Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
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- Better transparency needed on Boeing’s 1Q earnings call April 22, 2024
1,000 NEOs and “parity” is all it is
Airbus may have booked close to 900 orders for the A320neo family by the time the air show ends tomorrow, a plane that Boeing says merely reaches “parity” with the 737-800.
Airbus, of course, hotly disputes Boeing’s computations and says if the A320 were so deficient to the 737-800, why would airlines and lessors buy so many of them?
Airbus has a point. The NEO is now, by far, the fastest-selling aircraft in aviation history. More NEOs have been sold in the 6 1/2 months since launch that the 787 in the four years since launch and the A350 in the time since it’s been launched, a date which varies depending on which version of the airplane is used as the launch date.
Boeing likes to play sanguine about the NEO, professing that nothing has happened that they hadn’t anticipated. But surely they couldn’t have truly expected 1,000 orders by now. Only Heidi Wood of Morgan Stanley suggested this, and her prediction was largely ridiculed.
This apparently even exceeded the expectations of John Leahy, COO of Customers for Airbus.
We interviewed Leahy only yesterday and he didn’t steer us off a suggestion of 800 by the end of the show. (We’ll be working on Leahy’s interview shortly.)
Boeing dismisses the sales as a threat to Boeing, saying they have come from Airbus customers. Except for a few minor technicalities, this is true. But this is beside the point.
These sales mean cash flow to Airbus. By any standard, this number of sales is important. For Airbus, still struggling with cash flow from the A400M, R&D for the A350 and an A380 program this is still on a major incline to profitability, this is a major boost.
Leahy believes he will have a legacy 737 operator in the US as a NEO customer by year end. We think he will, too. But if it is Delta Air Lines, we don’t think this will “move” Boeing execs. On the other hand, if it were United, American or Southwest airlines, this would. We consider it not likely these will be ready this year. We think these are most likely next-year customers and we think nSouthwest a long-shot, but no impossible.
More than the huge volume of new orders for Neo , the issue is the cash flow ,critical to Airbus- in some ways Boeing ought to be concerned about -as you mention above.As for the efficiency claims of both the plane makers , the truth could be somewhere in between . Boeing does seem to be dragging their feet – though they have a tougher decision to make than Airbus.
That said, I would not write an obituary of 737 as yet – for all we know, they could still re engine the workhorse and keep it going for existing customers – building on existing fleets and avoiding switching costs , after all, 737 does have an impressive base to work with.
The real question is-without Neo, would Airbus have got all these orders -if the answer is yes, then and then only Boeing need not get worried .
Well done Airbus in terms of all those Neo orders ,the ball is (for sometime really ) now in B’s court .My own hunch is a re engine slated for entry in 2016 of 737 , followed by an upgrade of 300 ER to fight back 350-1000 and a new narrow body launch end of the decade. Who knows?
Good point – are these NEO orders, or just A32x orders and Airbus just happens to only sell neo’s right now.
The 737 re-engine remains questionable to me – without landing gear extensions there’s precious little room under the 737 wing.
Astonishingly Boeing continues to lambaste the 320 vs 737NG type on flying economics, meanwhile Airbus can’t print order forms & contracts quick enough & jack up NEO orders at unprecedented rates. The 320 has outsold the 737NG for a number of years indicating the type offers running costs that are either superior or equal. Astonising to consider less than twenty tears ago every 320 sale would have been an almost guaranteed 737 sale, we all concure thats been very good for the world airline industry but not for Boeing.
Boeings legacy single aisle customers face a fleet reknewal quandary which demands a type selection decision involving a not insignificant profitability increase. Boeings sales teams have had no new train set to peddle to carriers, whilst Airbus teams fly the world with flash presentations & order book in hand offering new train set providing a host of cost effective solutions.
The concern going forward is that any engine changes or more smoothing off of edges of the 737NG may still result in it struggling to match the performance of the 320NEO
Just where do the legacy carriers go then, other than down the pan.
@Phil-While one has to give “congrats” to Airbus for their risk taking & subsequent reward, I do believe once Boeing announces an B737NG replacement (be it NEO, new type, combo, etc.) I expect Boeing to get huge orders as well-maybe not as many at the A32XNEO in 6 months time, but probably > 500 frames within 6 months-especially if the plane will be as efficient as Boeing claims it will be….
