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Battle lines are being drawn: EADS + Airlines versus Rolls Royce

November 5, 2010

After yesterdays midair failure of a Trent 900 engine on a Qantas Airways A 380 flight the German press today are unanimous in blaming Rolls Royce (and thereby protecting Lufthansa and EADS). Qantas is also positioning itself and questioning Rolls Royce’s engine design.

Der Spiegel writes:

‘Airbus and Qantas Are Victims’ of A380 Engine Problem

While the incident may be damaging to Airbus, German editorialists argue that the Rolls-Royce engine is to blame.

But I think the airlines (Qantas, Lufthansa and Singapore Airlines) and the manufacturer of the Airbus A380 (EADS) cannot so easily paint themselves as victims and absolve themselves of all responsibility. It is the airlines who pressurise the engine makers and the aircraft manufacturers for never ending improvements in fuel efficiency. EADS can ill-afford to market a plane which does not have more than one engine supplier.

Der Spiegel continues:

Qantas Airways CEO Alan Joyce said on Friday that it did not seem to be a maintenance problem. “This is an engine issue and the engines have been maintained by Rolls-Royce since they were installed on the aircraft,” he told a news conference in Sydney. Joyce confirmed that the engine failure had caused damage to the plane’s wing. “That was part of what made this a significant engine failure,” he said.

The center-left Süddeutsche Zeitung writes:

“The problem is not that one of the Airbus A380’s engines failed. … What makes the emergency landing such a serious incident is that parts of the debris damaged the wing. … Rolls-Royce, the manufacturer of the engines, now has to ensure that such a thing never happens again, even if this means that the A380 is grounded for a time.”

“Airplane manufacturer Airbus, as well as the airline Qantas, are the victims here. Yet the failed engine will not do their image much good, following the dramatic images of the damaged aircraft that were seen around the world on Thursday.”

“The A380 was two years late coming to the market. The delay cost the company billions, caused an internal revolution and undermined confidence. … Yet, despite all the criticism, one must not forget that the airlines and passengers praise the aircraft: A380 flights, despite somewhat higher ticket prices, are always full.”

The Financial Times Deutschland writes:

“The engine blow-out on the Airbus A380 that forced the Qantas flight to conduct an emergency landing on Thursday is above all a problem for the engine manufacturer Rolls-Royce.”

“The disaster highlights the dilemma that the entire industry faces. … The necessary and correct demand to make modern aircraft with lower emissions is taking its toll.”

“No one would imply that the testing was consciously sloppy. However, it is obvious that when it comes to a flagship aircraft like the A380 there is immense pressure to get it on the runway as soon as possible. Those who demand more tests do not make any friends. The close call shows, however, how much is at stake.”

In the meantime Singapore Airlines has resumed A380 flights following checks of the aircraft’s engines, despite the head of Qantas saying a design fault may be to blame for yesterday’s engine failure on one of the Australian carrier’s A380s.

Shares of Rolls-Royce Group PLC continued to get battered by the market, losing another 2.7% over fallout from the midair failure of one of its engines on a Qantas Airways flight. They lost 3.3% in value yesterday.


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Posted in Aviation, Business, Engineering, Media, Technology | Comments Off on Battle lines are being drawn: EADS + Airlines versus Rolls Royce

Trent 900 vs. GP7200: Competitive pressures getting too hot?

November 5, 2010

There are only two engines suitable for the A 380 – Rolls Royce’s  Trent 900 and its rival the GP7200 manufactured by the General Electric/Pratt & Whitney Engine Alliance.

Nov. 2012- Image updated: from http://www.enginealliance.com/engine_features.html

Engine Alliance GP7200: image http://www.enginealliance.com/

It is highly unlikely that the aircraft industry would ever allow a situation to arise where there was only one supplier of engines. A monopoly is something to be avoided at all costs in any purchaser / supplier arrangement. It follows that for the airlines and the airplane manufacturers that the market (in this case the number of A 380s) be split between the two suppliers such that:

  1. neither supplier gains a dominant market position such that it can dictate the engine price,
  2. each supplier has a large enough market share and sufficient earnings such that their continuation in the market is not jeopardised (for the sake of spares, service, development of new engines and, above all, to avoid a monopoly situation arising by the exit of one supplier).

