PNAA Day 2: Airbus says Boeing has product gap.

Feb. 10, 2016 © Leeham Co. Boeing has a product gap that Airbus is filling with its airplanes, says Simon Pickup, strategic marketing director.

Pickup said Boeing has a gap in its product line between the 737-8 and the 787-9. The 737-9 and 787-8 aren’t selling, creating a hole in the market for Boeing that is filled by Airbus.

Feb. 10, 2016: Today is the second of three days of conference meetings organized by PNAAthe Pacific Northwest Aerospace Alliance (PNAA), in Lynnwood (WA). We’re providing live reporting throughout the three days.

The A321 and the smaller A330 fill this gap, says Pickup, who noted the A321neo outsold the 737-9 by 9:1 in the last two years and the A330-200/800 dramatically outsold the 787-8 during the same period.

The large backlog of the A320 drove the decision to launch the Mobile (AL) assembly plant and decide to take the production rate up to 60/mo by 2019.

The A321 now accounts for 40% of the family orders (the A320 is 59%). The growth came at the expense of the smallest member, the A319, which accounts for 1%. About 2,700 A321s have been sold (of which 1,100 are neos, compared with just over 200 for the Boeing 737-9). The A321 sold more aircraft than the Boeing 757, 737-900, 737-900ERs and 737-9 MAX combined.

Passenger traffic doubles every 15 years, which means the A380 is a good business move,

His comment was a direct response to Richard Aboulafia, the consultant of the Teal Group, who earlier in the day said Airbus should drop the A380 in 2020.

Every year at the PNAA conference, Aboulafia disses the A380. Every year, Pickup–who always follows Aboulafia in the conference line-up–stands up to defend the A380.

But Pickup acknowledged that the A320 family is the bread-and-butter of the Airbus airliners.

Pickup dodged a question how Airbus might respond to a clean-sheet Boeing Middle of the Market design that would be at least 10% more fuel efficient than the A321neo or the A330-800.

 

37 Comments on “PNAA Day 2: Airbus says Boeing has product gap.

  1. Ok. Nevermind all of the huge sales wins the A380, 351 have won the past three years. Boeing has gaps/problems. Oh, and let’s not point out conversions from A350 to A330NEO.

      • You need to get new material jimmy after all . consistency is the hobgoblin of little minds,

    • A huge part of conversions were forced by Airbus: A350-800 to A330-800.

      Converting early sold A350 slots into gap filling A330 orders is not so bad at all. Early sold A350s were cheap and the A330 line makes money.

      Never mind that there might be a possibility an airline could upsize an A350 order. The airlines wait until the final A350-1000 specs are available.

  2. I think A321-A338 also is a gap. Maybe a smaller one but still significant.

    I think A350-A330NEO conversion are welcomed / supported. Creating early A350 opportunities for EK, Qantas, Korean and American sales. While filling the A330 supply chain.

    • I don’t know. The A321 goes up to 240 pax and the A332 starts at 247, albeit in much different configurations. I think Airbus has things fairly well covered.

      As for the potential A350 sales:

      US carriers – Yes, absolutely.

      Korean – Possibly, especially if they can cooperate more with Delta under the new CEO.

      Emirates – Depends on how well the A350-1000 performs.

      Qantas – No chance. They got early 787 options at a very good price. The -9 gives them the range for North America, and the -10 gives them capacity for Asia. The real question with Qantas is whether they will eventually replace the A380s with the 777-X or the A380neo (which I suspect Airbus will do in another couple of years).

  3. Not so sure about MOM logic, A332/8 is the closest over 220 seater now and they aren’t selling so well.

    I’m not sure if there is a business case here for Boeing, what happens if Airbus re-wing the A332 with a lighter wing and smaller engines and do a 250seat/4000 real mile aircraft? Or just sell 332s at 70 million a piece helped by low Euro? 1000 MOMs with a development/deferred production costs of 30 billion would need to sell with an average 30 million free cash to pay for itself, looks difficult to me.

    • Are you saying the MOM is the ‘new A380’ in that all the market analysis points to a gap but the market is no rush to buy in quantity.
      With the pace of manufacturing change and engine efficiency being ‘too early’ can leave you with an outdated product very quickly- and a financial black hole.

      Sometimes there is a gap in the market for very good reasons, which could be for simple reasons like plane turn around time or wait time at carousels?

  4. The A330-200/8 and 787-8 have been obsoleted by their larger version just like the 767-200 or a few others. I think we will eventually see less produced than what is even on order today, about 60 short body A330s and 140 short body 787s.

    • On that basis I could suggest an appropriate employment role for you as a human powered taxi…..

    • Totally inappropriate comment and a clear violation of the rules for posting on the site. Class it up a little bit bro.

