Leeham News and Analysis
There's more to real news than a news release.
Airbus’ A350-800 dilemma
Last week we discussed Airbus’ A350-1000 dilemma. The -1000 will be a fine airplane, but we concluded the company needs to go forward with a larger capacity “A350-1100” to match the size of the Boeing 777-9X, but take the Boeing 787-10 approach and be content with sacrificing range in lieu of designing a new wing and engines.
Airbus’ A350 dilemma doesn’t end there. What’s it to do with the A350-800? One fleet planner told us a year or more ago that the “-800 is an expensive A330-300” with the same operating costs as the larger capacity A350-900.
Airbus has been encouraging customers to move up to the larger A350-900, with Hawaiian Airlines and US Airways the key hold outs. Conventional wisdom says US Airways will swap its order once the merger with American Airlines goes through (which is looking more and more likely, given settlement talks with the Department of Justice). American has a large order for the Boeing 787-9, making the -800 unnecessary in a combined carrier fleet plan.
There are now around 80 -800s in Airbus’ backlog, and even officials at Airbus have been ambiguous about green-lighting production of the -800, which is supposed to enter service in 2016 (after the -900 but before the -1000). We have written several posts in which we concluded the -800 would be re-sequenced to 2018, after the 2017 EIS of the -1000.
We believe there is a very good chance the A350-800 will be dropped in favor of proceeding with an A350-1100.
So what’s Airbus to do in the 250-300 seat space now occupied by the -800 and the aging A330 family?
Airbus’ A350-1000 dilemma
Airbus has a dilemma with what to do about the A350-1000.
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Does the OEM stick with the -1000 as it is, ceding the 400 seat segment to Boeing with its new 777-9X? Or does it stretch the -1000 (we’ll call it the “1100” for a placeholder) for what appears to be a very limited market segment?
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If Airbus does stretch the -1000, what does this stretch look like? One that will match the 9X range and capacity? Or one that matches the capacity but not the range?
Here are the implications of the dilemma facing Airbus.
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Stay the Course
For a long time, Airbus officials said they were satisfied with the design, once tweaked, of the -1000 and they didn’t need to respond to a “paper” airplane. The characterization had a ring to it, for that’s what Boeing officials often said about the -1000: it wasn’t a “real” airplane, they didn’t know what it was, it was a “paper” airplane or some variation thereto.
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Of course, this was rhetoric by both parties. Lufthansa Airlines ordered 34 777-9s. A huge order+option commitment is anticipated at the Dubai Air Show from Emriates Airlines for the -9 and the smaller, ultra-long range (ULR) -8 that is sized directly across from the -1000. Airbus is now faced with the prospect of Boeing once more having a monopoly position with the 777-9 as it did for many years with the 777-300ER.
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Does Airbus want to cede the 400-seat segment to a Boeing monopoly? The question is, how big is this segment? Is there a business case to build the airplane, or one that’s big enough for two airplanes?
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Boeing’s current 20 year forecast indicated there is a need for 4,530 “small” twin aisle, 200-300 seat jets and 3,300 for “medium” twin aisle jets, 300-400 seats, for a total 7,830. Airbus forecasts a need for 4,694 250-300 seat jets and 2,085 350-400 seaters, for 6,779 jets, a difference of nearly 1,100-but, then, Airbus doesn’t have a competitor to the 787-8 at the lower end of the small jet sector.
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Airbus further breaks out its forecast: 2,438 250-seat and 2,256 300-seat jets within the “small” twin; and 1,306 350-seat and 779 400-seat jets within the “medium” twin category. Boeing doesn’t subdivide its forecast.
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The 777-9 will kill the near-dormant 747-8 Intercontinental and will likely eat into sales of the Airbus A380. Does Airbus avoid cannibalizing its own product or does it allow Boeing the monopoly to do so?
Source: Great Circle Mapper
Match the 777-9
Airbus could decide that, despite a its own narrow forecast for a 400 seat segment, it would be better to play in this sandbox, whatever the impact on the A380, than to cede this segment to Boeing. The question then arises, does an A350-1100 match the 777-9 in seats (or come close to it) and range, around 8,100nm-8,400nm?
To match means a major undertaking for a small number of airlines that need a plane with this range. It means a new wing–typically a $3bn project, more or less–and new engines in the 104,000-105,000 lb thrust range. The Rolls-Royce Trent XWB on the A350-1000 is 97,000 lbs and it can’t be pushed any farther, our information tells us. The cost of developing an entirely new engine for such a narrow market doesn’t have a business case. One might exist on the presumption that engines have to get bigger, and a new engine design would provide the basis for an entirely new generation of engines. After all, the Trent fundamentally has been around since the A330. It may well be time, but is an A350-1100 the product from which to develop it? Furthermore, it takes at least seven years to develop a new engine and probably a lot longer. The engine is the pacing item, far more than the airframe. Even if the go-ahead were given this minute, Airbus and RR would be hard-pressed to come up with an A350-1100 by 2020, when the 777-9 EIS is anticipated. So…
The 787-10 Approach
The most viable option for stretching the A350-1000 appears to be following the approach Boeing took with the 787-10: a couple of simple fuselage plugs, some enhancements to the existing engines, the same wing and reduced range that covers 90% of the markets required by the airlines–foregoing the miniscule need by Emirates Airlines for that last 5%-10%.