Trent 900 cut away: epower-propulsion.com

If either engine supplier has an uncompetitive product – whether for price or for performance – the monopoly becomes inevitable and immediately jeopardises the continuation of the market itself. So if only one engine supplier was available, the A 380 itself becomes non-viable.

In this restricted market place, it would seem, a win-win situation should not be impossible. Yet the competition between the protagonists is intense and the technology boundaries are under constant pressure as each supplier tries to gain a competitive edge over the other. Each engine manufacturer knows that he will not be permitted to gain a market-dominant position. But the costs of engine development are so high that every little gain in market share is hotly pursued.

For the airline industry, fuel cost is a dominating cost element and even minute gains in fuel efficiency are well worth pursuing. The intense competition between the two engines for the A 380, is centred around fuel efficiency. The GP7200 is generally thought to have a 1% advantage. It also seems to be the strategy for the U.S. engine makers to constantly maintain this performance gap over their competitor as each tries to improve performance. The Trent 900 has a slightly higher thrust(about 3%) and prices are, of course, a closely guarded secret.

For fuel efficiency therefore it seems that Rolls Royce is playing catch-up. To get a decisive advantage each new improvement must be sufficient to go past the competitor – who in turn will introduce improvements to regain his advantage. But fuel efficiency is not easily gained.

  • Higher temperatures can give improved efficiency but lead to the need for new materials to handle the higher stresses at the higher temperatures,
  • reduced clearances can reduce leakage losses and increase efficiency but require increased manufacturing accuracy and can increase the possibilities of wear
  • more complex designs are devised where component positions can be changed during operation to optimise efficiency at different operating conditions but which increase the possibility of unwanted contacts within the engine.

That this competitive pressure leads to innovation is – I think – beyond doubt. But the Trent 1000 has had an “uncontained” explosion on the test bed. The Trent 900 has had one in flight.

The question that comes to mind is whether the competitive pressure and the quest for fuel efficiency has led to “too much – too quickly” for the Trent ?

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Posted in Aviation, Business, Engineering, Technology | 9 Comments »

Coal still king as green power IPO struggles

November 4, 2010

Black vs. green. Wikimedia commons

“Green” is no longer as fashionable and trendy as it used to be. The slime of Climategate has had its impact as has the arrogance of the alarmists. But if the hard-headed world of business investments is anything to go by it seems “black” is begining to trump “green”. An earlier post described the huge success that Coal India’s IPO had. This needs to be contrasted with the tepid response to the the IPO for ENEL Green Power which also listed today.

http://www.reuters.com/article/idUSTRE6A31RH20101104

Waning investor interest in clean energy contrasted sharply with enthusiasm for coal on Thursday as shares in Enel Green Power fell on their debut while Coal India’s soared.

Enel Green Power (EGP), which generates clean energy from hydro and geothermal to wind and solar and is Europe’s biggest listing since 2008, dropped over 4 percent on its debut despite a cut price offered to lure investors.

Shares of Coal India, a similar sized share sale at around $3.5 billion, gained 40 percent in Mumbai on the same day.

“The struggle for renewables reflects the fact that they are quite capital-intensive, in a world that is capital-constrained, and face regulatory uncertainty,” Robert Clover, alternative energy equity analyst at HSBC said.

India, which has the world’s fifth biggest coal reserves after the United States, Russia, China and Australia, is riding an economic boom that is thirsty for fuel.

“Fundamentally, Coal India is a structural play on India’s rising energy demand,” said Binay Chandgothia, chief investment officer at Principal Global Investors in Hong Kong.

TOP EUROPEAN LISTING

Europe has seen a resurgence in public offerings as equity markets trade around 6-month highs, and many European companies have managed to get their initial public offerings toward the upper end of their price guidance.

But EGP’s parent company Enel, an Italian power giant that also controls Spain’s Endesa, struggled to woo professional investors for the sale of up to a third of its renewable unit against a backdrop of underperforming green energy stocks

It was forced to cut the price to 1.6 euros a share from a price range of 1.8-2.1 euros, and early guidance of 1.8-2.4 euros, raising only 2.5 billion euros ($3.5 billion) compared with the 3 billion euros it had wanted to help reduce debt.

Institutional investors had raised concerns over EGP’s lower growth rate versus peers, its lack of a track record and uncertainty on green energy incentives, despite its wider geographical footprint and technology mix.

