For Boeing: when one door closes, another door opens

There’s a saying that when one door closes on an opportunity, another door opens. This is the case with Boeing’s decision to proceed with a 737 re-engine. We first wrote about this in a previous post. Max-Kinglsey Jones of Airline Business picked up the theme in his recent blog.

There’s no question Boeing’s march down the path to re-engining was driven by Airbus, it was embarrassing and it was messy. Having said that, the re-engine frees resources and money to concentrate on getting the 787-9 right, launching the 787-10 and deciding what to do with the 777-300ER to meet the competition of the re-defined A350-1000.

Checking market share attrition

The 737RE will help Boeing manage the market share attrition to Airbus that is inevitable with the NEO. Had Boeing done nothing the with 737NG except undertake periodic Product Improvement Programs (PIPs), market share loss was, in our view, certain. As the American Airlines order demonstrated (and what is largely overlooked in analyst commentary), the US airlines that delayed in re-fleeting now have needs so great that no one company can supply the planes needed in the timeframe required; Airbus encroachment at American is something we predicted long ago.

The same is becoming increasingly likely at Delta Air Lines and legacy United Airlines, where large aging fleets of Boeing 757s and the Airbus A320 family mean big orders are soon to be forthcoming. Delta is already evaluating the 737-900ER vs the A321/321neo in a formal RFP, and a decision is supposed to come by Thanksgiving. United’s Continental Airlines-driven management is informally evaluating the “numbers,” but it’s unknown when a formal RFP will be issued.

All things being equal, the airlines would rather have one fleet type. But with NEO delivery slots rapidly disappearing (though lessors hold hundreds), and with Boeing yet to squarely define just what the 737RE is—coupled with an EIS one-two years behind NEO—the airlines are most more likely than not going to be faced with splitting orders to accommodate their needs.

At the upper end of the single-aisle market, this will largely be between Airbus and Boeing, though COMAC and Irkut will benefit from home markets and the occasional renegade sale. For the lower end of the market, Bombardier and Embraer should benefit.

New Opportunities

For Boeing, the small- and medium-twin aisle product strategy in theory has advantages over Airbus. We say “in theory” only because of the interminable 787 program difficulties. But let’s grant that Boeing will finally have these fixed in the next four to five years and the industrial partnership, and Charleston, are running smoothly.

Development of the 787-9, with the 787-8, covers a portion of the market that Airbus has largely forfeited. Airbus claims the 787 is too small, but the -8 has more than 500 of the 850 orders, and while even Boeing predicts an even split as some airlines choose to switch to the -9, the highly capable A330-200 is aging. Only Boeing has a new technology offering in the 210-250 segment, with the A350-800 coming in slightly above this to compete with the 787-9.

Boeing needs the 787-10 to compete with the A350-900, which has proved to be a popular-selling aircraft, and to replace the 777-200ER. Officials say they could sell large numbers of the 787-10 right now if it available, and we think they are spot-on. At 6,900nm, it will be well short of the other 787s and the A350s, but the range is more than adequate for most routes.

Boeing’s resources may well be better off on the 787-10 than a New Small Airplane in a market where Airbus placed its bet on the NEO rather than an NSA of its own. The same may be said for upgrading the 777 family vs the A350.

It’s certainly too soon to handicap whether Boeing will have to replace the 777 with a New Large Airplane (NLA), but at the very least, major upgrades to the 777 will be necessary to meet the competition. Airbus is promising operating cost improvements of 20%-25% (depending on the model-to-model comparison) of the A350 vs the 777.

If indeed the gap proves to be this great, Boeing will have to proceed with an NLA. On the other hand, if the A350 proves to be only 15% better than the 777, Boeing might be able to close the gap to within competitive shouting distance with engine and wing upgrades, aerodynamic improvements and weight reductions—a 777 Advanced, if you will (which is being looked at in the form of the 777-8X (200) and 777-9X (300)).

Boeing has often said it would not undertake two new airplane programs at once. If it had proceeded with the NSA, this would seemingly preclude an NLA if you accepted officials’ statements as firm, future policy. Going with the RE gives Boeing more flexibility to pursue the 787-10 and the 777-Whatever.

