Part 2 of two parts.
With multiples and multiples of billions of dollars at stake to develop new airplanes, and the billions of dollars of cost overruns at risk, it’s understandable the Airbus and Boeing are shifting to looking at derivatives and incremental improvements now for the lower-risk and ability to “harvest” technology across family lines.
This is hardly new. Airframers have been doing this since the Douglas DC-1 prototype begot the DC-2, which led to the DC-3. The Douglas DC-4 was the basis for the DC-6 and DC-7, for which there were A, B and C versions. Lockheed revamped the L-049 Constellation through several major upgrades (the -649, 749, 1049 and 1649, with several sub-sub-types in between). Convair created the CV-240 and revised it twice with the CV-340 and 440. The Martin 202 became the 303 (dumped after design issues with the 202) and the 404.
The trend continued into the jet age. Douglas created the DC-8-10/20/30/40/50 on the same basic airframe and really went to town with the DC-8 Super 60 Series. The DC-9-10 became the -20/30/40/50, the Super 80 (in four variants) and the basis for the MD-90 and MD-95. Boeing’s ground-breaking 707-120 became the 138/227/320B/C, the 707-020 (more commonly known as the 720), the C-135/KC-135 and a number of other military variants. The fuselage was the basis of the 727, 737 and 757. And so on. (Text continues below the photo.)
European manufacturers of the early jet age followed the same pattern. There were four commercial versions intended for the deHavilland Comet. The Hawker Siddeley came in multiple versions, as did the British Aircraft Corp. BAC-111.
Bombardier created several versions of the Dash 8 turbo prop and the CRJ regional jet. Embraer has four versions of its E-Jet, reduced to three in the forthcoming E2 re-engined derivative.
Derivatives usually are successful, but not always. Often there becomes a “derivative too far.”
The small Boeing 737-500 sold reasonably well, 389, but its upgraded counter part, the 737-600 proved a dud with just 69 sales. The 737-7 MAX has done even worse: 55 sales to just two customers. We doubt this model will ever be built.
The Airbus A319 sold more than 1,500 in its original version, a solid number by any standard, but the upgraded A319neo has just 49 sales. The smaller A318 topped out at 79 sales.
Specialty airplanes haven’t done well, either. The Douglas DC-8 Super 62, designed to be a an extended long range airplane of the era, garnered just 51 orders. The more recent super-long range airplane, the 777LR, has sold 59; the last commercial airline order was three years ago. The -200LR replacement, the 777-8, is unlikely to do much better. The 747SP did worse, selling just 45.
Boeing’s decision to proceed with derivatives for the 737 and 777 rather than new designs stemmed from the debacles of the 787 program, which in turn adversely affected the 747-8, inducing two years of delays and adding billions to the cost.
Boeing ridiculed Airbus for proceeding with the A380 but went ahead with the 747-8, which has done far worse. The A380, no barn-burner by any means, has 314 net sales but the 747-8I has 51 sales (19 t Lufthansa and several head-of-state orders). There have been 67 747-8F orders. Boeing has already taken a write-off of more than $1bn on the program and is likely facing another big charge and a production rate cut. Outside of the public face of Boeing, there are few who believe the program has much life left and when talking to Boeing personnel privately, they almost to a person agree. This is clearly an example of a derivative too far.
So were the Airbus A340-500 and to a lesser degree the -600. One can argue whether the A340 was a mistake, but at the time of its launch, ETOPS was in its infancy and two-engine safety over water for extended flights was still a matter of some disagreement. The A340 simply came along at an inopportune time. Developing the super-long range -500 fell into the specialty airplane tap and the -600 was hampered by thirsty engines at a time when twin-engines had made four-engine aircraft obsolete. Bad timing all around.
Boeing’s 787 family now consists of the -8/9-10. The 10 has 139 orders, but sales have largely stalled since its launch. There are 459 orders of the 8 and 456 for the 9. Why isn’t the 10 selling better? It’s the largest family member, at a nominal seating of 323, with decent range of 7,000nm. Economics on the airplane should be at the top of the industry.
When we talk to people in the industry, comments range from the 10 will be a “niche” airplane to the line is sold out to 2020. The consensus opinion, however, is that Boeing is simply demanding too much money for the value received. The 10’s list price is $297.5m, $40m more than the 9 and $32.5m less than the larger, more capable 777-300ER.
Boeing’s 737 MAX family is a story of Good News-Bad News. The program has nearly 2,300 firm orders, clearly a success. But the MAX 7 has only 55 and the MAX 9 perhaps 350-400 when making some allocations of the Series TBD category–not bad, but trailing the competing A321neo by a factor of more than 2-3:1. The MAX 9 is widely recognized to have field performance issues. It can’t get off a 10,000 ft runway with maximum payload and fuel, according to our sources and our own calculations. The poor-selling MAX 9 is a get reason why Airbus retains about a 60% market share in the single aisle category and why a survey of an audience of 1,200 at the recent ISTAT conference in Istanbul showed 50% believe Airbus now has the better competitive single-aisle airplane vs 23% for Boeing–a market perception that must strike a dagger in Boeing’s ego.
Airbus announced it will re-engine the A330 and incorporate some other improvements. Boeing quickly began to talk down the airplane, to be point of being insulting-which tells us it’s worried about the A330neo. (Airbus resorted to the same tactic against the Bombardier CSeries.) Boeing routinely compared the 787-10 with the A330neo and boasted the 10 has 30% better economics. When you consider that 10 carriers 35 more passengers, you can see why Boeing would make this claim–but Boeing’s silence on comparing the 787-8/9 with the economics of the A330-800/900 is deafening.
Our own sources inside Boeing tell us Boeing is, in fact, quite worried about the challenge the neo presents to the 8/9, particularly with Airbus’ ability to price the neo much lower than the 8/9.
Embraer comes in almost as an afterthought in such discussions because with jets seating 75-122 passengers, the E-Jet is essentially overshadowed by the sex, sales and bickering at the Airbus and Boeing levels.
Some make an argument that Embraer was wiser to choose the derivative route in proceeding with a re-engined E-Jet, the E2, than was Bombardier in designing a new, clean-sheet jet. BBD had no choice: its CRJs are out-classed by the E-Jet and the CRJ-1000 is another example of a stretch-too-far.
Furthermore, the E-Jet aircraft isn’t that old–although design does, indeed, date to the late 1990s (the E-Jet entered service in 2004), wings and engines make the airplane and the E2 will have new designs of each. With a large, installed customer base for what is now known as the E1, EMB faced a much easier sales task than BBD did and does for the CSeries, for which a customer base must be created. In many respects, on a number of levels, EMB’s decision to go with a derivative was the classic no-brainer.
Despite the Airbus/Boeing strategies today of pursuing derivatives and harvesting technology, we are firmly convinced Boeing has no choice but to launch a 757/737-9 replacement in 2018, followed in two years by a replacement for the 737-8. The 737 has been taken as far as it can go. The MAX 7 is dead and the MAX 9 is struggling. The recently launched MAX 200 will be a highly niche airplane that will limit its appeal. This makes the MAX family basically a plane-and-a-half family.
The A319neo, if it is built (we think this more likely given special hot-and-high condition of Avianca Columbia) has already been reduced to today’s A318. The A320neo and A321neo are selling very well. Both are subject to incremental improvements and we expect to see more that will further enhance their competitiveness and capabilities. But when (not if) Boeing launches a replacement program for the 757/737, Airbus will have to follow.
It’s almost 2015 and 2018 isn’t that far away. For the purists who want to see new airplanes, we don’t think you will have long to wait.