Five reasons for Airbus to proceed with the A320 NEO

Richard Aboulafia, aerospace consultant with The Teal Group, published his monthly two-page newsletter in which he gives five reasons why Airbus should proceed with the A320 New Engine Option (NEO). The newsletter may be downloaded here.

We disagree with one of his conclusions, and that is Delta Air Lines continues to be predisposed toward Boeing. This was certainly true under the previous management (the pre-bankruptcy one) and stems from an exclusive supplier agreement between Delta and Boeing signed c. 1996 and good for 20 years. Boeing agreed not to enforce the contract as a concession to the European Union for approval the following year to merge with McDonnell Douglas, but Delta only ordered Boeing aircraft anyway.

Following Delta’s bankruptcy, new management was brought in as a part of the reorganization. It happened that the new management is the old Northwest Airlines management that favored Airbus (A330s and A320s) and only ordered a small number of Boeings (757-300s). The current Delta management is not happy with Boeing over the delays in the 787 program, an ordered placed by the NWA management the followed what is now the Delta management (we hope you are following this). Delta inherited this order upon the acquisition of Northwest Airlines.

We do not believe that the current Delta management has any particular allegiance to Boeing, in contrast to Aboulafia’s conclusion.

We’re also not so sure about the new United Airlines, now run by the Continental management following this merger. Continental absolutely was loyal to Boeing, but the driving force of this, Gordon Bethune, is long gone. Like Delta (and American Airlines), Continental also had an exclusive supplier agreement with Boeing.

Having set the policy, and considering Continental’s size, there was no reason for Continental to add Airbus to its fleet. But United relied exclusively on Airbus for its more recent single-aisle airplane orders and it split its new twin-aisle orders between Boeing (787) and Airbus (A350). Continental management, now faced with a substantially larger airline that operates a lot of A320s and has a big A350 order on the books, may be willing to entertain Airbus going forward.

Back to Aboulafia’s original thesis: we think his fundamental five reasons are on target. We’d add another: the A320 is aging. Although the 737NG still has the 1950s-based fuselage of the Boeing 707 and some systems architecture of the 1960s, Boeing has continually updated the airplane and its reliability is just about as good as it possibly can get. We think Boeing has to proceed with a replacement airplane sooner than later to meet emerging competition, but Airbus has been slower to significantly enhance the A320 and this airplane is falling behind even the aging 737. Boeing went to winglets years ago, and while Airbus liked to boast its wingtip fences were there first (and they were), true winglets are coming only in 2012. These represent major improvements in fuel burn that have been very slow in coming at Airbus.

The prospect of NEO will further enhance the A320 family.

16 Comments on “Five reasons for Airbus to proceed with the A320 NEO

  1. DL may, or may not keep the B-787 order, they may convert it into more B-777s, they have said that before. CO/UA will probibly cancel the A-350 order and keep the B-787s (ordered by both CO and UA, but at different times).

    As far as the B-737NG and A-32X goes, Boeing recently announced aerodynamic improvements for another 2%-3%, including more aerodynamic anti-collision lights. These improvements are to become standard equipment on the B-737NG and at no cost to customers. I believe Boeing is flight testing the improvements on a UA B-737-800 now. Airbus has fallen behind and has not even made a dicission to go ahead with the A-320NEO. Do they have the engineering resources to do it? That is the defining question here.

  2. I am of the opinion, that re-engining either the 737 or the A320 makes absolutely no sense within the next 4 to 5 years, based on the huge backlog of orders both manufacturers have for the abode two models, in spite of the planned increases in their production rates to the unheard off levels, of 40 units per month or more!
    Furthermore, both companies are working at maximum capacity as far as manpower is concerned, especially Airbus with the M400 military transport in addition to a major challenge to get the A350
    delivered on time in 2013, while Boeing has to get ready the launch a new wide-body program, to protect both the 777 and 747–8 programs from the challenge from the A350!

    The only sleeper in this scenario, is the C-Series airplane, which I am not not in a position to fully evaluate, except to observe that 737 and A320 operators are unlikely to add that airplane to their fleets.
    The C-Series airplane, therefore, is in all likelihood going to be a fact of life, but primarily for nontraditional 737 and/or A320 customers only, in the next 4 to 5 years.

    • A NEO”ption” would improve revenue for Airbus without having to increase production numbers.

      A thousand “swappers” is 7..8 billion more revenue.
      Assume they have to invest 2 billion for the design and integration of this option. That leaves a reasonable amount of pocket money, dosn’t it?

      IMHO it was significant that the Boeing CFO made the “noreengine” announcement.
      Boeing would have to go for a ?much? higher initial investment and gain much less potential for additional revenue.

      Additionally going by planning quality exposed Airbus would have less problems with further increasing A320 production numbers.

