We wrote the following article for Commercial Aviation Online, which appeared yesterday. In case anyone wonders, there is no relation between John Hamilton and us.
The chief engineer of the 737 program is skeptical of the emerging competitors’ airplanes and the announced entry-into-service (EIS) dates, and this has a clear influence on what Boeing will do to enhance, re-engine or replace the 737 in the coming years.
John Hamilton, in a media briefing on the roll-out 26 October of the 737’s Boeing Sky Interior and a refresher course on the technical enhancements that will be in place next year, said Bombardier is facing new technologies it hasn’t worked with before that places in doubt the promised 2013 EIS of the 110-130 seat CS100. This is a potential replacement for the Boeing 737-500 Classic and the 737-600 Next Generation aircraft.
Likewise, Hamilton expressed doubts about the competitiveness of China’s first mainline jet, the COMAC C919. This 150-200 seat aircraft will compete with Boeing’s bread-and-butter 737-800 and 737-900ER, with a promised EIS 2016. Hamilton doesn’t think the C919 will be competitive with the 737, despite having the new generation CFM International LEAP-X engine power the aircraft. Rather, the next round of COMAC airplanes will more likely be competitive, but these will be much further in the future than 2016—and COMAC may be unlikely to hit this target, Hamilton said.
The C919 has an advertised seven year launch-to-EIS cycle, but China’s other new airplane—the 70-90 seat AVIC ARJ-21—is already two years late on a nine-year cycle. If the C919 matches this, a 2018 EIS is more likely.
Hamilton said the same issues may be true of Russia’s Irkut MS-21, a 160-212 seat airplane.
The timing works in Boeing’s favor; executives are talking about a replacement for the 737 around 2019-2020. Hamilton said a decision-date would likely be about seven years in advance of EIS, or 2012-2013.
Hamilton reiterated what executives have been saying: a re-engined 737 is not garnering a lot of support from airlines and lessors. If Boeing can proceed with a replacement airplane by 2019-2020, then further incremental improvements in the 737—and a delayed competitive landscape—may suffice for now.
Boeing officials have previously said the prospective Airbus A320 New Engine Option, or NEO, will only have a direct operating cost improvement of 3%-4% over the 737 (which Airbus disputes, without providing a definitive figure in rebuttal). So Hamilton said that Boeing is considering ways to close this gap, both through reducing fuel consumption and maintenance costs. Hamilton isn’t sure if Airbus is going to proceed with NEO, remarking he believes Airbus is hearing the same lack of enthusiasm about NEO that Boeing is about re-engining the 737.
Airbus previously has said its customers like NEO.
As for the 737 technical enhancements that will enter service next year, these will cut fuel costs by 2%, according to studies. Test flights begin in November and continue through April to validate the aerodynamic improvements. The new CFM 56-7BE Evolution won’t be ready until next year for testing. Boeing believes that on a net present value basis, the 2% translates to $1m over 20 years, or about $120,000 per year.
Hamilton said 7% in operating costs have been wrung out of the Next Generation 737 since its introduction in 1994.
Boeing claim the 737 is 4-6% more efficient in operating costs than the A320 is now, which is itself a disputed figure, so the 3-4% advantage that Boeing suggests for a re-engined A320 would translate into 7-10% improvement compared with the A320 now. Unless PurePower is a dud, which I think unlikely, I would say a re-engined A320 should comprehensively beat the non re-engined 737.
Credit to Boeing, though, for extracting the maximum out of the 737 through continual upgrades. I think the A320 has lost its advantage somewhat in recent years through relative neglect. But equally they probably have more scope to improve their plane.
It is interesting to hear Boeing disparage Bombardier – ignoring the aircraft the CS300 competes with in comparisons, the 737-700 and projecting delays in their program. Bombardier has more experience in international sourcing than Boeing, has a well thought out certification program including an early “Iron Bird” to test fly by wire with Parker Aerospace, who are a proven supplier, and more than 50 years experience with composites at its Shorts facilities in Northern Ireland. Things may go wrong, as Alenia is also on the CSeries program – but Bombardier appears in a better position to manage those difficulties than Boeing.
Projected economics for the A320 family, which are slightly worse than the later 737NG, would leapfrog with the NEO – as a 15-16% reduction in fuel burn (with sharlets making up for the aerodynamic non-optimization of the new engines) and a 20% reduction in engine maintenance cost for the GTF version provides a more compelling economic story than Boeing gives the credit for. The key question for the NEO will be “how much” – the price premium. But with fuel about 45-50% of costs, and engine maintenance another 12%, the net impact for the GTF version should be about 9.6% prior to capital costs. Depending on how hungry PW is for engine sales and how Airbus prices the NEO to recover the 1.5B in capital required, the net could still be in the 5-7% range after capital costs, which would shift the equation towards Airbus.
Until we know more about the details and pricing, the jury must remain out – but things likely will be not as rosy as Airbus is describing, nor as pessimistic as Boeing projects.
It is the ‘D’ from FUD: Fear, Uncertainty and Doubt.
Boeing going by the Microsoft Manual:
“How to ?successfully? dominate a market with a rather pedestrian product.”
Ernest, the price differential between the A32X-series and the NEO-series (after discounts, not list prices) would in all likelihood only be a factor during the transition between A32X and NEO production in order to maintain a stable production output. This means that A32X-series customers for the last production batches will receive larger discounts on their A32Xs than what the initial NEO customers will for their NEOs (possibly excluding launch customers).
If you look at the history of the 737 program, the 737-300 entered into service in 1984 while the last 737-200 off the production line was delivered in 1988. The first 737NG, a -700, was delivered in 1997 while the last 737 Classic (-300, -400, -500) was delivered in the year 2000. I expect the A32X/NEO transition to follow a similar suit. I’m sure Boeing gave the last 737-200 and 737 Classic customers heavier discounts than the initial 737-300 and 737-700 customers; again, possibly excluding launch customers.
Airbus will not charge more for a NEO than the market will bear, which means that post 2018-2020, increased capital costs shouldn’t be a factor if Airbus wants to maintain their NB market share at, or around, current levels.
Spock: “The CSeries only has a 86,7% chance of…”
Kirk: “Spock, It’ll work!”
Kirk: “Bones, gimme a scan of the 737”
Bones; “It’s dead, Jim”
Kirk: “Bones, wil COMAC be able to fix their Chinese Wall”
Bones “I’m a doctor, not a bricklayer”
Kirk: “Uhura, check Airbus comms”
Uhura: “I have lot’s of chatter on their intercom, Sir”
Checkov: Uhnidentiffied oabjekt on ze scrreen”
…”I – AM – NEO”…”I Am NEO”…
then the NEO said:
I didn’t come here to tell you how this is going to end. I came here to tell you how it’s going to begin…
Where we go from there is a choice I leave to you.
IF Airbus do go ahead with the NEO (something that seems to be slipping more and more into the future, until at some point in time, it will no longer be worth it, as it were), and IF Bombardier is successful and relatively on time with the C-Series (if they are as organized today as they were 15 years ago, there is a very good chance of this happening), then Boeing could be looking at a very dard grey spot in their product line. Nothing too damaging, I would imaging, as they have some very loyal customers who will continue to buy the 737 family. Or would be willing to wait until Boeing does come out with their new narrow body aircraft.
If Boeing doesn’t get its ducks in a row on the new 737 replacement and some problems arise like the 7late7, they will do more harm than good for the company and the upstarts will walk away with their business.