Countdown to decision on Boeing’s NMA, Part 3: Engine selection

Discussion
Boeing crunches threw engine bids

Boeing reportedly increased the upper end of the NMA thrust requirement between the first round of bids in July and the second round at the end of December. The upper thrust range is now in the neighborhood of 52,000 pounds, according to several sources.

Bids from all three contenders came in on time, and talks continue between them and Boeing as the airplane maker moves closer to a decision.

A Boeing spokesman declined to comment. The company is saying little about the evolving and unofficial program.

“We haven’t made a launch decision on NMA yet,” Boeing Commercial Airplanes spokesman Paul Bergman said. “We are diligently working our business case, and we will make the decision when that is completed, while protecting our 2025 entry into service date.”

GE’s woes could weaken CFM’s chances

GE did not bid on the NMA program, instead agreeing to compete for the work through CFM, its partnership with French engine maker Safran. The agreement underpinning CFM had capped any collaboration to engines below 50,000 lbs. thrust, but GE Aviation CEO David Joyce said that would not be an impediment here.

GE has no real option but to do the work through CFM. The industrial giant is reeling after seeing its stock collapse in the past year. It has been under financial pressure for several years and has been shedding many of its non-industrial businesses. In early January, Reuters reported that GE could sell GECAS, its aviation-financing arm, which is considered one of the crown jewels of GE Corp.

CEO Larry Culp just came on Oct. 1, and is expected to lay out a turnaround plan sooner than later. How bad is it? Bad enough that some GE bonds effectively have traded as junk bonds.

Given the stakes, GE leadership is unlikely to sign off on developing a new engine—either alone or through CFM. The simple fact is that the company just does not have the cash to launch a new engine program, some say.

Safran likely will have to do the heavy lifting on scaling up the CFM LEAP for the NMA, which it is more than capable of doing.

The LEAP is flying on the A320neo and 737 MAX, and has proven itself so far. It also is on the Comac C919. It has had a few teething problems, but nothing substantial.

Increasing the LEAP’s thrust for the NMA is no small feat. The LEAP-1A on the A320neo tops out at about 35,000 lbs. thrust.

Early GTF production stumbles could weigh on Pratt & Whitney’s bid

Pratt & Whitney’s geared turbofan’s (GTF) adolescence has had significant teething problems, notably two separate problems with seals that slowed delivery of PW1100G engines for Airbus A320s. Many A320s had to be grounded while awaiting fixes. To its credit, Pratt has caught up on engine deliveries and is on track to fixing all in-service engines.

Moreover, the engine has lived up to promises of fuel efficiency, reduced noise and other performance metrics.

Airlines have been very happy with the engine’s performance, Pratt & Whitney spokeswoman Jenny Dervin said. “They just want the early production issues resolved.”

The NMA’s requirements seem to be a good fit for the GTF, in terms of operating economics. In the opinion of one Wall Street analyst, the NMA program seems “that it was written perfectly for Pratt to win with the GTF. But do they want it?”

Pratt has a full plate ahead as GTF production ramps up for Airbus’ A320neo and A220, Embraer’s E175-E2 and 195-E2, Mitsubishi’s MRJ, and Irkut’s MC-21. That plus the production issues with the GTF could give Boeing pause about choosing Pratt. That doesn’t take Pratt out of the running by any means. It simply means that it might have to agree to less favorable contract terms.

Don’t count dark horse Rolls-Royce out of the running

Rolls-Royce is eager to launch its Ultrafan engine with the NMA. It is the only engine OEM willing to accept dual sourcing on NMA powerplants, according to one source.

However, Boeing is far less eager to stake the airplane program on an entirely new engine.

In the end, a key factor influencing Boeing’s willingness to roll the dice on Rolls’ Ultrafan is the NMA’s market size. New engines typically have performance or reliability issues that crop up when they enter service. Not everything can be predicted before engines actually enter service. While normal, there are costs associated, which are paid by the engine maker and, to a lesser degree, the airplane maker.

If the NMA market is 5,000 airplanes, the upper range of Boeing’s forecast, then that allows the OEMs a reasonable time to absorb those costs over the life of the program and still turn a profit. (Boeing executives have been very insistent that they plan to close the NMA business case only if the plane is profitable at point of sale.) However, if the market is closer to 2,300 aircraft (the consensus from LNA’s survey), that is not much time to absorb costs from performance issues or delivery delays.

For that matter, while Rolls is very confident in its ability to get the Ultrafan into production, an unexpected problem could be catastrophic for the NMA, which already will have a tight development timeline to meet the 2025 EIS.

Performance issues with in-service Trent 1000s have cost Rolls-Royce dearly, but the company is financially “on track for 2018 despite the costs of the in-service issues with the Trent 1000,” spokesman Richard Wray said.

A company statement from early December conceded that “despite significantly increasing our Trent 1000 related maintenance, repair and overhaul capacity over the last 12 months, the number of aircraft on ground remains at a high level.”

Moreover, the company said it “continued to make progress reducing large engine OE unit losses.” But it has not eliminated them. That likely means Rolls-Royce will have less room to make pricing concessions necessary for it to win the NMA contract.

The Trent 1000 problems have soured the company’s relationship with Boeing, where members of many senior management were frustrated with the engine maker’s handling of it, said a Boeing executive with direct knowledge of the relationship.

Stay tuned

The safe choice seems to be CFM. Pratt’s GTF seems to be the best fit. And Rolls’ Ultrafan has the most upside—and the biggest risk.

Given the constraints influencing Boeing’s decision on the NMA—price, timeline, market size and so on—CFM’s LEAP seems to be the front runner.

We should know in the next few weeks, so keep watching

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