The Italian power giant, which also controls Spanish utility Endesa, eventually managed to get the deal away thanks to interest from retail investors, but it will raise less than its 3 billion euro ($4.2 billion) target, key to cut debt.

Even after the price cut, shares fell over four percent both in Milan and Madrid on the first day of trading.

“”In any jumbo IPO you want it to trade up so that you can say the market has a good feeling about it, but I don’t think a lot of people expected this to trade well given how much went to retail,” said a source close to the deal.

By contrast, an attractive IPO valuation for India’s dominant coal miner spurred demand from investors who applied for more than 15 times the number of shares on offer in the country’s largest-ever IPO. Enel Green Power IPO was just 1.1 times covered.

The Coal India listing comes at a time of record foreign fund inflows into Indian stocks and in one of the best years for IPO fundraisings for the country.

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Posted in Business, Economy, Energy, India, Investing, Italy | Comments Off on Coal still king as green power IPO struggles

Rolls Royce and EADS shares take a beating

November 4, 2010

London South East reports on the aftermath of Qantas grounding its A 380 fleet and Singapore Airlines delaying all A 380 flights for extra checks of the their Trent 900 engines:

Shares in Rolls-Royce fall 3.2 percent after Qantas Airways suspends flights of its Airbus A380 fleet after the failure of a Rolls Trent 900 engines triggers an emergency landing in Singapore.

Shares in Airbus parent EADS were 3.7 percent down after what is one of the most serious incidents for the world’s largest passenger plane in three years of commercial flight.

‘If it is a design fault on the engines it would be embarrassing because Rolls is the number two engine manufacturer in the world and has a fantastic reputation,’ says BGC Partners senior strategist Howard Wheeldon.

‘These type of things take a fairly lengthy time to investigate,’ he said, adding that ‘it will be costly to address those issues’ if it is a serious fault with the engine.

The intense competition between the two engines for the A 380, the Trent 900 and its rival the GP7200 manufactured by the General Electric/Pratt & Whitney Engine Alliance is centred around fuel efficiency. The GP7200 is generally thought to have a 1% advantage. It also seems to be the strategy for the U.S. engine makers to constantly maintain this performance gap over their competitor as each tries to improve performance.

From Aviation Week:

Of course Rolls-Royce disputes the existence of that fuel-burn performance lead and says its improvement plan for the Trent 900EP (enhanced performance) will lead to more substantial efficiency modifications by around 2013. Still in the early stages, these plans will incorporate advanced technology from the most recent iterations of the Boeing 787’s Trent 1000 and the Trent XWB for the A350.

The core of the package will be the introduction of elliptical leading-edge modifications throughout the entire compression system, including improved high- and intermediate-pressure (HP/IP) compressor blades and vanes. The modification, which also applies to the fan and outlet guide vanes, improves flow interactions by altering boundary layer thickness and increasing laminar flow. The changes are similar to elliptical leading-edge modifications made to the HP compressor introduced recently to International Aero Engines’ V2500 in the SelectOne program, as well as the Trent 700EP. The elliptical feature also is part of the baseline fan design for the Trent 1000 and XWB.

“The package includes tweaks to the air management system, and that also affects fuel burn,” says Crawford. “We’re very confident in being able to achieve the 1% post-2011. The program is already defined, the detailed design is being done and bits are in manufacture. Testing is next year and will cover maturity modifications to upgrade areas we’ve seen on early engines.” These include “potential ‘wear out’ areas we want to address, such as seal segments and optimized tip clearance.”

As with the Trent 700EP, the 900EP enhancement will be offered as an upgrade kit for existing engines. “The modifications are all optional and are completely interchangeable. You will get the full 1% if you install all the parts,” says Richard Keen, Airbus programs marketing director. “From 2011 this will be the production standard for all new Trent 900 orders,” he adds.

With the problems being experienced by the Trent 900 and also with the Trent 1000 for Boeing’s Dreamliner, one obvious question is whether the cut-throat competition for fuel efficiency is leading to a trade-off between efficiency on the one hand and reductions in clearances and compromises on wear considerations on the other.

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Posted in Aviation, Business, Engineering, Technology | 1 Comment »

Sexy Coal India shares list with an opening gain of 32%

November 4, 2010

 

Bombay Stock Exchange

BSE: Image via Wikipedia

 

The Coal India IPO where the Government of India divested 10% of its shares in the worlds largest coal producer was massively oversubscribed. The share price was set at 245 Rs at the top of its offer range of 225 – 245 Rupees.

