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Nov. 13, 2017, © Leeham Co.: The clock is ticking toward the end of the year for Boeing to decide whether to restart the 767-300ER passenger line.
Officials want to decide by year-end.
Restarting the line isn’t as easy as one might think. Boeing is building the 767-300ER freighter and it has the tooling for the passenger model. Boeing has several challenges to resolve before any green light for the restart.
- There is a space problem at Everett, where the 767 is assembled.
- Restarting the passenger supply chain is an issue.
- And, as ever, so is cost.
- Does Boeing simply restart the line without upgrades, or are upgrades included, which will increase the cost to produce the airplane?
- Closing the business case on the NMA.
Interim to the NMA
Restarting the 767P has one mission: to serve as an interim airplane until the Boeing NMA, or 797, can be delivered. But the program hasn’t been launched.
Boeing continues to try and close the business case for the 797 and getting there is proving difficult, market intelligence indicates.
Indications are there is a big gap in the cost-to-target sales price.
Market demand remains a matter of debate. Boeing publicly says it’s between 2,000 and 4,000 NMA aircraft over 20 years. At an investors day in September, Boeing officials said they now see it as closer to 4,000, but so far this hasn’t been said publicly that LNC knows of.
However, some suppliers and engine OEMs see the demand as closer to 2,000 than 4,000. Thus, the debate continues and the size of the demand has a direct bearing on the business case.
At a conference last week, Boeing CFO Greg Smith reiterated that the current target date for the NMA entry-into-service, if the project proceeds, is 2024-25. Given a six- or seven-year launch-to-EIS history, Boeing would have to launch the program next year or in 2019. A key issue: whether new engines will be ready in time for the earlier EIS, or an extra year or two is needed.
The slow (but normal) production ramp up means longer use of the in-service 767 fleet. If the EIS slips—and some market intelligence indicates that it may, to 2026-27—then airlines with aging 767s face a pressing need for an aircraft sooner.
This is behind the prospect of restarting the 767P line. Another factor: preventing Airbus from making inroads with the A330, either by selling more -200s or finally getting the -800 program off its currently still-born state.
Challenges to restart
Boeing faces big challenges to restart the 767-300ER Passenger line. In no particular order, these include:
- Is there demand? Answer: A small one, but a crucial one. Back in August, LNC looked at the potential for a restart of the 767P line. At the time, there were more than 500 767Ps of all types in service; about 425 of these are -300ERs. Clearly many of these will be replaced by the Boeing 787 and Airbus aircraft, but by and large, this is part of the market for the NMA. The longer before the NMA enters service, the older these aircraft get. The more potential need for a restart.
- Who wants the -300ER P? Answer: A limited number of airlines. The names of American and United are now in the public domain and yes, each is potentially interested. American has 35 and United more than 40. These carriers are the two prime targets. How many they might take is the question. Delta Air Lines is by far the largest operator, but it’s not interested. ANA and JAL have large fleets and some of each will be replaced by the 787. Overall, the most commonly number of potential sales hovers in the 100 range.
- How much will it cost to build the -300ER and how much can it be sold for? Answer: This, of course, is the multi-billion-dollar question. Airbus sells the A330-200 in the $70m range, plus-or-minus, so Boeing needs to be no more than this and perhaps considerably less. With a fully amortized set of tooling, one might think this should be achievable—but maybe not.
- Why not? Answer: A couple of reasons. First, where do you build it? You’d say Everett (WA), of course—this is where the 767 is built now. But the current 767 line, for the KC-46A tanker and the large FedEx order for the -300ERF, doesn’t appear to have the capacity. The line can’t expand into the 747-8 bay, because this airplane is still in production through at least 2019 (when the first 767-300ER P delivery is targeted). So, then what? Build a new factory (perhaps in Charleston)? There’s no profit in this. In Long Beach (CA), in the old C-17 plant? Maybe, but California is a high-cost state. Boeing is grappling with this issue.
- Supply chain restart: Although the 767-300ERF is in production, there apparently are components for the passenger model that need restarting—creating another challenge.
- Keep the same or upgrade: Another issue is whether to keep the 767-300ER P exactly as before, or incorporate some upgrades, such as avionics to mimic the 777 cockpit (American and United operate the 777); aerodynamic improvements; and perhaps some structural modifications.
- What about new engines and wings? Boeing, as always, looks at “everything,” including in this case putting new engines and a composite wing on the aircraft. This would balloon the cost and create development/certification issues. Consider this unlikely.