Boeing earnings call may clarify 737RE

Things are moving very rapidly in the American Airlines competition, with the situation changing since Friday. Updates since the article below was published yesterday in Commercial Aviation Online:

  • It appears Boeing will clarify (and this time, really) the preferences for the 737 re-engine over a new airplane as early as the July 27 earnings call.
  • According to this Wall Street Journal article, Boeing is offering the 737RE to American. As recently as last Friday, we were told the 737RE was not being offered.
Date: 18/07/2011 12:13
Source: Commercial Aviation Online
Location: Seattle
By: Scott Hamilton

Re-engining the 737 is gaining momentum at Boeing in recent months and is now at a point where it is likely the manufacturer will choose to go this route, according to sources with direct knowledge of the OEM’s thinking.

The sources remain unidentified because they are not authorised to speak about the programme.

A Boeing spokesperson would only say, “The Next-Generation 737 is the better product, is currently being delivered and is making money for customers. We continue to look at our options until we’ve decided what decision is best for our customers.”

A recommendation from Boeing Commercial Airplanes to the board of directors currently is anticipated for the August meeting, although the situation is fluid and timing could change. But sources say Boeing could reveal the “direction” in plans within six to eight weeks from today, after the board meeting.

Momentum has picked up sharply since the Paris air show and in connection with the hot competition for the big American Airlines order, which is a factor but not a deciding one, in the shift toward a re-engining of the 737.

The shift in thinking became apparent at the pre-Air Show press briefings when Nicole Piasecki, VP business development and strategic integration, spoke in upbeat terms about a re-engined 737. This contrasted with long-standing commentary that acknowledged re-engining was technically feasible but Boeing didn’t see the benefits outweighing the costs.

During the briefing, Piasecki displayed a chart that demonstrated, in Boeing’s analysis, a 737-800RE would have 8% better cash operating costs than the A320neo.

“We feel we are ahead of them today and we that we will be ahead of them after they re-engine,” Piasecki told a group of reporters. “Is their neo going to diminish the advantage? Absolutely it will, and we are going to make our decision to invest in a re-engine or a New Small Airplane (NSA), but we have a very full production line and we know our customers want to see what we will do with a new airplane and they want us to finish the 787, to complete that family, so we have other priorities we’re working in a very measured fashion.”

Piasecki said the assumptions are based on “Boeing’s view on operating costs, not fuel efficiency per seat.” The assumptions are 500 nautical miles in range, $3.22/gal and standard US domestic airline rules. Boeing assumes the A320neo achieves a 13% fuel efficiency over today’s A320 Classic. (Airbus states the gain is 15%.) Boeing also assumes performance improvements for the 737, which Boeing has done on a periodic basis, and none for the A320 other than the re-engine and sharklets.

The priorities of the twin-aisle 777 and 787 families appear to be picking up, affecting the thinking toward the re-engine rather than proceeding with the NSA now, according to a source familiar with Boeing’s thinking.

With Airbus refining the specifications of the A350-1000 with a higher-powered engine, greater take-off weight and 400 nautical miles more range (but no more passengers), Boeing now is becoming more focused on the need to protect the 777-300ER from the emerging competition.

Additionally, Boeing officials speak in glowing terms of the prospective 787-10 and customer demand for the aircraft. Developing an NSA now would divert precious resources from the 777 and 787 development programmes. A 737RE will require far fewer resources than the NSA.

Although a presentation is expected to the Board in August on the 737RE, no Authority to Offer (ATO) is immediately expected, based on information today. Entry into service (EIS) for a 737RE would be in 2016 or 2017, so from a technical standpoint, launch of the programme isn’t necessary until some time next year. But market pressures are building on Boeing, with the American Airlines competition weighing on the company. A decision from American on whether to order Airbus’ neo, stick with Boeing with a combination of 737-800s and -900ERs or split the buy, may come as early as this week. If Boeing loses the order or splits the purchase with Airbus, pressure will mount even further.

Ratcheting up the pressure, Herb Kelleher, co-founder and former CEO of Southwest, said last week that Boeing should launch the NSA with an EIS in 2018, one to two years sooner than Boeing has been talking about, or failing this, go forward with the 737RE. If Boeing proceeds with the RE, the NSA would move to the right with an EIS between 2020 and 2025, according to CAO’s information.

Delta Air Lines is also in the midst of a competition to replace the Boeing 757. The contestants are the 737-900ER and the A321neo.

United Continental Holdings is expected to issue a request for proposals within the next 12 months to replace the 757s and oldest A319s/A320s at legacy United. United is now managed by the Continental Airlines team, which favored Boeing exclusively, but this preference is by no means certain at the combined carriers.

5 Comments on “Boeing earnings call may clarify 737RE

  1. Pingback: Speculation: AA may split order between Airbus & Boeing - FlyerTalk Forums

  2. Why don’t they just come out and say we are building the B-737RE, and here are the numbers comparing it to the A-320NEO.

    • That may be because to have smoke you need a fire…

      At the moment it appears that Boeing is still collecting wood.

  3. KC, yes why?

    Maybe they are not favorable at first sight & they need some time to select “typical” numbers that make a 737 RE look good. Randy’s department and then the PR department.

  4. Airbus cannot come out with any numbers to dispute what Boeing says…..the B-737-800RE will have a total cost for the customer that is 8% below that of the A-320NEO. Why can’t Airbus dispute those numbers, because they don’t know what Boeing is doing, or how they will do it.

    I think Boeing can back up their numbers, or their customers will see right through them. That is the part that ‘ol John boy (Leahy) is worried about.

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