Boeing leans toward new 737, not Re-Engine: analyst

Boeing is leaning toward a new airplane to replace the 737 rather than proceeding with a re-engining program, an aerospace analyst wrote in a report issued today.

Richard Safran of the boutique Buckingham Research came away from Boeing Capital Corp’s annual investor’s update with an analysis that is a potentially paradigm-shifting conclusion that Boeing will forget about the widely-assumed plan to re-engine the 737 to meet an expected decision by Airbus to re-engine the A320 family–itself a decision largely driven by competition from Bombardier’s CSeries.

Safran’s report also cites “channel checks” with unidentified airlines, lessors and bankers to reach his conclusion that Boeing is likely to proceed with a new airplane. We know from our own conversations that key Boeing customers want a new airplane rather than a re-engined aircraft, so Safran’s report is consistent with what we are hearing (or vice versa, depending on your viewpoint).

Here is what Safran said:

At the conference, BA discussed its narrowbody strategy and the 737 upgrade. Despite BA’s discussion, we think current thinking could be leaning towards a new airplane. If BA opts for a new design, we would view BA stock more favorably as that could defer the substantive R&D and CAPEX spending on a narrowbody product until after 2013 (assuming a 2019-2020 service entry).  That improves BA’s earnings and cash flow in 2011-2013 when aircraft deliveries and earnings are projected to grow.

The possible Airbus response to a new BA narrowbody

Foregoing a 737 upgrade could put BA at a short-term disadvantage should Airbus proceed with an A320 upgrade that enters service in 2015. However, if BA opts for a new narrowbody, Airbus will likely scrap its upgrade and proceed with its own new airplane. Despite severe cash flow problems caused by the A380, A400M, and A350 R&D, we believe Airbus will be able to finance an A320 replacement. Despite the WTO findings in the US case against illegal subsidies to Airbus, Airbus will seek Reimbursable Launch Investment (RLI) for an A320 replacement program. Any new Airbus program would be on a similar timeline to a new BA program, eliminating any perceived near-term disadvantage to BA and likely maintaining the status quo.

Back to our take:

Boeing CEO Jim McNerney hinted on the first quarter earnings call that a new airplane seemed to be gaining favor at Boeing.

If this turns out to be the decision, Boeing will be rolling the dice on several levels:

  • After the disastrous design-and-production process for the 787, with the billions of dollars of cost overruns and customer penalties, few believed Boeing “had the stomach” for a new airplane program at this time and many believed the issue of how to respond to the Airbus 350 threat to the 777 was the more pressing need in any event. To proceed with a new 737 is a gutsy move.
  • Boeing is gambling that Airbus will be committed to an A320RE program and a new 737 will leave Airbus at a competitive disadvantage;
  • Boeing is gambling the WTO decision on illegal subsidies to Airbus will preclude the cash-strapped company from proceeding with a timely A320 replacement; (Safran addressed this in his note);
  • Boeing is gambling that enough new technology will be available before the 2020 decade to make a new 737 a viable produce; and
  • Boeing is gambling the open rotor engine, which as of now is forecast to maybe be ready in the mid-2020 decade, isn’t going to be the answer (and we know from talking to non-Boeing engineers that there is a belief this may well be the case).

There are other factors, of course, not the least of which Boeing is reasonably convinced at this stage that there isn’t yet a business case for an RE program.

We also know from our discussions that there is a major split in Airbus whether a business case exists for the A320RE, with CEO Thomas Enders among the biggest skeptics. EADS CEO Louis Gallois seems to be more favorably disposed toward an A320RE and Airbus’ commercial chief, John Leahy, also seems to be more favorably disposed toward an RE than he was two years ago.

(Parenthetically, Airbus has its annual Innovation Days technical briefing with reporters next week and we’ll be there. Clearly this will be a topic of discussion.)

