Business case for NMA remains uncertain

Boeing wins headlines

The Paris Air Show headlines were largely captured by Boeing, with a rare win in the orders race against Airbus (and on the latter’s home turf); the launch of the 737-10; and lots of buzz around the prospective Middle of the Market aircraft, dubbed the 797.

Boeing 797 concept. Source: Boeing.

There remains an expectation that Boeing will launch the 797 program next year with an entry-into-service target of 2025-2026.

Several airlines indicate interest in the 797, backed by a few lessors as well.

But the business case remains uncertain.

Business case not closed yet

Companies at the Paris Air Show (PAS) remain unconvinced that there is a viable business case for the MOM aircraft.

When the whole Middle of the Market airplane topic began, the focus was on a “Boeing 757 replacement.”

Initially, Boeing was dismissive, largely because Airbus said its A321LR would replace the 757 and it, and lessor executive Steve Udvar-Hazy, predicted a demand of 1,000-1,200 aircraft.

More recently, Boeing publicly says the MOM aircraft sector has a demand of 4,000 to 5,000 aircraft.

GE Aviation is unconvinced.

Several aerospace analysts who attended GE’s PAS briefing noted that David Joyce, CEO of GE Aviation, noted that his company hasn’t yet done its own analysis of the market demand. LNC understands Pratt & Whitney has done its market study and the number is less than the Boeing figure. Rolls-Royce told Reuters at the PAS that it sees a demand, but didn’t specify how large it is.

Evolving definition

The MOM aircraft’s demand depends on how the market is defined.

The NMA evolved into a replacement for the Boeing 767.

Boeing previously described it as above the 737-9 and below the 787-8. Indeed, this is a narrow band.

Creation of the 737-10, which is somewhat larger than the 737-9 but somewhat shorter in range, eats into the “757 replacement” definition when only routes of 3,000nm or less are considered (the dominate use of the 757). But the MAX 10 does nothing to replace the 757 on trans-Atlantic service, where even the 757’s longer range sometimes isn’t enough for non-stop flights westbound in winter.

As the MOM aircraft definition evolved, it became more a 767 replacement than a 757 replacement. Indeed, the latter’s replacement requirement was slowly being met by the A321neo and, to some extent, the Boeing 737-9 because the 757’s use remains mostly within the MAX 9, MAX 10 and A321neo range.

Although Boeing’s definition of the MOM sector was narrow, in reality, it is broader than that. A 220-270 passenger aircraft with ranges of 4,500-5,000nm and a twin-aisle design is now generally the accepted concept.

This places it squarely are a 767 replacement (and with it, the remaining few Airbus A300s/A310s and aging Airbus A330-200s that are of shorter-range vintage).

The new concept also fits nicely in with airline desires for a plane that carries more passengers than the 757 and has 20% or more range.

Back to the business case

Which brings us back to the business case question.

Other suppliers aren’t sure about the demand. One aerospace analyst who met with companies at the PAS told LNC that during the evolution of the concept, Boeing doubled the size of the market without explaining why.

One reason is the expanding market model created by the 787, which opened about 150 new markets since it entered service in 2011. The New Midrange Aircraft (as the MOM aircraft’s name evolved) would do the same with far more markets, Boeing explained at the PAS.

Airbus response

The ambiguity over the size of the market is the big question over the business case viability. Much of this depends on the Airbus response.

Just as Boeing dismissed the A321LR and claims of a demand for 1,000-1,200 airplanes, Airbus dismisses the need for a new NMA.

Officials claim they have the market covered with the A321neo and the A330-200/800.

The A321neo barely covers the lower end of the MOM sector. It carries too few people compared with the 757 in typical international configuration and the range is 300nm-500nm short for unrestricted trans-Atlantic westbound winter operations; or from deeper Europe to East Coast US cities.

LNC believes the A330-200/800 is dead. Market sales tell this story.

This leave a big product gap for Airbus that in many ways is like Boeing’s, if one concedes the 787-8 is essentially dead as well.

If Airbus responds with the oft-discussed “A322” (more commonly referred to as the A321neo++ now), with a new wing, more range and more seat rows, this airplane makes the smaller 797-6 a difficult business case indeed.

But this depends on timing: can Airbus get an A322 to EIS by 2021 or 2022? If so, it will have a three- or four-year head start on the 797-6. On the other hand, if the A322 can’t be delivered before 2025, then Airbus loses the pre-emptive advantage it needs.

On the upper end of the scale, Airbus needs an entirely new airplane to replace the A330 and compete with the 797-7. An EIS by 2025 could be challenging for Airbus, just as it will be for Boeing. An entirely new engine is needed for the 797 and one will also be required for what we’ll call the A3M0 (for Middle of the Market).

Splitting the market

Splitting an NMA demand of 5,000 makes a viable business case for Airbus and Boeing. Doing so at 4,000 should also be viable. But is there a business case for a split market at 3,000 or even less? This becomes far more tenuous.

The chess game in which Airbus is waiting for Boeing to make a move first continues.


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