Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: Air Transport’s route to 2050. Part 22. May 16, 2025
- Services are driving revenues and profits in difficult times, Part I May 15, 2025
- The BWB has a long way to go before flying passengers, freight May 12, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 21. May 9, 2025
- Does an A220-500 need a new wing and engines? Part 2. May 8, 2025
The moving numbers, redux, in the A320-737 game
For two years, Boeing claimed the 737NG was 8% more economical (and here) than the Airbus A320. Boeing told media, analysts, everybody who would listen. Boeing illustrated the point before and after the MAX.
Here is a recent illustration; note the NG advantage over A320ceo is reduced to 6%:
And Randy Tinseth, in Randy’s Journal, writes:
Combining the seat count issue with all our latest improvements gets you to a 6 to 7 percent difference. So, if the aircraft are not at parity today, what does that say about the rest of the story? It’s always fun to have spirited debate with our competitors. But in this case, the numbers really do speak for themselves. I’d love to hear your thoughts.
Our thought was, What happened to 8%? Is this a change in the Boeing messaging? So we asked Tinseth, and through a spokeswoman, the response was, “The 8 percent is our current operating cost per seat advantage over our competition and the other is a measure of fuel burn per seat.”
Airbus, as we’ve noted before, disputes Boeing’s analysis and offers up its own, where numbers are again at the forefront. A key assumption on Airbus’ part is using 157 seats for the 737-800 vs the 162 used by Boeing. Tinseth recently has this to say about that: according to Seatguru.com, Tinseth argues Boeing is closer to right than Airbus–hence his comment above.
Airbus also disputes the 20%-25% maintenance advantage Boeing claims for the 738. Boeing explained here where that comes from.
Here is an Airbus slide from the Innovation Days. Note the seat assumptions in the fine print.
The bouncing around is enough to make one airsick. This is why we remain skeptical of data from both OEMs and prefer to listen to the airlines, who tell use the two airplanes are very close.
Update, 3:30pm PDT: A reader linked this Airbus slide, which was previously posted but forgot about. It addresses Tinseth’s seat issue in the print at the bottom, and was created last year by Airbus.
Odds and Ends: More from the Airbus Innovation Days
We have some follow-up to our trip last week to the Airbus Innovation Days:
A350 Program: Aviation Week has this article about the A350 program, noting that the A350-800 seems to be suffering from from benign neglect.
A350 Engineers: There is a lot of buzz “out there” that the A350-900 program is sucking up engineers from the A350-1000. We asked Airbus about this at the Innovation Days. There is no question that the -900 timeline is challenging (see chart) but Didier Evard, EVP of the program, says engineers will be released soon for the 1000.
“This year we have to ramp up the 1000 team,” Evard said. “We have internal plan and to increase the workforce from the outside to start the detail design this year.”
We asked what was the level of engineers assigned to the 900, using the example that if 100% were the norm, was the program at 100% or 125%, for example. Evard didn’t directly address that but said:
“The 900 this year will go down from 100% to around 60% or 70% and be stable.”
A380 Wing Rib Fix: Airbus showed this illustration:
Although the slide shows 60 ribs per wing, in practice, Airbus says only 20 have needed repair.
A320neo affecting A320ceo demand: JP Morgan issued this observation following the Innovation Days:
A320neo EIS is affecting demand for the current version. The imminent introduction of the a more efficient version of the A320, the neo is scheduled to enter service in 4Q2015, should make it more difficult to drum up demand for current generation A320s in 2014/2015. The years immediately preceding the changeover have always seemed like a potential rough patch, both for the A320 and the 737, which will transition from the NG to the MAX, in 2017. According to Ascend, A320 slots are filled for 2014 with 484 aircraft scheduled for delivery, 42/month implies ~480 deliveries, but 2015 is not yet full at 362 A320s. As some customers could walk away ahead of the neo introduction or for other reasons and new orders should be hard to come by, holding the rate at 42/month looks reasonable. Lease rates on current generation A320 family aircraft have been the weakest among major Airbus and Boeing platforms, an indication that the market is not as hungry for more of them as it is for other models.
We heard long ago that Airbus was worried about demand for the ceo, but we also heard the same is quite true for Boeing on the 737NG with respect to MAX sales. This is why we are seeing many Airbus and Boeing deals include the current generation of airplanes with the re-engined models. It’s also why, we believe, we’re seeing pricing on the current generation of airplanes dropping precipitously, which will of course affect residual values and lease rates.