If Boeing proceeds with a new airplane, this will upend all the previous conventional thinking for the current decade and assumptions that a new airplane would not be forthcoming until the second half of the next decade. Airbus will have no choice but to respond; Bombardier’s CSeries forecasts may be dramatically upended; Embraer, which to now has largely been left out of the conversation, vexed as it is by what to do in response to the CSeries, ponders its product strategy; and the emerging competition from China and Russia with their respective C919 and MS-21 airplanes will be rocked back by far better product offerings from Boeing (and, inevitably, Airbus).

24 comments on “Boeing leans toward new 737, not Re-Engine: analyst

  1. Hard to believe Boeing would gamble on an all new 737 replacement near term.
    First, the engines aren’t there now to support a new aircraft that would be competitive for a 20 – 30 year production run, which has to be an objective for a new aircraft.
    Even if you discount the UDF (and I tend to) the new Pratt GTF and CFM LEAP-X have very significant technological and reliability risks. It is better to run that risk on an interim aircraft and develop the engines in service so their future variants can better support a new aircraft.
    Then also, major structural composite construction on the 787 (and A350) is in its infancy. There are lots of lessons to be learned. Boeing and AI need time and service experience to learn those lessons before attempting to apply them to the more difficult design case of the 150 – 200 seater.
    About the only reason I can see that Boeing would rush to prematurely offer a new aircraft would be that they have found their best effort at a re-engined 737 falls short of being competitive with the A320RE. Hard to believe that would be so.

  2. Airbus is not going to be in a bad position even if they re-engine. Any new powerplant will be available to both Airbus and Boeing.

    If they re-engine it will give them a few years to respond to the 737 and make improvements over a design that will be with them for a few decades.

    Airbus’s problem will be the perception of buying new vs old technology, a lesson that they learned with the A350 before they switched to the XWB.

  3. There just is no rush or need for Boeing to try to respond to Airbus decision to re engine.

    Once Boeing has the 787 production under its belt it can turn its attention to this new clean sheet 737 and create a plane that is truly competitive and compelling, if the circumstances call for it.

  4. “Then also, major structural composite construction on the 787 (and A350) is in its infancy. There are lots of lessons to be learned.”

    Don’t assume that the 737 replacement will be all-composite. Unless the cost of composites comes down significantly in the years to come, next-generation aluminium alloys can compete with CFRP on a 737-sized airplane.

  5. Just a personal opinion from an old Pan Am engineer, but I have had my fill of aluminum airplanes, and cost be damned.
    The new aluminum alloys don’t answer for corrosion, shear web wrinkles, dents and dings and scab patches.
    I believe structural maintenance on a composite structure will be an order of magnitude less than on an aluminum one, no matter what the kind of aluminum.
    The challenge here is to get the weight out of smaller composite structure, more so than the cost of production – and to a lesser extent there is concern with the method of repair.
    That’s why Boeing and AI need some in-service experience with the best they can do today before they can do their best on a smaller composite design.

    • General opinion seems to be that NB aircraft don’t profit from
      composites as much as bigger structures.
      Barrel construction further limits cocuring skin with ancillary
      structure like the main frames, door and window framing
      and all those other small construction elements that could
      effectively leverage loosing weight by being able to ommit
      fasteners and the constructive means to fit them.
      ( anything that goes beyond an “extrudable” profile. is a
      no, no in Boeings barrel production process ).

      And I don’t think that Boeing can preemt the competition
      with overpromises and unachievable early delivery in the
      Microsoft way for a second time as they managed with
      the “Dreamliner”.

      On (fossil equivalent) Biofuels:
      Every engine manufacturer has been busy on that topic.
      Airframers have done testflights in the years gone by.
      I don’t see Boeing in a leading position in that respect.

    • Fred . . . can you imagine how you’d repair the lower lobe after a gear-up landing or replace 15 feet of wing panel after hitting the terminal. Swap the wing?

      Truthful people in Product Support are very concerned. One of our composite gurus calls the 787 “An Impossible Dream”.

      Glad to “hear you voice”! Too many of our era are dying. At 78 I only have 20 years to go!