So, as they say—when one door closes….

26 Comments on “For Boeing: when one door closes, another door opens

  1. Summing up: Boeing “winning” the race to the bottom, or at the very least, mediocrity…

  2. We still need to wait until we will know what the A350-1000 will be or will not be. Until then, there is not much to say.

  3. It is more like giving up levy because the polder behind is (unexpectedly) swamped
    and you have to wait for low tide to start any renewed land landreclamation.
    Boeing has just been reduced to a smaler perimeter ( for a time or for longer,
    that is still open ).
    Certainly, on paper that is more engineering resource per objective.

  4. IMHO and speculation regarding a new “737NEW” or whatever designation, I wonder why a 767 derivative optimized for 737 short and medium routes might not be considered. With twin isles and good cargo capacity and incorporation of all electric, it would seem that such a plane would have faster turnaround times, adequate performance, etc. IOW a updated 767-200 might fit the niche short to medium market much better now than 30 years ago. Initially a 767-100 was in the works, with about 180 seats. But industry demand at that time was for a longer range- medium haul market, so it never got past the design stage.

    Seems to me, the body size and fabrication could stay the same – aluminum- and wing size might be more amenable to composite. Landing gear and many other parts could stay the same as the 200 series, yet room enough for some growth which sould not interfere with 777 or 787 route structures.

    yep a new updated production line would be needed, but most of the technology and learning will be available much sooner than an all new 737.

    Comments ????

    • The things you envisage for a 767 derivative will not work for a niche product. A new production line is a very expensive NRC. To make the aircraft all electric, you have to kill the complete systems architecture and have to build a new one. That leads to massive costs. For just a niche product, lets say 250-300 units, a business case might be difficult to achieve. The 737NG has AFAIK basically the same systems architecture than the 737 classic. Some changes here and there, but i.e. the flight controls are basically the same 1960ies legacy. I don’t expect the 737NE to have expensive system changes as well. The costs will be too high and the integration into the current manufacturing sequence with such a high output rate per month will be too risky.

      • Anyway, “all electric” seems to have only boasting value.
        No real weight savings and imho too much assets dependent
        on one type of energy.

  5. The AA order might have also opened the door for Boeing to get more orders from DL/NW and CO/UA than it would have gotten previously based on the fact of availability, unless Airbus has some 300 more slots reserved(I don’t see it, they probably have more about 100) or DL and CO don’t have any rush to start receiving new planes for about 10yrs.

  6. Scott, you are right, Boeing does have several option for the coming years, now that the B-737NE is (apparently) settled. The question now is, what will the McBoeing management want to do? They have missed the boat now for close to 15 years.

    For the B-787-10 to proceed, the first thing Boeing needs is higher thrust engines. The Trent-1000Z engine may have enough at 77,826 lbs of thrust (but only certified to 74,000 lbs), if it can grow. It has a BPR of 10.8:1. The GEnx-1B70 has about 72,300 lbs of thrust, but has BPR at 9.6:1 will have to grow to meet the thrust requirements of the -10.

    The remaining questions is how much capabilities in range, pax/cargo capacity, etc. is needed to make customers like QR, EK, EY, and others, happy ordering it. Some of these airlines want to provide non-stop service from AUH, DXB, DOH to SFO and LAX. I doubt Boeing wants its (proposed) B-787-10 to be a duplicate of the A-350-900, so they need to do something different with the B-787 that the A-350 cannot do, in its current form.

    For the B-777, Boeing needs to go beyond a PIP, NG, or RE project, except for the B-77F and a possible future tanker versions. They need to seriously look at the NLA. To do this they need to shed the McBoeing moniker and go back to being just Boeing. In other words a management change.

  7. From the Max-Kinglsey Jones of Airline Business recent blog

    “And guess what their next task will be? You can bet it will centre on nailing the 777 refresh/successor programme to blow the A350-1000 out of the water (now they have a better idea what that beast will actually look like).

    And don’t take my word for it – that was the surmise that a certain industry icon with the initials SUV made to me a couple of months ago, and he knows a thing or two about product development.”

