Boeing promises “clarity” at the Paris Air Show about its New Small Airplane (NSA) program, but aside from settling on the performance it believes is required, little clarity has truly been achieved inside Boeing.
We learned last week key insights to Boeing’s thinking–and the divisions still remaining–within Boeing about the direction to go with the NSA. Our information comes from within Boeing, but the sourcing remains unidentified because the sourcing was not authorized to speak to the press. This information was obtained entirely separate from the pre-air show press briefings held June 2-3, which are embargoed to June 19 (Paris time)/June 18 Seattle time.
Information has been cross-checked with others and with statements made by Boeing executives in the public domain.
Re-engine, New airplane–or both?
The public debate, as well as the internal one, is whether to re-engine the 737 or proceed with the NSA. While last week we discussed with our sourcing the relative merits of one or the other, much of this information overlaps with what we learned during the air show press briefings and thus, we will hold these details in honor of the embargo to June 18/19.
However, what was new is that there is a faction that believes Boeing should do both–and the rationale as to why.
The rationale: This comes down to production capabilities and remaining competitive with the Airbus A320neo program.
Company officials have publicly said they are looking at rates of 60 and even 70 per month for the NSA. The current 737 rates will go to 38 a month by 2013, and we were told last week Boeing is all but certain to make the decision within 30 days to boost production further to 42 per month by 2013 or 2014.
Update, 7:11am: Boeing announced that it is taking production to 42 per month in the first half of 2014.
If the NSA begins delivery in 2019, ramping up to rates of 60-70 per month will take years, which is why production of the 737NG will continue “to at least 2026.”
The faction that believes Boeing should re-engine the 737 while also proceeding with the NSA thinks this is necessary to remain competitive with the A320neo.
Boeing believes the A320neo only brings the airplane to parity on operating costs to the 737-800W (winglet) and that when ownership costs are considered, the 737-800W has an advantage of about 2%. The 737-800W has about an 8% cash advantage, all-in, over today’s A320, Boeing has publicly said.
Boeing’s assumptions do not include Airbus undertaking Performance Improvement Packages for the A320 family. Nor, do we believe, do they include contractual improvements for the engines Airbus has negotiated with Pratt & Whitney and CFM for the neo by 2019.
Finally, Boeing focuses on the 737-800W vs the A320/320neo but it does not publicly compare the 737-700 and 737-900ER with the current A319 and A321 or the neo versions. Privately Boeing officials concede these other two 737 models do not compare favorably with the current and neo Airbus models, and airline fleet planners we’ve talked to say the same thing. With Boeing making a big push on the 737-900ER these days, the A321neo in particular leaves the -900 at a disadvantage.
In addition to our own information last week, on Monday this week Heidi Wood of Morgan Stanley had this cryptic reference in her note:
We highlighted early in the year expectations for a rash of hundreds of A320NEO orders likely throughout the show, & now Airbus is getting bolder, claiming potential for order upsets with BA customers. We still expect 500-800 orders by 2011 year-end for the A320NEO, pressuring BA for its single aisle decision: re-engine, new airplane or both?
She raises the question of Boeing proceeding with a re-engine and a new airplane. Her note did not elaborate. We also checked with another Wall Street analyst, who had additional information, reflected in this post.
Our Boeing sourcing says that there is a view that if the 737 is going to be produced well into the 2020 decade, it needs to be re-engined to remain competitive with the neo.
But this is only part of the equation.
Where will the NSA be built?
One thing Boeing is clear about is that the site selection for the NSA assembly hasn’t been addressed yet. Mike Bair, VP of the Future 737 development, told us this in March and said that Washington State will have to compete for the airplane. Our sourcing said the same thing, and in an interview Monday by Dominic Gates of The Seattle Times with Jim Albaugh, CEO of Boeing Commercial Airplanes, Albaugh also said so.
But one question is clear: with Boeing planning to build the 737 until at least 2026, will there be room at the Renton plant to transition from the high rates of the 737 to the ramp-up of the NSA? Or will Renton be maxed out on production, requiring Boeing to look for another site?
Within Boeing, here are some of the views we were told:
What will the NSA look like? This information will be in our June 18-19 reporting. Suffice to say that this remains up in the air as well.