      Best regards,

      Jim Helms

  6. I believe that Boeing’s gamble will be based on biofuels. Even if the technology for traditional gains in fuel efficiency are not available in the decade after this one, Boeing may advertise an optimized engine that can burn biofuels (and thus advertise a carbon neutral cycle since they’re developing technology to make biofuels from algae and thus absorb CO2 in the atmosphere while also not compete with the food supply). They probably have a few more cards up their sleeves too.

  7. The open rotor is effectively dead, dead, dead. It has been ever since the UHB/UDF flight tests in the late 80s due to noise, FOD susceptibility, and fundamental integration issues. Well aware of that, RR nevrtheless identified the potential of the topic as a vehicle to tap into EU R&T funding. Everybody else happily joined the bandwagon as a smart excuse for not investing in a new generation of airframes and engines right now. The open rotor also came in handy to spread FUD towards the CSeries and the GTF becoming obsolescent soon after EIS. Now that it looks like P&W can really pull it off and the CSeries is gaining credibility as a true NB challenger with a 2013 EIS, the lumbering elephants are scrambling for LEAP-X…

  8. That’s not a competitive advantage to either of the OEMs. Biofuels from Algae are widely researched now, and the engines are being developed by separate companies. So this would not be a card up anyone’s sleeve. It also does not address the efficiency argument, it only adresses the carbon cost argument. The two are related, in that a less efficient engine that can burn biofuels will not reduce cost to the airline/a more efficient engine that can not burn biofuels will only address part of the carbon cost. So you need to find a highly efficient engine that can burn biofuels. Unless Boeing gets into the engine business, the engine manufacturer will offer the technology to both OEMs. They’d be stupid not to, considering the volumes we are talking about (this is not the 777 market).

  9. There’s some spin going on here. A decision to go for a new design later is a decision not do anything now.

  10. FF2: You are correct. The decision is really to postpone any thoughts about re engining and to explore the future possibility of a new design as technologies mature .

    The A 320 will proceed with a new engine because it can more easily adapt to it. Further down the road, however, a clean sheet 737 would be a much more improved model

  11. My opinion is tha Boeing (and Airbus for that matter) are more concerned with the C919 and MS-21 than they are C-Series. Look at the numbers. Clearly the “sweet spot” in historical single-aisle deliveries has been in payload/range area of 150-160 seats/3000nm. C-Series is not currently a threat to this segment of the market and I don’t believe they intend to compete in this segment. Hoever, COMAC and the Russians are clearly going after this market segment. So I don’t believe one bit that C-Series is driving the Airbus and Boeing single-aisle strategy.

  12. Perhaps Boeing are thinking of using BWB for its 737 replacement. They have just finished their testing with NASA of their BWB scale model. In the past they have talked of a twin asile replacesmeent, which would lend itself to BWB. They claim to have contracts with cargo carriers to work on a large BWB freighter design. If Boeing can get the increased efficiencies out of BWB which would justify an all new plane, then they will not need those efficiences from engines, which seem unlikely at this point. Most of all BWB would give Boeing a leg up not only againt AB but also COMAC, the Russians and other compesitors. They could say to 737 customers, “Don’t buy the re-engined 320s because withnin 5 years we will have this game changer ready for you you. Instead, buy our inexpesive, incrementally imnproved 737s until our BWB bomb arrives,” esssentially the same thing they are saying about the A350-1000 (‘Don’t buy it because we will be replance the 777 soon with a game changer. Buy our improved 777 instead until then”). I have always thought that Boeing wanted to replace the 777 and 747 with BWB. By doing it in a much smalller scale with the 737 replacement they get the experience they need to do that .

    • Christopher has an interesting approach and one that Rudy Hillinga, an occasional commenter and retired Boeing sales director, has long advocated with respect to the 777-747 categories.

