Filling the gap until re-engine

Reuters has this interesting story from Airbus and a focus on selling the A320ceo (Current Engine Option) to fill in production slots in 2015-17 (2013-14 slots are sold out) while waiting for the A320neo (New Engine Option) production to ramp up. The A320neo is slated to enter service in October 2015, followed in six month increments by the A319neo and A321neo.

Concern about selling the current generation A320 (and the Boeing 737NG) at prices that won’t depress residual values is rearing its head again, alluded to in the Reuters story. The impact of the re-engine programs on the current generation A320 and 737 was a major talking point in the months leading up to the RE decisions by Airbus and Boeing. These concerns were pooh-poohed by both companies. But if Airbus (and perhaps Boeing) have to deeply discount sales of current airplanes to fill production slots, then this will depress values of the installed base.

Furthermore, UBS Securities just visited Boeing with more dismal news to values. UBS writes that Boeing acknowledged lease rates and values of second hand aircraft will likely weaken as production rates ramp up. Airbus and Boeing both have announced rates of 42/mo (Airbus by the end of this year and Boeing by 2014) for their single-aisle airplanes. Airbus is studying going to 44 and even 60 and Boeing has openly signaled its intent to go to 60 for the 737. This will put more pressure on lease rates and values.

 

10 Comments on “Filling the gap until re-engine

  1. That has always been a problem, as far back as the coming of the jet-age.
    But, with some pain and suffering, the industry always got thru this period,
    mainly because of the (big) gains achieved with the newer and more efficient
    aircraft.
    In this case, the expected rise in fuel costs will be the driving force, obsoleting
    many of the older less fuel efficient aircraft, no matter what!

  2. For both Boeing and Airbus, it is more important right now to keep the current lines of the B-737NG and A-32X fully up in production. At least until the lines each reach 42 aircraft per month. It will effect the used airplane market, but to offset that mayby going above 42 per month for the B-737NG and A-32X is not the best business decision either OEM can make.

    I guess it all depends on what the sales staffs at Boeing and Airbus have promised for delivery slots for the B-737NG and A-32X.

    I agree with Rudy, this will cause some pain for each OEM, but both will survive and get through it. Because of the 5 year gestation period for the A-320NEO and the B-737MAX, the pain and suffering to the bottom line will last that long, as the current B-737NG and A-32X are each respective company’s cash cows..

  3. Shouldn’t the sales of the 777’s and a smoother delivery schedule for the 787 provide additional cash flow during this period to make up for the gestation period.

    • Yes, it will as will the A-330 program at Airbus to some extent. But the B-777, B-787, and A-330 cannot make up for the profits of the B-737NG and A-32X programs as they currently stand.

  4. The sales success of the NEO and MAX models, strangely, should make selling the CEO models easier.

    In a word, availability. Last year perhaps you got to choose between an A320 CEO in 2015 and NEO from 2016 on. It’s worth waiting a short time for the NEO. Now perhaps you can get the CEO in 2015 but have to wait until after 2018 for the NEO.

  5. Following my comments of March 5, above, I read Av. Week dated March
    5, 2012, with a detailed account on this subject on p. 24 and how seriously
    the airline industry today, is already suffering today, because of “unsaleable”
    relatively new used aircraft!
    As an example, grounded 737-600s operated by bankrupt Malev Hung. Airl.,
    are being parted out rather than remarketed for lease or sale, primarily
    because of the relatively high fuel prices!

    • But Rudy, the B-736 and A-318 are unmarketable anyway, except maybe as government or VIP aircraft. Also there will be no B-737-6MAX or A-318NEO, both OEMs have decided not to compete in the 100 seat market, leaving it open to the C-Series, etc.

    • And reading into the future why would the A319 and 737-700 not see a similar fate, due to their higher casm against the increasingly more capable A321 and 739?
      Out of 61 737s deliverd in two months, only 1 is a -700. I’m guessing there will be less than a hundred more produced before that size is history, similar for the A319.

  6. There’s a string of new lighter, streched “max neo” regionals that is putting the smaller A320 and 737 versions out of business.

    Due to higher fuel costs, commonality of these aircraft with their larger brothers and sisters no longer stacks up against those relative high operating costs.

    The CSeries, COMAC ARJ, Sukhoi Superjet and Embraers will take over. All with better engines and stretches into the sub 150 seat category. For these smaller aircraft range above 2000NM is a niche requirement and cargo goes by truck.

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