  5. “The 737-9 and 787-8 aren’t selling, creating a hole in the market for Boeing that is filled by Airbus.”

    That statement is only halfway true. The 787-8 is not really being pushed by Boeing and why would they. The margin on the -8 is less than that of the -9, hence why more conversions to the -9 and the decreased rate of production for the -8.

    “Oh, and let’s not point out conversions from A350 to A330NEO.”

    There haven’t been too many conversions from the A350 to the A330 NEO but either way it creates some sort of division in the sales team. Airbus would rather sell the A350 than the A330 but they’re happy if the sales stay with Airbus than going to Chicago. And to add to your point, the A350 hasn’t had a sale in 2 years : )

    ” Creating early A350 opportunities for EK, Qantas, Korean and American sales. While filling the A330 supply chain.”

    Big speculation.

    “I’m not sure if there is a business case here for Boeing, what happens if Airbus re-wing the A332 with a lighter wing and smaller engines and do a 250seat/4000 real mile aircraft? Or just sell 332s at 70 million a piece helped by low Euro? 1000 MOMs with a development/deferred production costs of 30 billion would need to sell with an average 30 million free cash to pay for itself, looks difficult to me.”

    From what Boeing has said, the language from the airlines that it is targeting for the MOM are saying that they are not keen to a dual aisle aircraft. With that being said, Boeing could see an opening because Airbus is too far deep in the A321 to modify it to mimic a (B-87xx) when it makes itself available.

    What I see happening is Boeing taking all of the elements from the A321, 757, 787 and MAX platforms and creating something that is competitive to the A321 NEO and the LR, sans the shell games.

    • The max is a (time consuming) not so great (really only one model, the 8, that sells) placeholder until Boeing launches a new single aisle. Hindsight will say they should have done it in 2010/11; my bet is 2019-21.

        • @Geo

          Since Airbus’ avalanche of A320neo orders at the Paris Air Show in 2011, Boeing’s top management has been busy reasserting, time and time again, that on the single aisle front everything’s hunky-dory. It may look as if that facade is starting to crack.

          Fierce competitive pressure is forcing Boeing Commercial Airplanes into a new cost-cutting push that will include eliminating jobs, BCA Chief Executive Ray Conner announced at a senior leadership meeting Wednesday morning and in a webcast to all employees.

          According to employees who watched the webcast, Conner also said Boeing may decide as early as this year whether to go forward with a new midsize airplane to counter Airbus’ success in sales of the A321neo, a project that would inevitably cost several billion dollars and add to financial pressure on the company.

          According to two people who listened to the internal webcast, Conner said the job cuts are needed “because Boeing cannot compete with Airbus right now on prices.”

          Conner “said a lot of customers are really leaning toward Airbus, and we’re having to cut our prices to even come close to making deals,” said a 787 engineer. “So we’re talking extreme cost cutting.”

          The employees spoke on condition of anonymity because Boeing does not allow workers to talk to the media without authorization.

          According to the two employees, Conner said Airbus is “stealing massive orders from the 737” with the new A321neo, and in response Boeing needs to decide “as early as this year” on whether to launch a new airplane to fill the gap between the 737 and the 787 Dreamliner.

          Another employee said that while Conner made clear he wants a near-term decision on Boeing’s response to the A321neo, a formal launch of a new jet would follow later, probably not this year.

          http://www.seattletimes.com/business/boeing-aerospace/job-cuts-planned-at-boeing/

          • 2010 : “Looking at new designs coming available in a few years in the >200 seat narrowbody segment, I think Boeing will have a hard job marketing the 737-900ER, even in a re-engined version.”

            http://www.airliners.net/aviation-forums/general_aviation/read.main/4907469/

            I’m no genius but this 737 /321 problem was wriiten on the wall even before launch of the NEO. IMO Boeing has a problem listening to anyone but themselves.

            Yes, they have 3000 on order, but majors switched and the percentage lessors / undisclosed / MOU’s in the MAX backlog looks unhealthy.

            I think 737 customers like SW, UA, AC, DL, AA, the Chinese are restless & Boeing feels.

            There’s a Sword of Damocles is hanging over the MAX. Airbus has a 7 meters “gap” in the A320 family they can plug any moment. It’s were the 737-8 sits. If Airbus does a straightforward 200 seat NEO, airlines will massively upgrade / order & all bets are off on MAX / NSA/MoM.

            http://i191.photobucket.com/albums/z160/keesje_pics/AirbusA320NEOPlusConcept.jpg

            I hope Boeing has woken up on 2016-2020 realities, denial only works short term.

          • The hand writing on the wall, so to say!