The shares were listed today and the price immediately zoomed to 324 Rs showing an opening gain of 32%.

The Economic Times reports:

The world’s largest coal producer today listed on the bourses with a handsome premium and zoomed over 32 per cent, over its IPO issue price of Rs 245 per share, to hit a high of Rs 324.75 in the first hour of trade on the Bombay Stock Exchange.

Partha S. Bhattacharyya, Chairman & MD, Coal India Limited says, “Many records have been broken and many peaks have been scaled. For the officials intensely involved in the process, the feeling largely resembles to that of a mother who has just given birth to a child. Indeed it is a moment of birth in the capital market that brings in huge responsibility on the management to rear the newborn baby into a strong and mature turnout by living upto the expectations of the investing community consistently.”

Prasad Baji, Senior VP, Edelweiss says, “Technically Coal India’s valuation is running not just as a coal company but since its model is different, it is selling in India where there is an assured offtake and its pricing will never see a price tag, therefore, it is not typically a commodity play as compared to other coal companies.

Investors included Janus Capital, Fidelity, Franklin Templeton and Capital International. Domestic investors included State Bank of India , ICICI Bank and Life Insurance Corp. Maximum subscription was in the high net worth category with subscription of around 25 times. Amit Aggrawal, a financial services executive who borrowed Rs 90 million to bid for Coal India shares, says that he would take some profits off the table at Rs 320 a share. “I may hold back some shares and sell them at a later stage,” says Mr Aggrawal.

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Posted in Business, Energy, India, Investing | 1 Comment »

Manufacturing in India and China powers ahead and driven by domestic consumption

November 2, 2010

Reuters reports on the latest PMI (Purchasing Managers Index) numbers:

 

image: whatsinbiz.wordpress.com

 

Manufacturing growth in India and China powered ahead last month and U.S. industry also picked up steam, according to data on Monday that suggested the global economic recovery may be on firmer footing.

China’s official purchasing managers’ index (PMI) rose to a six-month high in October of 54.7 from 53.8 in September, easily beating market forecasts of 52.9.

The strength of China’s official PMI was especially striking because the index normally heads down in October, said Yu Song and Helen Qiao, economists at Goldman Sachs. “The fact that the PMI went up despite this seasonal bias suggests real activity growth was likely to have been exceedingly strong in October,” they said in a note. The survey showed manufacturers continued to run down stocks last month to meet rising domestic orders. “These readings bode well for a recovery of output in coming months,” Ting Lu at Bank of America Merrill Lynch told clients. A companion PMI produced by Markit for HSBC painted a similar picture, rising to 54.8 from 52.9 — one of the largest month-on-month rises in the history of the survey.

Manufacturing in India — Asia’s other emerging powerhouse — put in a performance every bit as strong as China’s. India’s manufacturing was supported by strong domestic consumption. The HSBC Markit PMI for India, Asia’s third-largest economy, rose to 57.2 in October from 55.1 in September.

Mirroring a report from Japan last Friday, South Korean manufacturing shrank for the second month in a row as the HSBC/Markit PMI fell to 46.75 in October — the lowest since February 2009 — from 48.8 in September.

An unexpected rise in Britain’s manufacturing index to 54.9 will increase doubts that the Bank of England will soon embark on more quantitative easing. It followed official data last week that showed the UK economy grew at a surprisingly strong rate of 0.8 percent in the third quarter from the second.

Equivalent surveys from Europe are due on Tuesday, but Britain’s PMI showed manufacturing growth picked up pace last month for the first time since March.

Flash October figures for Germany, released last month, also gave a strong reading although much of Europe remains mired in debt and poised to cut public spending to deal with it — a move that will crimp economic growth going forward.

It seems that the Chinese and Indian motors are being fuelled primarily by domestic consumption which continues to grow strongly. Perhaps this is not so surprising considering that the growth of the consuming “middle-class” in India and China is probably the fastest it has ever been. In India this growth is probably twice the growth of the total population (and there is some belief that population growth rates drop sharply for people as they enter the “consuming middle-class”).