      The BWB is a very interesting concept and highly fuel efficient. But Boeing officials are very split over the idea. Some believe that passengers will not accept the concept because there are no windows. We believe that with today’s technology, seat-TV monitors and external cameras such as appear on the A380 and A330/A340 can mitigate this. Additionally, for those who sit in the center section of a wide-body airplane, windows are largely irrelevant now.

      The other challenge Boeing sees with the BWB is that unlike your tube-and-wing design, the BWB does not lend itself to stretching. To up-gauge a new airplane is needed.

      Finally, there is the—-WTO. The BWB is being designed with a large contribution of NASA funds. The EU and Airbus fully expect Boeing to get nailed for illegally benefiting from NASA research funding when the WTO decision comes out in June. As long as the BWB application is for the military, which at this stage seems to be the case, WTO rules don’t apply. If a commercial application is forthcoming, the forthcoming WTO ruling could well complicate things. A new complaint would have to be filed, since the BWB isn’t part of the present complaint, but the precedent would be there.

      • BWB is imho a distraction.

        The requirements for a large BWB body
        and an efficlent pressure vessel are
        difficult to combine.
        Additionally a (large) BWB body is due to its structural height a
        very stiff plane. (Aero)Dynamic forces will
        probably result in pronounced peaking of stresses
        requiring a more massive construction.

        Question on the side:
        What does Airbus champion as future (sales?) tech?

        Both airframers are currently not at a level of
        competency that they would imho need to attain to
        have adequate tooling at hand to leverage CFRP
        in a CFRP way of construction. too much CFRP used
        in a metal replacement type constuction.

    • I was a BWB fan having followed it since my post USAF training at The original Northrup Institute in Hawthorne (spring of 153) until some asked . . . Can you imagine the rolling motion when you are in seat 15P?

      Go with the freighter version. Ill take the center cockpit jump seat!

      Pragmatic Jim

    • Scott Doesn’t the WTO issue depend on the terms of the contract betweem NASA and Boeing for the BWB research? If the contract is arms length with each party having responsibilites, benefits, rights and obligations typical of aviation research agreements, so that the contract is not a ruse for improper gov’t aid, what is the problem? I can’t believe Boeing would have been foolish enough to enter into a contract that would bar their building BWBs commercially based on the NASA research under WTO rules. I seem to recall a while back that Boeintg announced that they had contracted with unnamed cargo haulers to do preliminary work on a BWB freighter. Perhaps that agreement is an indication that Boeing does not feel threatened by the WTO re commercial BWB development.

  13. A new 737 announcement will kill the current production (go back to the introduction of the 737-300. Fifteen 737-200s died . . . we know because we bought some of the new JT8D-15 engines for 727 project!)

    JIM HELMS

  14. Pingback: Re-engine, new or do nothing? « Leeham News and Comment

  15. Isn’t “open-rotor” a whole different airframe mating situation, due different airflow? The last incarnation, flight tested, called “prop-fan” IIRC, was flight tested on rear-engine installations. So who has a rear-engine airplane design? Boeing, if it kept the tooling for the MD-8x/9x/717. I read that the 717 works quite well for the airlines currently operating it.
    Nothing new about re-engining of course, KC-135s have been at least once (jet>fan>modern fan), some 707s are flying PW2xx engines (commercial tankers, military 707s may be flying CFM-56s), DC-8 60 series to 70 series re-engining was successful, and further back Boeing switched 707s from jet to fan (the B suffix, including an inboard wing glove for retrofit such as on 707-138s to -138Bs). However all those installations were tall-pylon compared to 737.

    A question is how much benefit in manufacturing and maintenance cost, weight, and passenger comfort there is to a new fuselage design, and a new wing design.

  16. Boeing could re-engine with a bigger diameter fan with no problem at all.

    Just think outside the box, it’s been done before, and Boeing won’t have to change anything from under the fuselage at all, no landing gear change, no extra lumps or bumps.

    Just change the position of the engines – a little reversal of the pylon engineering on the wings and there you have it.

    http://en.wikipedia.org/wiki/File:Vfw_614_01.jpg

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