            I am very fond of Boeing (and Airbus). I don’t want either to fail, since the result would be an undesirable monopoly. However, for an unbiased observer, it is clear that Boeing made a major error in not coming up with a replacement for the antiquated B737. The fact that it sold so many does NOT mean that it is making as much money as desirable out of them. Looks like they have had to sacrifice profits in order to retain customers and that is not good at all. The whole idea is to make enough money out of these cash cows, so you can invest in future (unfortunately expensive) clean-sheet aircraft. If you cannot do that … well, you are in trouble.

            The B787 and B747-8 programs were a clear financial disaster for the company. The former has to sell 1,300 + before seeing reasonable returns. The latter is likely to be extinct after the Presidential aircraft are built. This financial drain, combined with the bone-head use of cash by Boeing for stock buy-backs to artificially boost stock prices, instead of using those funds to innovate, is clearly not conducive to keeping up with the competition, IMHO.

            The very first step companies in financial trouble take is to cut the workforce, not the CEO pays or stock buy-backs! That is short-sighted. Looks like the decline has begun at Boeing. I just hope they will be able to recover quickly. A well-conceived, and well-executed MOM program can help. The sooner the better!

            I wonder if Scott or Bjorn have anything more to add outside the paywall!

          • @Keesje

            IMHO, Boeing’s strategic mistake was to launch the 737NG back in the ’90s instead of an all new unconstrained single aisle platform. Wheras the A320-series was born to be re-engined with much larger sized engines, the 737NG was competitive as long as both OEMs were using state-of-the-art engine technologies from the 1980s.

            As long as the 737NG maintained some 50 percent single aisle market share, Boeing marketing could always talk about the 737-800 being lighter, having a higher seat count etc. – without being able to see the forest for the trees.

            In a single stroke, Airbus has been able to permanently shift market share from a 50-50 split to atleast a 60-40 advantage for the A32Xneo family. It is just incomprehensible that Boeing didn’t see this coming, and even long before Airbus formally launched the A320neo programme.

          • In reply to keesje re. not launching an all new 737 replacement instead of the NG in the 1990s. I’ve thought this myself. One problem is that any true replacement at that time would have involved a wider fuselage which would have put the equally narrow 757, still a fairly new and important product at that time, in a bad light, probably something they didn’t want to do.

            The past is what it is and can’t be changed.

            The plan now should be: end the stock by-backs, maybe cut the dividend, link management pay to performance (ie mostly cut it) and get busy on an all new single aisle sooner rather than later while at least the max 8, if not the 7 and 9, has a strong market and makes money.

      • I agree with you that Boeing suddenly became gun-shy after being rattled by the NEO success and went for a low risk re-engine job.
        Geo argues that over 3000 orders says that they made the right choice… I think that a clean sheet design would probably have garnered 4500 orders and pushed Boeing to a 60:40 share of new orders rather the opposite being experienced currently.
        I doubt that the Boeing board is happy with the current order share at the moment.

        Looks like the A321 is the surprise package that the A330 turned out to be.
        The strong US dollar at the moment is also biting Boeing at the moment as they sell in the same currency that they produce. Airbus production costs are in a weaker currency than their selling currency.

        • The currency argument is just the flip side of euro appreciations in the past eg 2005-6. Painful when it happens but inevitable if the two main OEMs are manufacturing predominantly in differing currency zones. Airbus had to put their house in order back then and Boeing must do the same now. The only other option is to diversify yet further across other manufacturing sites abroad. I would guess that Boeing must already be diversified to a significant minority of total cost or more (particularly on wide bodies) but probably do not generate the benefits because of their insistence to denominate trade in dollars. I stand to be corrected on this last point if someone knows better as I am out of date on the matter

    • The widebodies and their Engines of today are designed for around 2500-3000 cycles between pretty expensive shop visits. A narrowbody can get to 20 000 cycles Before pulling the Engines off wing. Hence a new MoM widebody for 240pax and up to 4000nm range needs new Engines and a Composite fatigue resistant fuselage all Selling for 150MUSD with matching warranties. It is not an easy task.

  6. The market doesn’t buy aircraft that are not optimized and hence have competition with better CASM in close vicinity. The case for the B787-8 and B737-900. However, placing an aircraft just inbetween may create an aircraft with better CASM than either of them, but the technology required could be used to create an even better aircraft that is smaller or larger. Reason is the inherent issue of the jump from single aisle to twin aisle, which is inevitable at some capacity.

    • As I have mentioned before I feel the MOM is a market with too much risk in relation to a limited return to warrant an all new offering. As a result having the least worst offering below with the A321 and again above A332/8 gives Airbus an advantage at present.