Sorry, I don’t believe that for a second if they announce a completely new plane. For a re-engine, depending on the economics, maybe. For a new plane, after the experience with the 787, only if they sell it at a knock-down price, like they did with the 787. If such a plane EIS’s in 2019, and has full ramp up maybe after 1-2 years, there is no way that they get that many orders (or indeed would want that many orders, given the potential delay penalties they imply) at launch.
That seems reasonable. That would give Boeing 5+ airplane models needing engineers between now and the end of this decade. The B-737RE, KC-46A, B-787-9 (and maybe -1000), B-777Advanced (improved), and the NSA. This compares to EADS/Airbus needing engineers for 4+ airplanes, including the A-32X-NEO, A-400M, A-350-900 (and later the -800,-900R, -900F, and -1000), and the A-380-900 or -800R.
The A400M will have type certificate (civil) by year end. Late next year is military certification. Although ramp-up issues will continue to hunt the A400M, the aircraft is pretty much through design by end of the year.
The A380-900 is a bonus program unlikely to happen before 2020, especially considering the huge amount of expended money so far.
The A320 NEO will not require so much engineering work and basically no ramp up, while the A350 will be the main employee in the upcoming years.
The civilian certifacation of the A-400 is meaningless. Military aircraft don’t need a civilian cert. The old C-141 was FAA certified (as the L-300) and none were sold to cargo airlines. A relitively few L-100s (civie C-130) were sold to commerical carriers. The A-400 will get no civilian sales, it is far to expensive. Its sales to military forces is mostly in Europe, and the EADS owner countries. Germany is planning on selling many of their A-400s after they take delivery. Those sales from Germany will compete with future sales from EADS.
The A-320NEO will take more work than you think, the wing must be strenghtened by a lot as the engines are heavier, and the winglets will need extra support than what is in the wing now. It may also need strenghting of the wingbox section. The “one size fits all” A-32X wing is going to coime back to bite them with the A-321NEO work.
I thought the point was that civil certification would be a risk-reduction for the military side. Not meant to garner civvie sales, but get most of the certification work done by an international organization that does that sort of thing more often than the various militaries that ordered it.
all a/c programs take more work and time than assumed at their start.
Strengthening a wing is, from an engineering point of view, not very complex or problematic. And remember that Boeing didn’t have big problems adding massive winglets to the 737 (though that design probably had a bit more margin in it than the 320 design)
Fun fact: NEO selling like hot cake will give the B737NG some breathing. In 2016 and 2017 Airbus production is basically sold out (and C919 or MS21 probably not available), so the B737NG is the only aircraft to buy when you need capacity. However, Airbus sold so many frames to airlines being financially such smallish organizations (like Garuda or GoAir), that “slots” will turn up every other day.
If Airbus was able to get 2 million USD extra above a vanilla A320 at each sale, the NEO program has basically paid itself. I am not sure what kind of incentives Airbus handed out to get so many orders, and I was thinking that more than 50% market share is no objective. I always understood that instead of doing numbers Airbus wants to raise profit margin.
One final word: an order usually goes with an advance payment (at least so I believe), usually 25% of the price. Now, for some airline that would require preposterous amounts of cash they never ever possess. More likely is some sort of “finance” (as a NEO slot in 2015 or 2016 is a safe investment in pretty much any case) from external sources. However, if Airbus gets this money now, the NEO should flooded the company with several billion USD of advance payments in the last 6 month.
As of now there are 276 orders and commitments placed by lessors for the NEO. Therefore, any latecomer to the NEO bandwagon will have more than enough of leased NEOs to choose from in 2016, 2017 and 2018 in order to secure early deliveries.
Now, the big question is, of course, if Airbus will start to look at the possibility of ramping-up A320/A320NEO production to a level of more than 50 frames per month. In fact, the way things are going, 55+ frames per month from 2019 and onwards may not be unrealistic if the suppliers can ramp up as well. For example, if Airbus would increase output by 2 frames per month every year, a production level of 54/55 frames per month will then be achieved by 2019.
