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.
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….