Japanese manufacturing is being hampered by the strong Yen and Korean manufacturing is yet to pick up. In Europe, the weak Euro is driving German exports and UK manufacturing is showing very strong. The low Dollar value may be beginning to help US exports as well.

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Nuclear renaissance: Vietnam gets nuclear reactors from Russia and Japan, Japan gets access to rare earths

November 1, 2010

Now Vietnam is going nuclear with its first 2 plants coming from Russia and the next 2 from Japan. Unexploited rare earth deposits in Vietnam are receiving a great deal of attention from countries hit by the Chinese monopoly on rare earth supplies.

Chosun Ilbo reports

Russian President Dmitry Medvedev and his Vietnamese counterpart Nguyen Minh Triet have called for increased trade and investment between their two countries. The two leaders met Sunday in Hanoi to seal a nuclear plant construction agreement and other bilateral deals. Under the $5 billion agreement, Russia will build Vietnam’s first nuclear power plant. Construction is expected to start in 2014.

Asahi Shimbun reports on a deal where Japan  gets access to the rare earth resources in Vietnam in exchange for two 1000 MW nuclear reactors worth 14.4 billion $ to the Japanese nuclear construction industry.

The nuclear reactor construction agreement, worth an estimated 1 trillion yen ($14.4 billion), gives the green light for Japanese companies to build nuclear facilities in an emerging nation’s fledgling nuclear industry for the first time.

The two reactors will be built in the southeastern province of Ninh Thuan and are scheduled to start operations in 2021. They will have a combined output of 2 gigawatts. Vietnam plans to build 14 nuclear reactors by 2030. Construction deals for four reactors in Ninh Thuan province have so far been agreed upon, including the two to be awarded to Japan. Russia won the rights to build two reactors in December last year.

Japan, which has been trying to use infrastructure exports as a springboard for its flagging economy, began bidding for the nuclear reactor project earlier this year. In August, a delegation of Japanese business leaders led by Japan’s industry minister visited Vietnam to lobby officials. They offered financial assistance and training for Vietnamese people.

Visiting Prime Minister Naoto Kan and Vietnamese Premier Nguyen Tan Dung also agreed on joint development of deposits in Vietnam of rare earth elements, part of a Japanese drive to reduce its reliance on China for supplies of the vital raw materials, which have been obstructed following a diplomatic dispute with Beijing.

A joint team of Japanese and Vietnamese businesses is currently applying for rare earth mining rights. The Japan Oil, Gas and Metals National Corp. discovered rare earth veins in the northern Lai Chau province about 10 years ago. Toyota Tsusho Corp., Sojitz Corp., and an arm of a Vietnamese public corporation have been preparing plans for joint development.

The underground reserves are believed to be capable of yielding 3,000 tons of rare earths a year, about 10 percent of Japan’s current annual requirement.

The Japanese government has offered to provide expertise and training in surveying, excavation, and processing the rare earth metals to Vietnam. Japan is also likely to dip into official development assistance to help the country build infrastructure such as roads and water supply near the mines. In a separate project, Sumitomo Corp. is looking into mining rare earths in Yen Bai province in the north of Vietnam.

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Posted in Business, Energy, Japan, Nuclear Power, Russia, Vietnam | Comments Off on Nuclear renaissance: Vietnam gets nuclear reactors from Russia and Japan, Japan gets access to rare earths

Following fiasco in Spain, electric car sales slump in the UK

October 23, 2010

 

G-Wiz Electric Vehicle parked outside 37 Savil...

G-Wiz Electric Car:Image via Wikipedia

 

In August it was apparent that Spain’s much-publicized plans to put thousands of electric cars on the road as part of a drive for a greener economy were way off target, with only 16 sold so far compared to the 2000 target for this year.

The Guardian reported today that

Sales of new electric cars in the UK plummeted by nearly 90% in 2009 compared with their peak in 2007, according to motoring trade association figures released this week. Just 55 of the green cars – whose fans include Boris Johnson, Jonathan Ross and Jade Jagger – were registered in 2009, in contrast to 397 in 2007, says the Society of Motor Manufacturers and Traders.

The huge fall is a blow to UK efforts to meet tough carbon emission cut targets in a decade, and comes just months before the government introduces a subsidy of up to £5,000 off new electric cars.

Nearly half of the electric vehicles sold last year were the tiny G-Wiz car. The latest modelhas a top speed of 50mph and a range of 48 miles between charges.

