Note: According to the Puget Sound Business Journal, the new name for the 737RE is the NE737 (presumably for NewEngine). Dunno about you, but we are underwhelmed.
Note 2: On another topic, Boeing got certification of the 747-8. Delivery is expected next month.
Here is a piece we did this week for Commercial Aviation Online:
|Commercial Aviation Online
Studies by Boeing to increase production of the 737 to as high as 60 a month cannot be justified by demand through 2020, or even 2030, according to a new analyst report by Wedbush, a Los Angeles-based investment bank.
In a 16 August research note, Wedbush’s aerospace analyst Kenneth Herbert believes a rate of 50 per month can be supported by 2015 through 2020, but that global demand and competition from new entrants in the 100-200-seat market means Boeing and Airbus can only justify this rate for the 737 and A320 families.
Wedbush also predicts that Boeing will keep production of the 737 re-engine at Renton (WA). Boeing’s CEO, Jim McNerney, said on the manufacturer’s second quarter earnings call that Renton was not the automatic choice for assembling the 737 re-engine and that other options would be considered. Boeing commercial airplanes CEO Jim Albaugh said separately that it will be six-eight months before a decision on the assembly site will be made.
Wedbush’s Herbert believes Renton will prevail because of the economic and production risk of building the airplane at an entirely new location. Wedbush characterises a new production site as having high cost for a “relative low production volume.” By keeping the 737 at Renton, profit margins for the 737 programme can also be retained, although Wedbush foresees pricing pressures on the 737 in the second half of this decade.
To make room for the 737 re-engine at Renton, Wedbush foresees Boeing moving the 737-based P-8A Poseidon sub-hunter production to nearby Boeing Field. Shrouded with defense secrets that can complicate a shared production line with a commercial product (though Boeing will do this for the 767/KC-46A), the P-8A is in a separate building a few yards from the 737’s two production lines. However, Boeing’s Pat Shanahan, VP of aircraft programmes, and Nicole Piasecki, vice president of business development and srategic integration, both said a third commercial 737 line can share the building with the P-8A.
Wedbush called Boeing’s decision to move ahead with the 737 re-engine instead of a new small airplane as clearly “the right decision.”
Although Wedbush believes the 737 re-engine design development is six-12 months behind Airbus’ A320neo, despite Boeing’s work on the re-engine for at least two years, Wedbush thinks Boeing will begin to recover market share once the board of directors formally approves the programme, in part through “aggressive pricing.”
Wedbush estimates American Airlines, the launch customer for the 737 re-engine, may have secured a price of $45-$50 million versus an estimated sticker price of $85 million.
Boeing would have seen its market share for the 737 decline to 35%-40% for the medium term had it pushed ahead instead with the new small airplane, says Wedbush. As it is, Wedbush predicts Boeing will end this year with 300-400 737 orders compared with the A320 family of between 900-1000 orders.
(Airbus has already announced nearly 1,500 orders for the A320neo, but whether all will be transformed into firm contracts by the end of the year remains to be seen. Doing so is a major goal of Airbus’ John Leahy.)