I am increasingly concerned that P&W will have problem pumping out so many engines.
By now they have 3 different versions coming into production within 3 years.
This engine is new technology and some teething problems have to be expected.
I think around 2015 many 757s flying transcon flights will be around 20-30 years old.
I heard operatingcosts of a 757 compared to a standard A321 are close to 20% more. But the 757 has clearly better payload-range capability, creating its own niche. Now add more range, cargo space, cabin comfort, far less noise and pollution, together with 15% extra fuel efficiency and part of the 757 fleet going geriatric..
AA, UA, DL no doubt love Boeing. I think at some point the business case for the A321 NEO will get overwhelming.
Oeps, just stumbled over this one ..
http://www.bloomberg.com/news/2011-06-22/american-said-to-be-in-talks-for-100-airbus-single-aisle-planes.html
Thanks for the link, Keesje.
As you know, AA has been in talks with Boeing and Airbus about its future NB fleet for several months now. DL is also talking to both. It is common knowledge that major airlines often talk to both OEMs about a future airplane order and try to sqeeze the best deal out of one over the other.
And there I was believing that AA would never talk to Airbus again after the A300 crash. Must have been an urban legend. 😉
Which enters service first, the neo or the 787? Just askin’
And I’m going to the A320-NEO workshop tomorrow 🙂 I’m curious how exited the hosts are going to be!
The success of the NEO could make a re-engine decision for the 737 very difficult.Production of Leap for 320 plus all the current CFM56 engines on order for 320 OEO and 737 may require a new facility to cater for a 737RE, and that would take some time.
Since when does, “sales mean cash flow,” when there’s no cash besides down payments? In this industry, cash flow comes from aircraft deliveries. So, in a sense, if all ordered aircraft are delivered, then the business does then experience “cash flow.” But, airlines many times change their orders based on the current economy or even aircraft manufacturer changes, so each order cannot be used to forecast actual “cash flow.”
Then, cash from NEO deliveries, as per timing, should not assist R&D investments in the A400M, nor the A380 except for potential follow-ons, but should be significant for A350XWB R&D, especially the -1000, and any other developments in that time-frame.
I still don’t get how Boeing can be claiming the A320NEO is just catching up to the 737NG. Are they trying to say the NG is more than 10%+ more efficient than the current A320?
Boeing claims 738 is 8% more efficient than today’s A320. Boeing is including ownership costs in its computation. After Airbus invests in the NEO, adding to ownership costs, Boeing claims the 738 will still be 2% more efficient.
They seem to have problems leveraging that meme with airline procurement in most parts of the world 😉
Based on how many seats for each the A320 and 738, and what conditions is their comparison? I hope it’s not the same Boeing analyst that compares the A380 and 748 on a per seat basis. He/she would be misguiding his/her own management. I’ve seen figures that the current a320 is more fuel efficient on all all but the shortest flights.
I think we should should view and use assessments of Boeing regarding their own and competitors efficiency with a healthy amount of skepticism. Some analysts proved objective and accurate in their observations, projections and conclusions time and time again. Boeings’ analysts aren’t in that group.
So, Airbus+the engine manufacturers will be spending $1.5bn on the NEO with new engines and yet this will only bring it 2% behind the 737NG with it’s older engines which admittedly have received upgrades over the years? I know salesmen from both sides spew a lot of BS and numeric alchemy, but even this is pushing it. So not only does Boeing have slightly less market share in the NB sector, but it’s to an inferior product. Amazing discounts those guys at Airbus must be giving.
737 … which admittedly have received upgrades over the years?
Just to add to this:
Some like to present Boeing as the only airframer that does continuous imrovements
on their types. This happens to be not the case.
Though the A330 is the Airbus type that has seen the most visible extension of envelope and efficiency the A320 family too has been continuously improved over time ( though maybe with a bit less splashing in the publicity pool.
It would be very interesting to compare gains over time for the relevant types. I would be surprised if Airbus achieves less than Boeing in that respect.
Neither Airbus nor Boeing sit on their hands after introducing a new airplane, they both continually improve them. The A-32X-NEO is just the latest example of that. The B-737NG will also get improvements and PIPs, whether or not they decide to reengine that series or not.