Feb. 25, 2015. c. Leeham Co. When Boeing CEO Jim McNerney last year suggested that a replacement for the 757 could be based on the 787 or the 737 MAX, the statement conjured up visions of resurrecting the 787-3 (the short-range version of the 787-8) or further developing the 737-9 into a larger “737-10.”
We were skeptical then and remain so now.
The idea of a 787-3 resurfacing into a 4,500nm airplane to replace the 757 is a dog that just won’t hunt. As Nico Buchholz, the fleet manager for Lufthansa Group, told us, the 787-3 is just “too much airplane.”
We couldn’t agree more, and the idea of a “787 Lite” is a simplistic suggestion that doesn’t fully think through all the issues.
The development of a “737-10—“ a stretched, new-winged, taller, higher-capacity 737-9 is a quaint idea with problems of its own. It needs a larger engine than the CFM LEAP-1B and as described here becomes, essentially, a three-quarters new airplane. What’s the point?
Boeing’s blithe dismissal of the market potential of the Airbus A321LR misses the point—publicly. Our Market Intelligence indicates that internally, Boeing hardly misses the point.
Public focus by Boeing, and some industry observers, on the 40-60 757s that ply the Atlantic today ignores the market potential Airbus sees for the A321LR: expanding similar operations from Europe to northern Africa; Australia to South Asia; and the southern United States to all the major cities in South America. While we don’t go so far as to say the projection of 1,000 A321LRs by Airbus COO-Customers John Leahy is “laughable,” as suggested by Boeing’s VP of Marketing Randy Tinseth, we agree that this figure seems unrealistically high. More realistic is the projection that Kiran Rao, EVP of Marketing and Strategy for Airbus, told us when we revealed the A321LR program in a world exclusive Oct. 21 last year that the market was 200-400.
Even this projection is hardly the point. We believe—and we think Boeing recognizes—that the real danger to Boeing is not the 40-60 757s flying the Atlantic or even the 200-400 potential sales of the A321LR. Rather, we believe that the A321LR’s danger to Boeing is the ability to becoming the sales leader for the standard A321neo and A320neo for airlines that either haven’t ordered Airbus or which have held back for a variety of reasons.
For example, United Airlines has ordered the 737 MAX, including 100 MAX 9s, but it hasn’t ordered any A320neo Family members. All Airbuses in the fleet today are from Legacy United, not the merged UAL with its Boeing-centric management. United is a large user of 757Ws across the Atlantic. Should UAL elect to order the A321LR, does anyone really believe United will stop with a small sub-fleet of perhaps 10-25 A321LRs? We believe it would be a certainty United would add more A321neos and perhaps A320neos to the order for volume.
Likewise, Delta Air Lines is another prime target for the A321LR. Its management, from Legacy Northwest Airlines, knows the A320 Family well. NWA was a large purchaser. Legacy Delta, on the other hand, was an exclusive Boeing customer. The merged Delta has ordered the 737NG and A321ceo, with more NGs favored than ceos. But it hasn’t ordered any MAXes or NEOs at all. Another carrier with 757Ws flying the Atlantic, if Delta ordered the A321LR, it’s a certainty it, too, wouldn’t stop with a small sub-fleet. The A321LR would pave the way for a companion or follow-on order for more A321neos and/or A320neos.
Transactions such as these are the real danger to Boeing.
As for the prospect of a 737-10, it is, of course, technically feasible and our Market Intelligence confirms that Boeing is studying this possibility—just as Boeing continues to study a clean-sheet replacement for the 757 and 737 families in single-aisle or new light twin configurations. Boeing is being Boeing and exploring a wide variety of possibilities is what Boeing does. But the 737-10 would be band-aid solution to a much larger problem: Boeing has lost market share to Airbus in the single aisle sector. Market perception, as reflected in an audience poll at last September’s ISTAT European conference, now gives Airbus the edge in competitive single-aisle aircraft. Sales of the neo vs MAX give Airbus the solid lead, particularly at the high end of the sector.
A 737-10, with a new wing, near gear, a new engine, structural changes and most likely system upgrades, would require billions of dollars worth of investments—and quite possibly new certification from regulators. Entry into service, at best, would likely be the early 2020s, just before the launch of the new, clean sheet airplane with a target EIS of the 2030 date McNerney mentioned last year.
We have been reporting for a year that our Market Intelligence indicates Boeing will probably launch its next new airplane program around 2018 with an EIS of around 2025. This was reaffirmed earlier this month.
Our scenario is being refined to focus on what we are calling the “225/5000 Sector.” These figures represent a 225 seat, 5,000nm airplane which more broadly is the 200-240 seat, 4,500nm-5,000nm market. This Sector, by our definition, includes replacement of the 737-9, the 757 but also the somewhat larger market previously represented by the Airbus A300/A310s and Boeing 767-200ERs. The 787-8, with its 7,500nm range, is too much airplane for many of these markets.
As we reported last October, Boeing is looking at a simultaneous development of a new single aisle airplane and a new light twin, just as it did with the 757/767. We believe this is the route that will ultimately be chosen. We also believe, as with the 757-767, the twin aisle will be the first launched (around 2018), followed by the single aisle (around 2020). This protects the 737 MAX investment to some degree but begins to address the gap in Boeing’s product line.
We don’t assume the airplanes will be composite.
This scenario depends entirely on McNerney’s retirement, assumed to be in 2016, followed by a CEO who will have a different view for the future than McNerney.
We’re focusing on the 225/5000 Sector in a series of special reports this week and next, looking at a broader sector than “just” the 757 replacement. We’ve been reporting for up to two years on these issues, including saying that the 757 replacement has to include replacing the under-performing 737-9. As we’ve further assessed the market, it’s become clear to us that even this view must be expanded.
It’s gratifying to see others reach conclusions this week virtually parroting those we’ve reached during the past two years. But the key is to look toward the future, not the past.