Airbus appears poised to launch A321XLR

Killing the NMA

LNA posted an analysis in May 2017 about how Airbus could kill the NMA. The piece took a little more ambitious approach, suggesting the “A322” would be the vehicle. The A322 would be a modest stretch, have more powerful engines and have a new wing, giving the airplane a 5,000nm range. This would be the “A321 Plus Plus” code name that Airbus officials acknowledged at the time was under study (and still is).

Airbus A321XLR changes. Source: Leeham Co.

But the A322 would take a few extra years to develop and certify. The XLR can be in service by 2022 or 2023, a good two-five years ahead of the NMA, depending on whose entry-into-service date you believe for the NMA: Boeing’s 2025 or everyone else’s 2026-27.

If Airbus succeeds with a 2022 EIS and Boeing doesn’t have an EIS until 2026 or 2027, the 4-5 year lead time for Airbus will be painful for the NMA.

The XLR is a straight-forward minor variant of the A321LR/neo. The Additional Center Tanks (ACT) are replaced by one big center fuel tank, eliminating weight, complexity and adding fuel space. Higher thrust versions of today’s GTF engines are added, another “minor” variation that eases certification requirements.

The market demand is not huge. The Reuters report indicates Airbus wants 200-300 commitments for the XLR to proceed with a program launch, which we expect at the Paris Air Show. LNA doesn’t see the market demand for this airplane—which will compete with Airbus’ own A321LR, a 4,000nm airplane—to be much greater. The A321XLR will have about 400nm-500nm more range than the A321LR. Only a small niche of airlines need this extra range.

The key to the A321XLR will be its flexibility. Will it be able to do a 2,000 and a 4,700nm trip for roughly the same economics, allowing airlines to buy the more capable airplane for a modest premium?

If so, not only could this hurt the NMA but it would put additional pressure on the Boeing 737-9/10, which aren’t as capable as today’s A321neos.

The smaller NMA, the NMA-6, with 225 passengers in two class configuration, is conceived with a 5,000nm range. The A321XLR/LR/neo seats about 200 passengers in two-class configuration.

Business case and demand

The business case for the NMA has yet to be closed. The true market demand for the Middle of the Market airplane is widely agreed to be about 2,500 airplanes over 20 years. The “addressable market” Boeing talks about is 4,000-5,000 airplanes but includes the full spectrum of aircraft that are larger and have much greater range. The NMA is only a piece of this “addressable market.”

Boeing put off the NMA program launch from this year to next, although an Authority to Offer (ATO) still might come this year.

With demand of 2,000-2,500 aircraft, Boeing can’t afford to see erosion to its already tenuous business case.

Airbus is successfully squeezing from the bottom of the MOM sector with the A321neo/LR. Even Boeing’s own 737-8 is now being used on some trans-Atlantic and similar routes, encroaching on the low end of the MOM sector—and the NMA.

Airbus claims the A330-800 covers the upper end of the MOM, but so far sales of this model have been but fraction for the A330neo. Airlines so far prefer the larger A330-900, which carries more passengers (ie, revenue) for about the same seat mile costs.

Nevertheless, Airbus may reasonably be expected to capture about half the NMA-focused demand. Preemptively going after, and capturing, more of the lower end makes it more difficult for Boeing to justify launching the NMA.

NMA work continues

There are reportedly about 1,000 people assigned to the NMA program and the engine companies, CFM, Pratt & Whitney and Rolls-Royce, have submitted their Best And Final Offers (BAFO). Engine down select is expected next month.

LNA is told each included a royalty agreement in which the engine maker would pay Boeing a one-time, up-front fee to be paid for selection. The fee is hefty and would be one figure for a sole source selection and half this if a dual source is chosen.

No Boeing participation in aftermarket MRO services is offered, LNA is told. This is the bread-and-butter business case for engine makers, who make no money on selling engines and recovering R&D investment for at least a decade. Services is the key for engine OEMs, and this is becoming increasingly challenging because the engines are so reliable and Time Between Overhaul (TBO) now extends years.

But when the engine overhaul is finally needed, it’s not cheap for wide-body engines. The GE90 overhaul on the Boeing 777-300ER costs about $12m. The engines on the Boeing 787, by Rolls-Royce and GE, cost about $8m to overhaul. The Trent engines on the Airbus cost about $8.5m.

Those on the Airbus A320ceo and Boeing 737NG cost about $3.5m to overhaul. The new Pratt & Whitney GTF and CFM LEAP engines will cost an estimated $3m-$4m when they begin to come due.

None of these prices include life limited parts.

These figures, and the high profit margins that go with them, are why Boeing wants a piece of the services business that go with engines. But those OEMs aren’t about to give up a piece of this action.

Suppliers are getting only dribbles of information from Boeing about the NMA.

They’ve had to sign Non-Disclosure and cost-cutting contract agreements just for the privilege of being permitted to bid on work, with no guarantee they’ll receive an award.

They are also being asked, as with the 787 program, to front costs for years of development and through early production, receiving monies only upon delivery of the first airplane.

Given the industrial fiasco of the 787, resulting in 3 ½ years of delays before first delivery, suppliers understandably are skeptical of this approach.

One supplier LNA met with at the Pacific Northwest Aerospace Alliance conference this month flatly said he will refuse to be “Boeing’s bank.” If Boeing insists on these terms, he will take a pass, he said.

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