Airbus NEO won’t kill CSeries: New study

Airbus’ A320 NEO won’t kill the Bombardier CSeries, a new study concludes, issued today by AirInsight.

The study, “The Business Case for the Bombardier CSeries,” which we co-authored, is discussed on the AirInsight blog.

The study began as an update to AirInsight’s report in December 2009 on the prospect of re-engining the Airbus A320 and Boeing 737 families. As Airbus COO-Customers John Leahy repeatedly asserted that to re-engine the A320 would kill the business case for the CSeries, AirInsight broadened its update into a full, in-depth study. AirInsight concluded that the business case for the CSeries is sound.

The study includes an economic analysis of the CSeries, the NEO and the 737NG. The CSeries has better costs than both and the NEO has better costs than the 737, AirInsight concluded.

The study also looks at Bombardier’s production model, market potential and calls for development of a 150-seat CS500.

The new study is 70-pages. It may be obtained here.

Meantime, here is an interesting read on the A320 NEO from BNet. It’s more pessimistic than we are, but he raises points to ponder.

Update, Dec. 6: Here is Part 2 of BNet’s critique of the A320 NEO.

22 Comments on “Airbus NEO won’t kill CSeries: New study

  1. Pingback: Tweets that mention Airbus NEO won’t kill CSeries: New study « Leeham News and Comment -- Topsy.com

  2. I don’t think too many people were putting belief into Leahy anyway. He’s a salesman and his job is to sell aircraft. I just don’t like his approach-and personally, I think while he’s had a hand in putting “Airbus on the map”, I still believe in the end, its the quality of the plane which sells-i.e.-look a the disaster the A345/A346 and the A380’s* have been.

    *-I’m not saying the A380 is a bad plane-it certainly isn’t but the business case for the A380 has been mediocre at best and a total catastrophe at worst. From a financial drain, to a resource drain.

    That being said, I’m glad to see the A320X NEO-innovation helps both the carrier and customer…its going to be interesting to see what Boeing does.

    • We have a vague recollection that the A340 was created at the behest of Lufthansa (does anyone remember?). The A340-600 is a classic case of a stretch too far (though we think it’s one of the most beautiful airplanes ever built, with its long, sleek lines. Seeing it perform at an air show is something to behold). The RR engines on the A340-500 (and -600) simply didn’t seem to meet expectations.

      • I seem recollect reading recently that it was a collective of 6/7 airlines that
        pushed for the 340 -600/-500 version where at least one never came through with an order on the type.

        The initial 737 was an LH child and Boeing had to be pressured to foster it.
        same goes for the Classic reengine afaik.

    • ” the plane which sells-i.e.-look a the disaster the A345/A346 and the A380′s”

      Let’s not be so dramatic. The A3456 development was the right development *at the time*. A fairly cheap development, which filled the gap until the XWB came along. Plus it kept some customers happy and still earning plenty in support and spares. In other words the same line to justify the B764 development, with many more customers.
      As far as the A380 is concerned, in my opinion it is too early to proclaim the business case a disaster. Would it still have been a disaster if A-GE and A-FR used the correct CATIA software? Give it time, the plane will come good, even though it would sound blasphemous on fleetbuzzeditorial.com.

      • UKair:

        The A345/A346 program IIRC was about $4 billion dollars (the lowest number I remember reading was about $2.5 billion). I don’t call that “cheap” and it definitely wasn’t as cheap as the B764 derivative.

        There is practically no markets for the A345/A346…I’m not even so sure the ancillary revenues will help.

        Airbus/EADS was too “gung-ho” about building the A3XX and went away from the the sub-VLA market. That is one of the ways they got sidetracked with the A3XX program. Even with the A350XWB coming out, the -1000 hasn’t been a “stellar seller”. In fact, the B77W sales have been “chugging along” at a decent clip.

        While the A330 is phenomenal aircraft, they should be thanking Boeing for their major B787 manufacturing screw-up (by the way, I firmly believe some in Boeing management need to be given “the boot”).

        I also don’t expect the A380 program to return the 20%+ ROI which was promised to investors…

      • “The A345/A346 program IIRC was about $4 billion dollars (the lowest number I remember reading was about $2.5 billion)”
        Most certainly the development cost was at most $2billion, since what $4billion will give you is a new CFRP wing, Genx engines and an Al-Lithium fuselage, like it would have for the early version of the A350. Having said that I don’t deny that the development, overall, was a money loser for them but nothing dramatically more than the B764 was. You could even consider an overall A340 development cost, which would mean a net gain.

        “There is practically no markets for the A345/A346”
        ???? The A3456 development addresses the same market as the 77W/L. Last time I checked the latter were selling like hot cakes. The fact that your competition comes in at above the specs, would not help the A346 but neither have I read that the customer got something not covered by the minimum contract guarantee.

        “Airbus/EADS was too “gung-ho” about building the A3XX ”
        And that is why I said that the A3456 development was right, *at the time*. They would have lost much more if they launched a new development in 1998. The XWB is the right aircraft for them now.