Airbus Innovation Days: synopsis of a lot of stuff
We’ve been at the Airbus Innovation Days in Toulouse, with about 200 others from around the globe. Here are some highlights:
A380 wing rib issues: As reported previously in various media, Tom Williams, EVP-programs, outlined the issues with the wing rib cracks. A new metal alloy was used, intended to save weight, that cracked in operations despite fatigue testing failing to discover the issue on a test airplane. Williams attributed the failure to detect the cracks to inadequate instrumentation on the test plane. The new alloy saved about 300kg. There are 60 L-brackets out of 4,000 that require inspection and only 20 are affected. The issue does not affect flight safety and the ribs can be replaced either during a C Check or during a nose-to-tail maintenance check. The “Type 2” cracks, the most serious of two types found, have to be replaced by 1,300 cycles.
A350-800/1000 sales: Boeing has been aggressively casting doubts on these two sub-types, pointing out that there have been no sales since 2008. John Leahy, COO Customers, said there haven’t been sales because he doesn’t have any delivery slots available until the end of the decade. He’s been switching some customers from the 800 to the 900, which is more profitable to Airbus. Where did he get the slots? He won’t say but in a press gaggle after his presentation, he acknowledged to an Indian journalist that Kingfisher Airlines—an A350, A320 and A380 customer—deferred all its deliveries to relieve the need for pre-delivery payments. We asked Leahy if he was re-selling the Kingfisher slots and he demurred, saying that was “confidential.”
(We note that Boeing had a long dry spell in sales of the 787 during the depths of the problems with the airplane and the backlog stretching to late this decade.)
Leahy also said Boeing’s claims that he, Leahy, doesn’t know what the -1000 “is” are false.
A320 v 737: If the war of words over the A350 wasn’t enough, Leahy—and to a lesser extent, Williams, whose focus was principally the A380—repeated the Airbus messaging begun last November at the Credit Suisse conference in New York that fan size does matter and the 737 MAX comes up short. Airbus figures the MAX at best (pre-dating the recent Boeing changes) will gain 8% over the 737NG. We asked Leahy later about the move by Boeing to take the CFM LEAP-1B fan size to 69.4 inches and to add the “Boeing Advanced Technology Winglets” (BATW) to the MAX. Boeing now claims the MAX will be a 13% improvement over the NG. Leahy, who compared the BATW with the MD-11 winglets, said Boeing will get only about one-half percent improvement from this. The 69.4 inch fan still falls short, he said.
Williams, a former engine engineer, said the hotter temperatures and ceramics technology required of the LEAP-1B, will present maintenance challenges.
Comparing Neo, Ceo, NG and MAX
As Airbus and Boeing battle for orders for the current generation A320 and 737 families and for the re-engined models, comparisons between the four sets of aircraft has been difficult to come by.
Furthermore, with Boeing continuing to evolve the MAX–not only with the engine specifications but also the airplane weights–ambiguity sometimes dominates.
Boeing continues to talk with customers about the definition of the MAX, with higher weights under study. Airbus is more advanced, but of course until flight testing confirms figures, nothing is certain.
Over time, information as emerged through Airbus, Boeing, Pratt & Whitney and other statements and information. Aspire Aviation (now Orient Insight) also has been a solid source of information. Our own data gathering has obtained some solid information as well.
From all these sources, we’ve put together the following table. The 737-7 MAX is the murkiest, with little apparent interest so far from the customer base. Taking known facts for the 8/9 MAX, we estimated some of the specifications for the 7 MAX.
What struck us on the NEO is that Airbus specifications for range are greater than has been previously revealed.
We consider the specifications of NEO and MAX still evolving until flight tests for all six sub-types prove design goals.
Click to enlarge and use zoom-in or magnifier to enlarge further for fine print.
Wells Fargo estimates Southwest paid base price $34.7m for MAX
In a new research note issued today, Wells Fargo estimates that Southwest Airlines paid a based price of $34.7m each for the Boeing 737-8 MAX.
The investment bank published the following table, followed by the text:
Prior to Southwest Airlines’ decision to defer 30 Boeing 737-800 deliveries from 2012-13 to 2017-18, it
published the data above in its latest 10-Q. We estimate that (after factoring in PDPs) SWA is paying ~$5.67B for the 131 MAXs in 2019-2022, or $43.3M each; assuming an average of nine years of price escalation at 2.5%/year, the base price would be $34.7M – a 64% discount off the 737MAX-8 list price. We do not view this as an indication of a “price war” between Boeing and Airbus, as SWA is a priority 737 operator that was certain to receive the most favorable MAX launch-customer pricing.
