March 1, 2016, (c) Leeham Co.: The manufacturers and their customers remain unclear about the need and design of the so-called Middle of the Market aircraft, their representatives said at the ISTAT AGM today in Phoenix. The business case has yet to be proved.
Participants in the Middle of the Market Panel are:
Ron Baur, VP Fleet, United Airlines
Robert Lange, SVP Market and Product Strategy, Airbus
Randy Tinseth, VP-Marketing, Boeing
Bert van Leeuwen, Managing Director, DVB Bank
Van Leeuwen, the banker, said financiers would need to see at least 1,000 MOMs in the market with a broad customer base to feel comfortable financing the airplanes.
(At a media breakfast preceding this panel, lessor CIT sees a market of 2,000.)
Tinseth said Boeing’s biggest challenge relating to MOM is what’s in development today with the 737 MAX, 777X and 787-10. First and foremost, he said, is delivering these on time.
He said the MOM remains a “tough business case.” What is the development and recurring cost, and at what compensatory price can it be sold? Tinseth also said a consideration is whether the MOM might infringe on other products.
Airbus’ Lange said his company is in a similar space. “The accent in the next couple of years is on execution.” He called the MOM “in a gray space,” and also cited price and what customers are willing to pay as crucial. Engine development will be “key” to what happens next, he said.
United’s Baur, a major Boeing 757 operator across the Atlantic, is concerned about the price of the airplane but revenue (the number of seats), operating costs and design also are obvious considerations.
The liquidity of the aircraft, which is the ability to re-lease the airplane after the first lease expires, is another factor, says van Leeuwen.
Lange said Airbus is focused on creating families of aircraft; the MOM might be an orphan, he said. In response, van Leeuwen wondered whether this could be an opportunity for OEMs in China or Russia to enter the market with a MOM. Tinseth said that van Leeuwen’s thought is “an interesting concept.”
Baur, of United, said the 757W is a good aircraft for Trans-Atlantic, but domestically, “the economics are killing it,” and United is retiring these airplanes “as fast as we can.”
Tinseth acknowledged that domestically, the 757 economics “just can’t keep up” with today’s single aisles.
Baur said United allows an extra 10 minutes to turn the 757-300, which is about the size of a single-aisle MOM, which is a trade-off for the extra capacity. United’s 757 fleet is fairly young so UA is not under pressure to pursue a MOM.
A stretched MAX, to what’s been called a 737-10, will be difficult to do, said van Leeuwen. “I don’t see it as a viable solution.” (In a separate interview, Airbus’ John Leahy said a 737-10 would be an all-new airplane except for the fuselage itself, requiring an investment of $8bn-$10bn.)