        “Even with the A350XWB coming out, the -1000 hasn’t been a “stellar seller”.”
        Of course that’s the case, would you buy a -1000 for delivery in 2018, at best, or 77W in production now with a free slot here and there. Don’t kid yourself, the availability is the driver here.

        “I also don’t expect the A380 program to return the 20%+ ROI which was promised to investors…”
        Let’s agree to disagree then 🙂

      • “Give it time, the plane will come good, even though it would sound blasphemous on fleetbuzzeditorial.com.” Speaking of the joyful souls over there, have they decided to model their site maintenance program on the 787 programs schedule or are they waiting until their is some good news for Boeing before coming out of their shell again?

  3. UKair: Let’s not be so dramatic.

    I fully agree, the 380 will prove its worth economically and environmentally, especially with modification that have to get the Dreamliner into the air. Its fuel saving and other loudly trumpeted advantages are falling by the wayside as Boeing struggles to get it certified.

  4. Aviation Week: Airbus A320 NEO Alters Narrowbody Market

    http://www.aviationweek.com/aw/generic/story_channel.jsp?channel=mro&id=news/awst/2010/12/06/AW_12_06_2010_p25-273552.xml&headline=Airbus%20A320%20NEO%20Alters%20Narrowbody%20Market

    Further complicating the situation for Bombardier is that while it and Airbus both have a geared turbofan (GTF) option, the European aircraft maker will benefit from a higher technology standard. “Because the entry into service of that engine is later than the first two GTFs, we have pulled forward some of the advanced technology items that we had been working on on our road map, that will increase the thermal efficiency by a couple of percent,” says Jayant Sabnis, Pratt & Whitney vice president for system engineering.

    Scott, in your casm chart did you factor in the fact that the NEO will have a more efficient GTF engine?

    http://airinsight.files.wordpress.com/2010/12/casm-chart.jpg

    • PW expects to increase efficiency by 1% per year. This obviously can be included in PIPs for CSeries. They are offsetting.

      • But the baseline GTF engine for the NEO is still more advanced. Tehnology moves on. New technology can migrate back into older models but you won’t get all of the same effect as in one that’s optimised from scratch.

  5. Jacobin777 and UKair, in 1998 Max Kingsley Jones wrote in an article for Flight International that the R&D for the A340-500/600 would cost some $2,5 billion. BTW, that $4 billion figure (in then dollar value) is an urban myth.

    http://www.flightglobal.com/pdfarchive/view/1998/1998%20-%202366.html

    Although a full launch was not announced at Paris, the Airbus board’s amber light cleared the way for the aircraft to be offered to airlines. By the time of the full commercial go-ahead last December, commitments stood at around 100 aircraft from seven customers. The programme will require an investment of some $2.5 billion, and the consortium is aiming to capture at least half of the 1,500 sales forecast for the category trough to 2010.

    Now, Airbus didn’t manage to sell 750 A345/A346 aircraft through 2010; only slightly less than one fith of that number. However, one should keep in mind that the crisis following 9/11 probably cost Airbus at least 50 sales (probably more), and that they didn’t foresee the enormous sales success of the A332 and A333 from 2005 and onwards; in fact, they have been owning the 250-300 seat market for quite some time now, while the 777-300ER has owned the 350 seat market.

    The A345/A346 program is, in all likelihood, not a profitable enterprise when viewed in isolation, which BTW is a superficial way to view LCA programs. However, it was not a major loss either, if it was a loss at all. The program helped to keep the A330/A340 production lines busy in the years 2002-2009 and put downward pricing pressure on the 77W/77L as well. Interestingly, that last point has been used by quite a few Boeing aficionados in the case of the 747-8I vs. the A380, but I’ve yet to see that same group of people “defending” the A345/A346 in the same way.

    The whole Flight International article (pretty good):

    http://www.flightglobal.com/pdfarchive/view/1998/1998%20-%202365.html

    http://www.flightglobal.com/pdfarchive/view/1998/1998%20-%202366.html

    http://www.flightglobal.com/pdfarchive/view/1998/1998%20-%202367.html

    http://www.flightglobal.com/pdfarchive/view/1998/1998%20-%202368.html

    • My tentative assumption is that the FAA would not have “created” further ETOPS extensions for a non US airframer. i.e. Boeing had to be pressured to lead with an iteration of the 777. Was the grand GE sfc gain actually expected or was it an unexpected windfall?
      Afaik Airbus gained a lot of manufacturing expertise from details.
      The extended wing was the first to be build on a universal CNC jig.

    • Good argument there…but I still firmly believe they were to pre-occupied with the A3xx and when Boeing launched the 7E7 program, again, because they were too pre-occupied to take it seriously.

