Boeing’s message changes on 737NG v A320neo

Here’s an article we did on changing messaging at Boeing about the 737 and the A320neo.

Date: 11/04/2011 10:07
Source: Commercial Aviation Online
Location: Seattle
By: Scott Hamilton

Boeing’s messaging on the 737 against the Airbus A320neo has changed subtly in recent weeks. Does this signal a slight shift in Boeing’s intentions whether to proceed with a new airplane in the 737/757 class?

Boeing dismisses the business case for the A320neo, until recently saying the 737-800NG has only a 2-3% cash operating cost deficit today versus the projected NEO economics. By the time the A320neo entered service what was originally announced as Spring 2016, Boeing officials were confident that they could improve the economics of the 737-800 by at least that amount, retaining a fleet advantage of one engine type and a lighter airplane.

But Boeing’s message has shifted slightly.

“Right now, the 737 from an operating-cost standpoint – cost of acquisition, cost of operation – is about 8% better than the Airbus product,” Boeing president Jim Albaugh said 26 March, as reported by Aubrey Cohen in The Seattle Post-Intelligencer. “Even after the re-engine we’ll be 2% better, and that’s if we do nothing on this airplane. We are going to do some things. One thing we will always have is the most capable and the most efficient airplane in every market that we serve.”

Airbus scoffs at Albaugh’s 8% figure, rhetorically asking, “If the A320 were 8% worse than the 737, why would we sell more of them than Boeing sells of the 737?”

The tit-for-tat over cash operating cost advantages is as old as commercial aviation itself. But more to the point, what does the shift in Boeing’s messaging mean?

Boeing says that its new airplane as currently envisioned will be about 18-20% more fuel efficient than today’s airplanes. Airbus promotes the A320neo as about 15% more efficient when equipped with sharklets in combination with the CFM LEAP-X or Pratt & Whitney GTF. Boeing largely agrees, noting it concluded a 737RE would have a fuel burn improvement of about 10-12%; the NG already has winglets, so Boeing can’t get the additional 3.5% in fuel reduction Airbus gets on the NEO with the sharklets to reach 15%.

Airbus COO-Customers John Leahy doesn’t think it makes sense for Boeing to spend $10 billion on a new airplane to get only 3-4% better economics, which is why he believes Boeing will eventually proceed with a re-engined airplane.

While Boeing knows how to re-engine the 737, the cost of doing so, the changes required and the net benefit to the airlines make the business case tenuous.

Boeing is proceeding with designing further enhancements to the 737NG. Although Boeing is cagey about what these are, officials have said enough to draw some conclusions.

Enhancements, beyond those already in testing for certification this year, appear to focus on the following:

Further aerodynamic improvements: While the 737NG is already a “clean” airplane aerodynamically, officials have revealed they continue to try to reduce drag.

Two areas where noticeable changes might emerge are slightly reshaping the vertical fin and reshaping the tail underneath the vertical fin.

Aerodynamic improvements to the engine cowling may also emerge, but these would likely not be noticeable to any but the most meticulous of observers.

Fuel burn reduction. CFM has been successful in achieving reductions in fuel burn in increments of 1-1.5% and this effort will continue in the future.

Weight reduction: Given the increased weight associated with the NEO programme, Boeing strives to reduce the weight of the 737NG. Given the smaller size of the 737 relative to a twin-aisle airplane and the maturity of the 737, achieving substantial weight reductions is a major challenge. But every little bit helps.

Boeing says that today’s 737NG is about 7% more efficient than when it entered service in 1998, 13 years ago. CAO understands Boeing’s goal is now 1% a year going forward. This is ambitious, given the maturity of the airplane, but assume it is achievable, with 2012 as the starting point (since 2011’s improvements are already in place).

This means by 2015, the new entry into service date for the A320neo, the 737-800 would be on a par based on Boeing’s original messaging-or as much as 4%-5% better COC under the new messaging.

By 2019, the 737NG would be 7% better than today’s 737NG if Boeing could meet its goal.

Assuming the A320neo also improves between 2015 and 2019, the COC comparison would remain neck-and-neck, or Boeing would have a slight advantage, depending on who’s doing the talking.

But more importantly, the 737NG would dramatically eat into the fuel burn advantage currently being discussed by Boeing for its own new airplane. If the new airplane today is thought to have an 18-20% advantage over today’s aircraft, a 737NG with 1% per year improvements would reduce this to 11-12%.

Is this enough for Boeing to spend $10 billion for a new airplane? Or is the business case for a new airplane at this time becoming more shakey?

7 Comments on “Boeing’s message changes on 737NG v A320neo

  1. As you say, we can argue about whether the A320 or the 737 has better fuel economics. – Incidentally, John Leahy in his presentation last week claims a 6% fuel burn advantage for the A320, which in my view is just as unlikely. My rule of the thumb is to split the difference, which gives the 737-800 a 1% advantage over the current A320. Unscientific? Yes. But it could be accurate…

    The problem with Boeing’s argument is that whatever the relative positions are now, it needs to improve the 737 to the same degree as Airbus improves the A320, in order to maintain their position. If Airbus can improve the A320 about 15% with sharklets and new engines and then improve it further through Performance Improvement Programs (PIPs), I don’t see how Beoing can improve the 737 to the same extent, just using PIPs.

    • Sorry, misread Leahy’s presentation which has 6% advantage per trip and 1% per seat. Rule of Thumb gives the 737 a 4.5% advantage per seat over the current A320, mainly due to the 737-800 being bigger.

  2. I was always scpectical of the merits of a new Boeing SA aircraft in the 2020 timeframe, as discussed in my own blog in three parts. Our own performance analysis gave the same answer as Leahy described last week (no, we did our analysis way before…).
    It will be hard to improve the B737 by about 15% without a new engine – but if they can keep the difference in COC in a 5% range, they can do the rest (of DOC) by purchase price differentiation.

  3. The issue is that COC always involves the lower purchase price of the B737NG versus an A320NEO, possibly based on list prices. Further on, it is based on assumed fuel prices and labor cost. Going into a different market environment (with lower labor cost, such as emerging countries) and into a scenario with oil price being at 150USD/bbl, the quoted advantage might easily vanish. If then Airbus also discounts the aircraft a bit.
    Another decisive factor are the engine manufacturers: GE is on both aircraft, P&W only on one.

    I think an unchanged B737NG will run into serious problems from mid decade on, and re-engine might not be as attractive as on the A320, but still buy some lifetime. If they are able to convince GE to develop a specialized LeapX with lower diameter for the B737NG-2, then it might come out in close range to the A320.

    It will make the B737NG-2 the aircraft of choice for short-range focused airlines.

  4. The 8% figure is so laughable it’s untrue, except if it’s in certain airline configs, but it certainly couldn’t be 8% in all configs and every mission profile. If it was, then like Airbus said, there’s no way they’d be selling A320s even if you factor in discounts.

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