    Good to look forward & Udvar H is a great visionairy guy. But lets not forget he was “blown out of the water” during the last few months, advising Boeing to not re-engine the 737.
    http://www.assetfinanceinternational.com/air-finance/678-news/2864-udvar-hazy-says-no-to-re-engined-planes

    – The A350 is much lighter/leaner then the 777 which ever engines you hang under it.
    – The 787-10 will be a great plane but lets remember the 777-200ER succesfull because of payload range. Boeing said they want to do an “A333” with the -10, but can they ignore Asia-Europe, Asia-US requirements?

    There is a niche I guess, but lets do the 787-9 first.. A year ago Steven Udvar-Hazy said the 787-9’s operating empty weight is around 14,000 lb (6,350 kg) overweight wich could be an obstacle for a 787-10. And we have learned the hard way not to automatically ignore / dismiss such unconfirmed rumors on the 787 program.

  8. agreed , the AA order perhaps was the best thing that happened to Boeing; the market settled what Boeing had to decide – higher efficiency in the short term , without waiting for the next 9 -10 years , disproving the stated position of Boeing Chairman.
    As is clear now, Boeing has to take the attack to 330 with -10 ,for which it has execute much better than its track record on 87 so far.Will Boeing learn and how fast ?
    on the -1000 threat , it is time, Boeing did something in the next year or so in terms of a decision – if they learnt any thing, it has to be a new plane nor another NG – an NG would be a defense and Boeing is not that good in defending its turf.Great companies take the initiative and win in the market place , not playing defense ,when technology leapfrogs your existing best seller.
    so the product strategy is set for Boeing -literally by the market , customers and competition.Now the ball in in Boeing’s court- will they make up their mind , lay our a clear road map , commit resources and most important -execute , learning from their mistakes since 2007.
    Finally hope Boeing will get the RE defined to match or exceed the improvement in Neo efficiency -without any half baked solution , to save some capital.

  9. Please don’t forget there are o ver 850 MD80’s out there. The Dugan Ejector Thrust Reverser changes the refeence to this airplane from guzzler to thrifty. It will save 20% more fuel on an average 1000 SM trip than a 737NG

  10. Good evaluation Scott,
    Having given the latest developments at Boeing further thought and in addition to my comments to yours on the 19th, I wish to highlight again, that it is in my opinion inexcusable for Boeing and GE, given the surge in A320NEO orders from the beginning of this year,
    NOT to have done what they did at the last minute, to prevent AA from going all Airbus.

    With the 787/747-8 troubles, I now fully understand, that there really never was a serious possibility for Boeing to launch an all new 737NE, the only aircraft that would have been a better aircraft than the A320NEO with either of the two new engines from Pratt and GE.
    However, even the possibility of reducing the fan-diameter of the very poorly selling LEAP-X engine was never mentioned, which appeared to indicate that it could not be done.

    THE KEY to re-engine the 737 and NO LONGER offer an all new airplane, was, I believe NOT a Boeing decision in principle, but a last minute and desperate attempt by GE, to modify their slow selling LEAP-X engine on the A320NEO!
    It was that decision by GE, to reduce the fan diameter of their new engine so that it will fit underneath the 737 wing WITHOUT any major structural changes, which made the 737RE the only and most effective solution for Boeing and make the last-minute offer to AA, which not only avoided a major disaster for Boeing at AA, but will now enable Boeing to compete effectively with the A320NEO from Airbus, for many years to come.

    Ironically, exactly the same thing happened 30 years ago and also following a desperate move by GE/SNECMA, when they also offered to reduce the fan diameter of the CFM-56 engine, so that it would fit underneath the 737-200 wing, also without major structural changes, which made it possible for the 737 program not only to survive, but to become the most successful commercial airplane and aviation history!

    Why Boeing and or GE did not think about this simple and historically proven to be a “perfect” in-house solution earlier, can only be attributed, I believe, to further evidence of inexperience in commercial aviation matters, if not incompetence, at the highest level in
    the present Boeing and BCA managements!

