A little over five years after the launch of the A320neo family in December 2010, Airbus has won the single aisle competition between the neo and the MAX. Airbus captured 59.5% of the market, through February, with a lead of 1,436 firm orders. The launch of the MAX followed by seven months. Boeing captured 44.5% of the market since its launch. Last year, Boeing won only 37% of the sales in this sector. It sold fewer than five 737-9s, including its first BBJ of this sub-type. No 7 MAXes were sold.
Absent some unlikely catastrophe for the A320neo family, Boeing simply won’t be able to catch up before it’s time to launch a new, clean-sheet replacement for the 737—whether the launch date is in 2020 or 2023 or 2025, with a targeted entry-into-service roughly seven years later.
Sales of the A320neo family would have to dry up and sales of the MAX would have to jump dramatically to catch up. Boeing would basically have to reverse the Airbus market share of 60% going forward just to return to a 50% market share in the next five year.
Boeing CEO Dennis Muilenburg and CFO Greg Smith ducked a question by Jon Ostrower of The Wall Street Journal during the 2015 earnings call in January on how Boeing intended to catch up 9 MAX sales to the A321neo, which leads 1,114 orders to 270. The question could equally apply to the entire MAX family.
Airbus sold an average of 72 neos per month from the launch in mid-December 2010 through last month. Boeing sold an average of 55 MAXes per month from its program launch in mid-July 2011 through February.
When The Seattle Times broke the story last week that Boeing Commercial Airplanes would reduce head count by 8,000 by year end—half by the end of June—CEO Ray Conner said the cost-cutting was necessary because Airbus was able to offer lower pricing and Boeing had to compete to maintain market share.
Using Airbus as a whipping boy is a favorite tactic, but as LNC wrote last week, it’s hardly the only reason. Given the market realities that Boeing has already lost the market share battle, focus should be more on maintaining margin than on chasing market share.
To be sure, cost-cutting is needed. As noted in today’s Pontifications, Boeing Commercial has 24% more employees per airplane than Airbus. This indicates that cutting 8,000 jobs is only the tip of the iceberg.
In the last 10 years, Airbus has sold more wide-body passenger airplanes than Boeing. Including freighters, Boeing has sold more wide-bodies. In more recent times, Airbus was skunked in 2014, the year Emirates Airlines canceled 70 A350s and Boeing inked the contracts for more than 200 777Xs, the follow-up to the November 2013 program launch.
Boeing conveys the message that the Airbus wide-body program “is a mess” and the A330neo is “dead on arrival.” To be sure, there are weaknesses in the Airbus wide-body sector—but Boeing has weaknesses, too. Airbus is taking steps to address these weaknesses.
Boeing is spending money on shareholder buybacks. Steve Wilhelm of The Puget Sound Business Journal pointed out that Boeing spent more last year on buybacks than it posted in profits.
Recapturing the single-aisle sector
Cutting personnel in order to cut costs in order to lower pricing on the MAX in order to compete with Airbus isn’t going to cut it. Boeing’s lost this battle.
Restoring its lead in the single-aisle sector is going to require development of a new, clean-sheet design that will be 25%-30% more economical than the MAX and the neo. (Execution of the program obviously will be key, too.)
Boeing and Airbus have said there won’t be a new airplane before 2030. Boeing should have a new airplane ready for entry-into-service in 2025 or 2027, ahead of Airbus.
There are several challenges to this, however. Today’s research and technology shows the only engine capable of delivering this type of fuel saves is the Open Rotor. There are technical and regulatory issues that have not yet been resolved. Airframe improvements only contribute about 5% to added efficiencies.
Boeing also needs about 10 years for a comfortable return on investment for the MAX. Launching a replacement airplane with a 2025 EIS and a seven year development period would mean announcement in 2018–barely after EIS of the 737-8, the same year of the 737-9 and a year before the 737-7. Sales of the would be negatively impacted, reducing ROI, but probably not fatally. Delaying a program launch to 2020 would help a bit.
It’s also not a sure bet by any means that Airbus doesn’t have a design fundamentally ready to go should Boeing make a move. With EIS of the neo in January 2016, and with less invested in its development than Boeing committed to the MAX, Airbus’ ROI situation is less of a predicament than Boeing’s.
Airbus has successfully put Boeing on the defensive. It will be years before Boeing can make a comeback.