Source: Great Circle Mapper
An A350-1100 with reduced range of 7,000nm-7,500nm and a 400 seat capacity would have highly favorable cost per available seat miles. It wouldn’t get you from Paris to Tahiti, but how big is this market? It wouldn’t get you from Dubai to Los Angeles, but are billions of dollars worth of R&D to do so going to get the return on investment to make sense for this airplane?
The clear choice, the financially responsible choice, and the expeditious choice appears to follow the Boeing approach and develop an A350-1100 (or, perhaps, the “A350-1000-10”).
CFM LEAP accelerating in test program; Airbus and the A350-800
Aviation Week has a long, detailed story about the test program for the CFM LEAP engine, which is accelerating rapidly.
In its 737 MAX program update yesterday, Boeing said the LEAP-1B has begun testing and it will benefit from the testing already underway for the LEAP-1A, the version that is designed for the Airbus A320neo family. The LEAP-1C for the COMAC C919 is on its original schedule for certification in 2015, despite the fact the C919 has slipped to at least 2017, reports AvWeek.
The 737 MAX is exclusively powered by the LEAP, as is the C919. The former has more than 1,600 firm orders and the latter just hit its 400th order/commitment. CFM faces competition on the A320neo family from Pratt & Whitney’s P1000G Geared Turbo Fan, where PW holds a 49% market share against CFM, which previously held a larger, more dominate position in the A320ceo competition. A large number of orders don’t yet have an engine selection.
PW is the sole-source engine provider for the Bombardier CSeries, the Mitsubishi MRJ and the Embraer E-Jet E2. PW splits the engine choice on the Irkut MC-21 (soon to be renamed the YAK 242) with a Russian engine.
Just as Boeing’s LEAP-1B will benefit from the experience of the LEAP-1A now in testing for Airbus, Airbus will benefit from the testing and experience of PW’s testing of the GTF on the Bombardier CSeries.
Aviation Week also has a story about the Airbus A350-800 with the blunt headline, The airplane Airbus doesn’t want to build. This refers to the A350-800. AvWeek muses that the outcome of the merger between US Airways, now the largest customer for the airplane, and American Airlines, may be the deciding factor for the airplane. We agree. With American’s large order for the Boeing 787-9, the A350-800 would be unnecessary.
That would then leave Hawaiian Airlines as a key decision-maker. We hear in the market that Hawaiian is just sitting back and waiting to see what kind of incentives Airbus will offer to entice a switch to the larger A350-900.
Odds and Ends: AA, US and DOJ have mediator; new C919 order; A380 break even
Movement on AA-US merger: Terry Maxon of The Dallas Morning News reports that American Airlines, US Airways and the Department of Justice have picked a mediator to sort out the DOJ’s lawsuit to block the AA-US merger. See also this Maxon report.
Maxon has a long piece, asking several pontificators (including yours truly) what they think the outcome will be.
Bloomberg reports that American CEO Tom Horton “sees a way” to a settlement but did not elaborate.
COMAC orders: COMAC says it received 20 more orders for the C919, but it once again is from a Chinese lessor, not an airline. A majority of orders for the C919 are from Chinese lessors, in stark contrast to standard practice among established lessors that they want to see a solid base (or a likely solid base) for a new aircraft type from airlines before signing up.
Although COMAC says this latest order brings the total up to 400, a data base shows only 275 so far (meaning the other 125 haven’t been converted to firm orders yet).
A380 Break Even: Airbus CEO Fabrice Bregier says hitting break even on the A380 program in 2015, which is the current plan, will be difficult if deliveries fall below the target of 30 per year. Airbus should deliver 25 this year, he said.
Future for the 777, A330 as 777X nears launch, A350 nears EIS
With the launch of the Boeing 777X expected to be approved this month by the Boeing Board of Directors, followed by the public launch at the Dubai Air Show next month, the future sales of the in-production 777 will be closely watched by the industry as well as by Boeing itself.
It is conventional wisdom that sales will fall off as entry-into-service nears for the 777-9X, said to be “late this decade” by Boeing but more likely 2020 or even 2021, according to customers.
Sales of the Airbus A320ceo and Boeing 737NG families have, so far, held up surprisingly well despite the launch in 2010 of the A320neo and in 2011 of the 737 MAX families. Most of the neo and MAX orders have been combined with the current generation aircraft. This has been viewed as a way to keep the production lines full in advance of the EIS of the new airplanes.
Further, Airbus and Boeing plan an overlap of production of the two generations of about two years. This contrasts with Boeing’s decision to cease production of the 737-300/400/500 concurrent with the launch of production of the 737NG, a move Boeing today says was an arbitrary choice.
Boeing plans to begin building the MAX on a third line in its primary Renton (WA) factory before phasing out the NG. Airbus hasn’t specified how it plans to integrate the production of the ceo and neo.
What will happen for the current Airbus A330 and Boeing 777 lines as the A350 and 777X come on line?