  11. I’d say that Airbus has most of the open doors at the moment :
    Open door for the A320 NEO to gain market share in narrow bodies (757 replacement at least)
    Open door for the A350 to gain market share in wide bodies
    Open door for the A400M to gain market share in military airplanes

    In other words, Boeing has more to lose and less opportunities than Airbus which is more aggressive in R&D spendings.
    On the Boeing side, the doors will open only if General Electric provides the key : GE engines. It’s obvious in the 747-8, 737 RE and the 777 RE cases. Boeing is now really dependent on GE.
    Other thing : Boeing didn’t lose the tanker contract but the price to pay is very high. And it opened a door to Airbus which can use its resources to other (more profitable) projects.
    So the “when a door closes …” saying works for Airbus as well. And for any company which doesn’t hesitate to take risks and to spend a lot of money in R&D (something the McBoeing management is reluctant to do).

  12. Naming the Re-engined Boeing 737NG
    From Boeing 737NG – New Generation
    To
    Boeing 737NGE – New Generation Engine/Enhanced, or
    Boeing 737NEW – New Engine, Wider, or
    Boeing 737NEX – New Engine eXtra

    The Boeing 737NG re-engining should be simple and budgeted at $1 billion maximum to fund for the Boeing 797 introduction in 2020.
    Other design criteria
    Minimal Boeing 737NG production line disturbances
    Maximum Boeing 737NG commonality
    15% operating cost advantage over Boeing 737NG
    Wider cabin with better wall interior fittings
    Better more spacious seats and seating configuration, similar to Air New Zealand concept

    It should come out before the A320NEO at the -800 version size in 2014, then the -900 version in 2015. If the costs are right, these can be assembled in the Long Beach C-17 plant that is winding down production. And/Or in the area of the new 787 plant in South Carolina.
    The -700 and -600 versions should transition directly to the new Boeing 797 to cover the CSeries and new Embraer competitors.

  13. John Dugan :
    Please don’t forget there are o ver 850 MD80′s out there. The Dugan Ejector Thrust Reverser changes the refeence to this airplane from guzzler to thrifty. It will save 20% more fuel on an average 1000 SM trip than a 737NG

    is this for real

    or

    an advertisement

    if it’s real, it will be good for delta with lots of md’s

    • its a real adv simply google it

      are the numbers real ? probably 50% true- 50% hyperbole or correct for a VERY limited range of conditions.

    • Well taking words form the horses mouth:
      http://www.dugankinetics.com/operator-benefits/fuel-savings
      they advertise for ( relative to the base model!)
      -9.8% fuel for climb
      -1.2% .. 7.8% ffuel or cruise
      -1% fuel for descent ( actually only hold pattern ?)

      my guess is one will be very lucky to gain 6..7%++ over all.
      How much worse than the 737 is the base MD80 ( family ) again?

  14. Given that A320 NEO engineering is pretty much done on the running and A350-1000 will be manageable, Airbus has resources available from 2015 on (and always remember that early program resources are different from late and mid program resources, a program in its early stage occupies different departments than one in its prototype stage). That means it can actually launch something with EIS 2022ish.
    Probably a new single aisle, while experts suspect that even then no new technology exists that allows a really new single aisle.
    But what about a small widebody with lower range and GTF?

    Whatever the strategy of each company is, their respective products give each a niche in which they offer the best product and will consequently achieve best margins. Airbus will have the superior single aisle product. Boeing will have the better small capacity widebodies.
    In the intermediate segment both will have good products and particular airline needs will decide which one comes out first. On the upper end the B777-300 can defend part of its position when being re-engineed and slightly upgraded, although the A350-1000 will eat considerably into the sales margin.
    The A380 rules, while less stellar than originally anticipated.

    One fact remains: if the A350-XWB doesn’t become a nightmare of similar proportion as the B787, Airbus remains in a cash-strong position throughout the second part of this decade.

  15. The Max-Kingsley Jones blog mentions that someone approached P&W about the possibility of developoing a GTF for a WB. It seems he assumes it was Boeing but what if it was Airbus? Coupled with the comments out of Paris about an A330 NEO, it might have more traction than most have given it credit for.
    Especially if the 787-8 does not quite perform as advertised and if Boeing is indeed now starting to sell them at profit-making prices.