  3. “CO/UA will probibly cancel the A-350 order and keep the B-787s”
    Besides a gut feeling: Any reason you believe this would be the case?

    • I share this opinion. I’ve heard the same rumor from inside the company as well. And I’ll be the first to admit it is a rumor only. But as had been previously stated, it is the Continental faction that is running the new combined airline, not United. And my understanding is (Sorry Scott, but I beg to differ with you on this) that faction is still leans heavily towards Boeing.

  4. I believe Boeing ,..

    sure you would 😉 , only you don’t add anything to Mr.
    Aboulafias philosophic excursion presented here.

    I understand Boeing is letting the same old circus ponies
    perform as brand new act every night for some time now.

    Aboulafia has a knack for “slightly off” likenesses that
    present his similarly “slighty off” perception of the world
    ( well, in relation to my EuroPaleo basis at least ;-).

    He is less of a guidance and mouthpiece man ( like the Lexington Bunch )
    than my earlier impression was, going by is works.

  5. I also agree with Richard Aboulafia’s thesis. A couple of quibbles.

    He says all “CSeries customers (both actual and mooted) have been Airbus SA customers, not Boeing ones.” In fact both Lufthansa (actual customer) and SAS (good prospect) are likely to use the CSeries to replace 737 Classics; Qatar (potential customer) does have Airbus in its fleet, but nothing smaller than the A320. So far, only Republic Airways (actual customer) is likely to replace its smaller Airbus planes with CSeries.

    Also he says the 787 “will wind down in 2011/2012, freeing up resources for whatever Boeing wants to do next.” Leaving aside any new delay following the Laredo fire, Boeing is committed to implementing the 787-9, which will be an [increasingly] major upgrade from the -8 model. Boeing also needs to get the new 747 out the door. With a possible refresh of the 777 as well, I can’t see them having significant engineering resources available before 2014 at the earliest.

    With new airplane programs typically taking seven years nowadays, the replacement for the 737 will fly in the early 2020’s rather than the mid 2010’s. Which is another way of saying the NEO is an even better prospect.

  6. Check mark against each of your points, FF.

    In addition, Scott, I am really not sure one can seriously use this sentence:
    “…Boeing has continually updated the airplane and its reliability…”
    And Airbus have not? In every presentation Leahy stresses that Airbus invests 100m Euros into the Single Aisle product. This has made no difference?

    “…Airbus has been slower to significantly enhance the A320 and this airplane is falling behind even the aging 737..”
    Are you saying that the 737 classic outperforms a brand spanking new A320 off the production line? I have a feeling Dickie has hacked into your account…

  7. Airbus Ready to Upgrade A320, May Announce Wednesday.

    http://abcnews.go.com/Business/wireStory?id=12277569

    PARIS (Reuters) – Airbus has virtually finalized a decision to upgrade its best-selling A320 passenger jet with new engines and the $1-2 billion project could be announced as early as Wednesday, two sources familiar with the matter said.

    The project is designed to fend off competition from new market entrants like Canada’s Bombardier and shore up the European planemaker’s position against rival Boeing .

    Barring a surprise reversal at the last minute, the project is set to be adopted by Wednesday or within days, the sources said, asking not to be named.

    Airbus declined to comment.

  8. Scott, as for Airbus being slow to upgrade the A320, it looks like Airbus doesn’t agree:

    ALC will offer its customers the new fuel-saving “Sharklet” option that is available from the end of 2012 on A320 aircraft, to be followed by the A319 and A321 models from 2013. Sharklets are large wing-tip devices that will enhance the eco-efficiency and payload-range performance of the A320 Family. Offered as a forward-fit option, they are expected to result in at least 3.5 percent reduced fuel burn over longer sectors, corresponding to an annual CO2 reduction of around 700 tonnes per aircraft. This latest development has been part of the larger continuous improvement programme for the A320 Family which is supported by an annual investment in excess of 100 million euros each year.

    • We’re not saying Airbus hasn’t done any improvements, for it has, but these have been minor until the sharklets (plus nice interior upgrades).

      • Apart from the blended winglets I can’t see where Boeing has done substantially more to upgrade the 737NG than what Airbus has done with the current A32X.

        For example, both frames are in the process of having fairings re-contoured (wing/body on the A32X; near the MLG on the 737NG), and other aerodynamic improvements. Both cockpits have seen similar upgrades, and both programs have moved to the moving line concept (737NG for the FAL; A32X for sub-assemblies like the wings and fuselage).

  9. “We’re also not so sure about the new United Airlines, now run by the Continental management following this merger. Continental absolutely was loyal to Boeing, but the driving force of this, Gordon Bethune, is long gone. Like Delta (and American Airlines), Continental also had an exclusive supplier agreement with Boeing.”

    Really?

    http://www.flickr.com/photos/65483667@N00/5170703405/

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