Feb. 22, 2016, (c) Leeham Co. In a shift in strategy, Boeing is now fully backing development of the 737-7 MAX instead of urging the only two customers that have ordered the airplane to up-gauge to the MAX 8, sources tell LNC.
Southwest Airlines and WestJet are the only two operating airlines for the 7 MAX. There is a third customer, a start-up in Canada that has yet to begin operations.
Sources have told LNC for months that Boeing really didn’t really want to build the 7 MAX, for which there are only 55 orders. But Southwest needs the airplane for short-runway airports like Chicago Midway and Burbank (CA) and has resisted suggestions to up-gauge, LNC is told.
All this changed when it looked like Bombardier might make a sale of its all-new CS100 to United Airlines, LNC is told.
Then Boeing swooped in and sold 40 current generation 737-700s to UAL at what LNC was told was priced in the low-to-mid $20m, well below what BBD could offer. There were also other considerations, LNC was told.
The Wall Street Journal today reported a follow-on order for the -700 is imminent.
The WSJ reports that Ray Conner, president of Boeing Commercial Airplanes, told employees two weeks ago the UAL deal was to block Bombardier from selling the CS100 to the airline. According to The Journal, Conner used similar rationale to that expressed by Airbus in May 2010, when two executives said Airbus would aggressively compete with BBD in order to not make the same mistake Boeing did with Airbus–not take the threat seriously.
This is the rationale expressed to LNC as the shift in strategy emerged from wanting to kill the 7 MAX to now supporting the product.
Boeing publicly has always maintained it fully supported MAX, but Market Intelligence indicated otherwise.
The Journal also reports that Embraer was blocked in this imminent deal from selling UAL its EJet-E2.
The paper also reported that UAL might order some twin-aisle jets to “offset” the low prices of the latest 737-700 order. As last year came to a close, Boeing salesmen were hopeful to land another order for 10-13 777-300ERs to help bridge the production gap. At the time, salesmen were giving odds of 50%-60% of landing the deal by year-end. This didn’t happen then, but this may be the deal The Journal suggested today.
United previously ordered 10 777-300ERs, swapping a like number of 787-9 orders. The price for the -300ERs was reported in the market to be as low as $120m, an indicator of the challenge Boeing is having selling the -300ER to fill the production gap.