In January, the coalition will begin offering up to £5,000 towards the price of a series of newly launched electric cars, as part of a subsidy announced by the former Labour government. The Department for Transport (DfT) anticipates around 8,600 of the cars will be sold in the first year of the scheme. The government has so far committed £43m for the scheme to run until March 2012, with a review taking place in January 2012, but in yesterday’s spending review it talked of “supporting consumer incentives for electric and other low-emission cars throughout the life of this parliament,” suggesting the subsidy would continue after March 2012 though possibly at a lower rate.

In Spain the Industry Ministry’s plan was to have 2,000 electric cars on the road by the end of 2010 and 20,000 electric and hybrid vehicles operating the following year.

I cannot help concluding that most of these highly artificial “green” subsidies – whether for cars or for solar energy or  for wind turbines – are badly thought through, are chasing a mirage and will be counter-productive.

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Posted in Business, Energy, Environment, UK | Comments Off on Following fiasco in Spain, electric car sales slump in the UK

Coal India IPO: Coal becomes sexy again

October 23, 2010

Coal India Limited (CIL) is an Indian state-owned coal company headquartered in Kolkata, West Bengal, India and the world’s largest coal miner with revenue exceeding Rs 45,797 Cr or $10.3 billion U.S. (FY2008-09). It is owned entirely by the Union Government of India, under the administrative control of the Ministry of Coal.

 

Coal India Ltd.: Reuters graphic/ Christine Chan

 

As part of its divestment programme to raise about 9 Billion$, the Government of India has put up  10% of Coal India Ltd. in an IPO conducted this week. If priced at the top of its 225-245 rupee price range, the IPO would swell Government coffers by about 3.5 Billion$ and Coal India would have a market value of $35 billion, ranking it seventh among listed Indian firms. As the Economic Times puts it “The response to the Coal India (CIL) initial public offering (IPO) that finally closed early Friday morning, after lead managers were forced to extend the time limit to deal with a deluge of applications, has been phenomenal. Against the issue amount of Rs 150 billion, bids came in for Rs 2.54 trillion and the final total could be higher.
While retail investors seem to have been relatively circumspect — the retail portion was over-subscribed only 2.32 times — and employees even more so — the employee portion was not fully subscribed — both institutional and highnet-worth buyers seem to have participated with gusto.”

 

coal mine in India

Open cast coal mine in India: Image via Wikipedia

 

While a portion of the shares were held for employees the mining unions discouraged their members from applying. But with the opening price when the shares list on November 4th expected to be around Rs 300 – 320 there is a backlash among the union members who are going to have lost out. The institutional portion was oversubscribed 25 times.

Coal India has reserves of about 277 billion tonnes of which around 60 billions tonnes are currently recoverable by open cast mining. Current annual production is about 400 million tonnes and expected to rise to about 650 million tonnes in 5 years. India currently imports about 100 million tonnes of high grade coal mainly for steel making. Coal India has a major investment programme ongoing for the installation of coal washeries to improve the notoriously poor quality (high levels of abrasive ash) of Indian coals. Most Indian coals have very low values of Sulphur content so that sulphur dioxide emission is not a major concern.

The enormous interest of the institutional investors – both from within and from outside India – is a healthy indicator that simple business considerations rather than pseudo-environmentalism is still the governing factor.

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Posted in Business, Economy, Energy, India, Investing | 1 Comment »

Why Forecasts need to be wrong

October 7, 2010

 

The Lorenz attractor is an example of a non-li...

Image via Wikipedia

 

This started yesterday as a short comment on the changing forecasts by Hathaway on solar activity in Solar Cycle 24 but has now become something else.

As clarification, I  distinguish here between prophecies and forecasts  where:

  • I take prophecies to be a promise about the future  based primarily on faith and made by prophets , witchdoctors, soothsayers and politicians such as “You will be doomed to eternal damnation if you don’t do as I say”,
  • I take “forecasts” to be an estimate of future conditions based on known data with the use of calculations, logic, judgement, some intuition and even some faith. They are extrapolations of historical conditions to anticipate – and thereby plan for -future conditions.

(more…)

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Posted in Behaviour, Business, Climate, Management, Philosophy, Science, Solar science | Comments Off on Why Forecasts need to be wrong

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