      I would expect Boeing to try to achieve one or other or both of these least worst positions without truly going all out for an all singing all dancing MOM. I still find it strange that the B767 can’t be fully revamped to fit this position, I appreciate the B787 was supposed to effectively replace the B767 to some degree but it has not. Use the same dimensions for the fuselage and cobble together a new wing from the parts bin, add a dose of FBW (the 777 is just a big 767) and there you have it.

      Apologies for the lack of photobucket

    • The market will (and does) buy non optimized aircraft.

      It wants optimum, but that is not realistic. You can’t have 15 different airframes to fill narrow slots.

      Its an average optimized they buy,

      Lufthansa aside and its buying too many airframes, you make money on some routes, maybe break even on others, but (hopefully) the on average makes money.

      Its true its getting sliced more and more but you will always have those tradeoffs.

      • “You can’t have 15 different airframes to fill narrow slots.”

        I don’t think that’s true any more. Consolidation in Europe and the US has resulted in carriers with enough traffic to sustain distinct subfleets tailored to demand and stage length on various routes. Look at what the US carriers operate on intercontinental flights – lots of 757s/767s/A330s from their eastern hubs (for direct medium-hauls to Europe) but primarily 747s/777s from the west coast (for long-hauls to Asia, Europe, and Australia).

        There’s probably a minimum threshold number of aircraft needed to make adding a new type worthwhile. If you’re a small carrier like NZ, introducing a couple of CS100s just to operate one particular route isn’t cost-effective. When you’ve got an operation the size of AA’s with a fleet of nearly 1,000 planes, you can pick up 20-30 copies of a new model and be fairly confident you’ll find places to use them effectively.

  7. It seems the NB situation is getting clear & hopefully Boeing stops keeping up appearances and starts restoring the balance.

    Next will be broader recognition and acceptance not everything is just fine in between the excellent 787-9 and large 777-9.

    At this stage Airbus has swiped the 777-200ER/300ER segment. Compare the 777 customer base with the A350 backlog & overlap is alarming. #1 777 customer Emirates is next.

    It seems Boeing and its supporters are still in a denial phase on this one too, but likely a bigger 787 wing / engine / fuselage will be needed to keep up with the XWB.

    http://a4.format-assets.com/image/private/s–E74sjjHM–/c_limit,g_center,h_65535,w_1200/a_auto,fl_keep_iptc.progressive,q_95/v1/040c9869f798a2606ca77317afb3e327/787_11X_01.jpg

    The 787-10 & 777-8 have compromised specs/ Airbus is undercutting prices. Whatever your preference.

    Boeing communication folks; do a reality check on your message to the market & don’t just ask colleagues.

  8. Ever heard of disastrous climate change? The global airline fleets will have to reduce their carbon emissions well beyond any current planning. Larger airplane capacities will be necessary to carry the traffic more efficiently with fewer flights. Some passenger travel convenience may have to be sacrificed.

    If Boeing builds a 4-5000 nm plane, it should carry 500 passengers in single class seating at decent pitch and no commercial cargo — rather than 250 in two class with a bunch of large cargo containers — across the N Atlantic and elsewhere. But compare that to what could be done with higher capacity, lighter TOGW 787, 777-9, A330, A350 and even A380 models for 4-5000 nm markets. Would any new 4-5000 nm Boeing airplane make sense?

    The domestic markets of N. America, W. Europe, China and later India, need a new 250 passenger single class, twin aisle, airplane for 2025 service with capacity growth beyond to 300+ in the 2030’s. This would save far more fuel and carbon in global fleets than any 4-5000 nm intercontinental. It should be a lightweight plane with 2000-2500 nm range at .72-.74 mach to save considerably more fuel and carbon. It would beat 737max, A320neo, C919 models by 40-50% in short haul markets. Global market could be 10,000 aircraft Continue to use 737 max, A320neo, C919 for longer ranges until 2030 or so when there may be a more advanced single aisle 180-200 passenger plane, possibly with new rear mounted engines.

    If I were an Airbus strategist, I’d want to surprise Boeing and beat them to market with this 250 passenger, two aisle DSH (domestic short haul) by a year or two.

  9. Obviously Boeing has to make the wisest product choices. But is their real problem the amount they return to investors versus the amount they spend on development?

    They can’t MD-11, MD-95 their way to success. Time’s up, time for a new fuselage be that 3-3, 2-2-2, or 2-3-2. They can’t beat Airbus on cost at 3-3, plus there is Irkut and Comac. Better to do what Embraer did with the Ejet and go where everybody isn’t.

  10. With an estimated cost per plane of say $30 million to recover the missing $30 billion of forward costs it may become an interesting marketing challenge.
    Buying a new 787 knowing that $30 million of the contract price did not represent true product value could present an issue to lessors or banks could it not?
    Certainly Airbus will exploit it.

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