to seat capacity aspect, but, but we knew from the very beginning that we need regional jets in order to keep our business model working. We are a network carrier. We need feeding, we need frequencies. So, so our long-haul network requires connectivity. And, and I believe that, that both in the transition process and ultimately we will have right solutions to, to, to our short-haul network.

Benjamin Peiron:We have an online question, which is, why is the A220 AOG desk-managed separately to other Airbus types in Montreal. So yeah, this is a very valid point. I did not mention that we also integrated the A220 into the Airbus support ecosystem using the same tools as the other Airbus types, using the same structure of interface, same people interfacing, including the A220. Now, when it comes to the AOG desk, We developed an air tag-like in Montreal following the same philosophy as we have in Toulouse for the very reason that the whole of the engineering of the A220, the people who know the aircraft the best are based in Montreal. So in order to stay close to them and have the most efficient answer time.

Robert Ludera:Thank you.

Benjamin Peiron:Well, on that note, well, we thank you very much, Robert, Carole, for participating to this panel and wishing you a good continuation for the conference.

Cathal Kyle:Thank you.

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