    Schorsch has made a real and relevant observation. Much hangs on Airbus’ ability to perform on the A350. That they are slipping is a given. The million dollar question is how much further will they slide?

    • At the Farnborough Air Show in 2008, PW made the reference Kingsley-Jones notes. We asked Airbus if it was them and they said no. We asked Boeing and Scott Carson (then CEO of Commercial Airplanes) didn’t deny it but he didn’t confirm it either.

  16. @ Aero Ninja: “Schorsch has made a real and relevant observation. Much hangs on Airbus’ ability to perform on the A350. That they are slipping is a given. The million dollar question is how much further will they slide?”

    I think the question is, if they slide much further, why? There is nothng we know about the A350 program that indicates A has done anything like B’s botch of the 787 production plan. For all I can see, A has a sensible, well planned, realistic development plan, which most importantly relies on carefully choosing it’s suuppliers/partners, and being intensely involved with them in design and construction. There are signs indicating A’s concern that the A359 may be significantly delayed; eg. A’s apparent shift of resources to the -9 from the 358 and the -1000 delay. But these do not appear to result from their suppliers’ inability to produce proper parts or A’s being in a weak postion re suppliers because they signed congtracts under which the suppliers own their designs. If anything, they arise from the normal problems the plague huge, new tech efforts.

    Just the opposite is true of the 787. This monster suffers even today from delivery of sections that are filled with travelled work. It looks like even now B cannot control its suppliers. For years B has been misleading/lying about the 787 program, and it has not stopped. They said 20 plus deliveries this year, but Dominic Gates’ recent pieces make clear that they have not got any idea when all those turkeys stored hap hazadly around their factories will be deliverable. The best guess now, and all it is is a dart board guess, is 3-5. And they have just announced another delay in NZ’s 789. So much for the spin that all will be well with the 789 because they have “learned” from the 788 fiasco.

    I think B’s failed relatinships with its suppliers will plague the 787 like a Chinese water torture throughout its program, and reslut in constant delays, which right now raise the real prospect that BCC will collapse or the whole company will be forced into Ch11. All it will take is one big defection by a customer which is finally convinced that B cannot tell the truth about the 787 program because they will never know the truth, coupled with A’s announcemesnt that it will do the A330NEO/ER, and other 787 customers will disappear like “rats leaving etc,” while demanding unending compensation for breach of contract. Albaugh himself has said that airlilnes care about seats in planes that work, and there is no real prospect that B wil be able to continue to convince their customers that the 787 will work any time soon, or, most imprtanctly, that B will ever be able to produce them in large enough numbers to deliver them to their customers in any time frame that is meaningful to them. The less risky choice will be to try to get A to up A330 production to 20/mo and buy those until the A330NEO arrives.

    • I have been wondering if there are any repercussion from
      Boeings spastic relationship to suppliers and the resultant
      vagaries over to delivering on time for Airbus.
      Boeing has bound capital, engineering, tooling, workforce
      and _attention_ at their suppliers to no end.
      A majority of these suppliers also try to make Airbus happy.

      But what outcome if they are hamstrung on resources?

      • Very good question. My assumption is that A knew enough about their suppliers’ relationships with B to decide whether they could be reliable suppliers to A. Spirit being a good example. A must have been hyper sensitive to this question when they were choosing suppliers because they could see B’s relationships with their suppliers unravalling before their eyes (plus A had lots of intelligence from within B’s supply chain). But who knows. This whole question of supplier reliability has just gone up a notch with AA’s order, at least in this country. Where are all the engineers and competent workers going to come from? How will the overall pressure within the industry to perform affect suppliers for current planes? May be a great train. I mean, plane wreck.

    • “I think the question is, if they slide much further, why?”
      Let’s just say I am not so convinced they have learned all of their lessons from the A380 fiasco (the CATIA version difference being used as the general excuse to cover many other problems too numerous to mention) and would not be surprised if they still have some problems with execution.

      Perhaps I am being too pessimistic but that is, for me, the question.

  17. Doors, what all this talk about doors? The Chinese built C919 is being looked at seriously by RyanAir and others could follow. As I said before there are more players now in the Single Aisle world and the games afoot.

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