      As I mentioned previously, had Boeing not been so horrible in the B787 production, the A330 wouldn’t even remotely see the sales its been generating the past 2-3 years…

  6. UKair :
    “The A345/A346 program IIRC was about $4 billion dollars (the lowest number I remember reading was about $2.5 billion)”
    Most certainly the development cost was at most $2billion, since what $4billion will give you is a new CFRP wing, Genx engines and an Al-Lithium fuselage, like it would have for the early version of the A350. Having said that I don’t deny that the development, overall, was a money loser for them but nothing dramatically more than the B764 was. You could even consider an overall A340 development cost, which would mean a net gain.
    “There is practically no markets for the A345/A346″
    ???? The A3456 development addresses the same market as the 77W/L. Last time I checked the latter were selling like hot cakes. The fact that your competition comes in at above the specs, would not help the A346 but neither have I read that the customer got something not covered by the minimum contract guarantee.
    “Airbus/EADS was too “gung-ho” about building the A3XX ”
    And that is why I said that the A3456 development was right, *at the time*. They would have lost much more if they launched a new development in 1998. The XWB is the right aircraft for them now.
    “Even with the A350XWB coming out, the -1000 hasn’t been a “stellar seller”.”
    Of course that’s the case, would you buy a -1000 for delivery in 2018, at best, or 77W in production now with a free slot here and there. Don’t kid yourself, the availability is the driver here.
    “I also don’t expect the A380 program to return the 20%+ ROI which was promised to investors…”
    Let’s agree to disagree then

    I think you misconstrued my comments regarding the A345/A346 versus the B77L/B77W..my comment was about the A345/A346 in general. There is no current market for those two particular models.

    Carriers such as CX and EK have already stated that the current iteration cannot replace the B77W in the “edge of the envelope” of the B77W. Right now, RR is having problems with the thrust ratings of the -1000, and for all we know, Airbus might need to increase MTOW, etc. This also doesn’t include the fact Boeing isn’t going to sit around and let the -1000 eat that portion of the market, especially given they have nothing really to compete on the pax-VLA end.

    Regarding the A380, you may disagree all you want but the bottom line is its costing Airbus billions of $$$ on the program and they aren’t even going to break even on a “per frame basis” for another couple of years….:-)

    Regards..

    • “I think you misconstrued my comments”
      Ok let’s try again. Is there a market segment for which Airbus developed A3456? YES. Is the Boeing offering better? YES. Is the A3456 a ‘disaster’? NO. Is my position clear to you now?

      ” Right now, RR is having problems with the thrust ratings of the -1000, and for all we know, Airbus might need to increase MTOW, etc.”
      That’s kind of what happens when the design is not frozen. You seem to be jumping from ‘-1000 has no market traction’ to ‘Airbus might need to do this or that’ to ‘Boeing is not going to sit around’… So what is your point?

      “Regarding the A380, you may disagree all you want but the bottom line is…”
      Sorry, the old fleetbuzzeditorial.com magic dust doesn’t work on this site.

  7. I read the original article posted and it just struck me as snarky rather than negative. I don’t see why Airbus shouldn’t do the NEO, at $1.3bn it’s cheap and should earn a profit easily, because Boeing doesn’t have to reply doesn’t mean it’s not worth it.

    Also, the difference might be small but there’s actually something that’s not the same with “sharklets” and “winglets”. The top of the sharklets actually curve backwards like shark fins, which I guess that’s where the name comes from. It’s not a huge difference, but people should stop going on about it like Airbus just decided to make up the name.

  8. UKair :
    Your original suggestion was that the A380 will not be profitable. I disagreed.
    “Do you have ANY proof…?” – I have just as much proof as you.
    RE -1000:
    Right, so what you have presented there is a collection of quotes showing that it is a development aircraft, design of which had not been frozen, where Airbus may do additional changes to the design, with RR working on the engine…
    And your point being? Sorry but you have not answered my original question.

    1)You haven’t shown me any proof about the A380 program doing well financially
    2)My point about the -1000 is one doesn’t know how competitive it will be against the B77W. Also, with the -1000 available around 2017, even carriers such as CX have decided against it for now (maybe they will order some or change part of their order-but that’s hypothetical at this point). In fact, CX (along with EK) has said that the -1000 as it is right now isn’t competitive with the B77W for their particular routes.

    The A350 has been selling like “hotcakes” but that can’t be said of the -1000(only 13% of the frames sold are the -1000).

    Some carriers ordering the B77W won’t bet getting it until 2014, yet the -1000 is available only a mere 2-3 years later. In fact, according to Airbus, the -1000 will be available in 2015. Maybe the carriers know something more than we do.

    • 1. I never said the A380 programme is ‘doing well financially’. I said that the A380 programme as a whole will be profitable, in my opinion. These are two different things.
      2. “My point about the -1000 is one doesn’t know how competitive it will be against the B77W…” and my point is that the project is still in pre freeze phase where some variables will change. Clark also said many times that 748I will not do DXB-LAX, which is a precondition for EK to buy that model but he bought -1000, so he has obviously bought it with routes in mind. The fact that he is pushing Airbus, or any OEM for more, is not new.
      “Some carriers ordering the B77W won’t bet getting it until 2014…” and Boeing is ramping up the production, so it may well be earlier + you always get a free slot here and there. Production plans, 18-24 months ahead are never firm, I guarantee you of that.
      “yet the -1000 is available only a mere 2-3 years later”
      You are clearly very concerned about that aspect, so let me reassure you, they will come.
      “Maybe the carriers know something more than we do”
      I will leave you to develop conspiracy theories on your own.

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