May 10, 2017, © Leeham Co.: Airbus can kill the business case for the prospective Boeing 797, the New Midrange Aircraft also known as the Middle of the Market Airplane,
All it has to do is move first, instead of waiting for Boeing to launch the 797, something considered likely next year.
If Airbus launched what is commonly called the A322, a larger, longer-range version of the A321neo, the new version would become a true replacement for the Boeing 757, meet economics of the smaller 797, which has a working title of the 797-6, at a much lower capital cost.
Airbus has been working on plans to enhance the A321neo (the A321neo-plus) and go even farther (the A321neo plus-plus) for nearly two years.
In an interview with LNC at the March 2016 ISTAT meeting, Airbus COO Customers John Leahy declined to comment whether aircraft tweaks will add some improvements to the current A321neo (which at the time hadn’t even flown) to further lower the fuel burn. He also demurred on speculating what an “A321neo-Plus-Plus” response to a 737-10 or Boeing MOM airplane might look like.
(Since then, as the 737-10 design settled in to a mere stretch of the 737-9, Airbus sniffs that it doesn’t have to do anything to respond to the latest 737.)
“Let’s wait and see what they do [about the NMA},” Leahy said a year ago. “I rather liken the situation we’re in with the 350 and 787. We watched what they did and then we had the luxury of sitting down and saying, ‘what should we do to add value?’
“Let them do whatever they need to do in the Middle of the Market,” Leahy said.
The business case for the 797 so far remains iffy. LNC believes Boeing “has” to do the airplane, because of the weakness of the 737-9 and 737-10, and the clear trend toward essentially abandoning the 787-8. This creates a huge product gap for Boeing.
But designing and building the 797-6 and 797-7 at a cost that will permit sales in the $70m-$80m range is problematic at best.
(The 797-6 is roughly the same size as the Boeing 767-200 and the -7 is about the size of the 767-300.)
Much of the business case appears to rest on tying aftermarket service contracts for maintenance, repair and overhaul (MRO) with 797 sales, LNC’s market sources tell us. Wells Fargo aerospace analyst Sam Pearlstein reported the same in a research note last month.
Furthermore, the market demand remains a question. Boeing now claims there is demand for about 5,000 airplanes in the MOM sector. If so, this could comfortably support Airbus and Boeing aircraft.
But others—LNC included—believe the market, while significant, is quite a bit smaller than 5,000.
The most commonly discussed entry-into-service for the 797 is 2024-2025, though LNC has heard it could slip to 2026. The EIS depends entirely on engine availability.
The engine needs to have 45,000-50,000 lbs thrust. CFM and GE Aviation would jointly produce one, said Safran in its recent earnings call. Safran is 50% owner of CFM, with GE owning the other 50%.
Rolls-Royce also said publicly it will compete with an entirely new engine.
Pratt & Whitney would offer a larger version of its GTF.
Since CFM and RR are pursuing entirely new engines, while PW would up-scale its GTF, PW may be in a position to provide Airbus with a powerplant for the A322 before CFM and RR could offer a new engine for the 797.
Might Airbus be able to offer an A322 with an EIS two or more years ahead of the 797?
If so, launching the A322 sooner than later (and at a much lower cost will put Airbus in a position to capture the lower end of the MOM Sector. This will undermine the case for the 797-6—and this reduce the business case for the 797-7.
And this is how Airbus might kill the 797 before it gets off the ground.