This is a somewhat deeper discount than we thought: 60%. If true, we can say that discounts of 60% for top customers are not unknown, even if they are not common. We understand Boeing is currently offering the MAX at discounts in excess of 50% but we can’t nail it down any closer than this.
Airbus likewise is known to offer discounts of up to 60% on the A320 family.
So what about the “price war?” Our information is that this extends to the 737NG and the A320ceo. Airbus and Boeing have each connected sales of the current generation of airplanes to the re-engined models in part to sustain current and announced production rates and to prevent a drop in cash in the run-up to EIS of the new airplanes. This means dropping the price on the current generation to help. (Separately, this also means drops in lease rates and residual values.)
Then there is the competition for only current generation aircraft, such as last year’s Delta Air Lines order for 100 -900ERs over the A321. He heard straight away that this came down to a price war and Boeing won. After the Airbus win at American Airlines, there was no way Boeing was going to lose Delta, and we heard at the time Boeing under-priced Airbus by about 10%. (Recall, too, that Boeing under-priced EADS by 10% in the tanker competition.)
We are hearing United Airlines also came down to price. We expect this Boeing win to be announced before at at Farnborough.
Bernstein Research, in a note also issued today about the EADS first quarter earnings call, had this to say about a price war:
A320 pricing should be a near term strength, but long term risk. A320 pricing was described as
“above expectations” with no declines seen in 2011 orders, and premiums captured for the A320neo. In
contrast, Boeing has said that it sees Airbus pricing aggressively, with the result that narrowbody prices are being taken down for both the A320 and 737. We believe the answer lies somewhere in the middle with certain customers (e.g. American, Norwegian Air Shuttle) driving aggressive price competitions, but with reasonably solid A320 pricing elsewhere. Based on our customer discussions, however, we do not believe that either Airbus or Boeing is capturing significant premiums for their reengined models (only relative to lower prices for their current generation airplanes).
More on the changes to the CFM LEAP-1B
As we reported earlier today, Boeing and CFM didn’t stop with the previously announced 68.4 inch fan for the LEAP-1B engine on the 737 MAX.
Buckingham Research, citing Boeing at the investors’ day, wrote that Boeing talked about a 70 inch fan. Jon Ostrower–now at the Wall Street Journal–confirmed the larger fan, but at 69.4 inches (70 inches apparently was a rounded number) as well as pursuit of a smaller core.
The smaller core is important for two reasons: a larger fan and a smaller core provide for a higher by-pass ratio, increasing fuel burn reduction performance. The smaller core also enabled the engine to be mounted closer to the wing, which in turn means the previously announced 8 inch nose gear extension remains valid.
70″ Fan for the 737 MAX
We picked up information that Boeing’s announcement at ISTAT in March that it had settled on a 68.4 inch fan for the 737 MAX LEAP-1B wasn’t a done deal. Now Buckingham Research comes out of Tuesday’s Boeing’s investors’ day with this notation:
A 70” fan for the 737MAX
BA noted that 737MAX development is proceeding on schedule with firm configuration expected in 2013 and first flight in 2016. Further, BA sees more upside than downside risk to the plane’s 13% efficiency improvement. BA is now looking at a slightly larger 70” fan for the LEAP-X engine vs. 68.4″ previously. While that might reinforce investor concerns regarding the GE LEAP-X engine performance, we see the change as part of the design optimization process. A number of factors impact engine fan size, including drag (larger engine fans have more drag), bypass ratio, core size, core temperature, etc. With the 737MAX recently undergoing wind tunnel testing, we think the revised engine fan size has more to do with optimizing the engine than a means to overcome performance deficiencies.
Note that this is not speculation on Buckingham’s part; it cites Boeing as the source.
Airbus, Boeing accuse each other of price war; what’s the real story?
We find this very interesting: Boeing says Airbus is engaged in predatory pricing on the A320. Airbus says Boeing is engaged in a price war.
What’s the truth? It seems to us that orders might tell the story. The scorecard YTD:
Airbus A320 family: 88
Boeing 737 family: 413
It seems to us that if Airbus were engaged in predatory pricing, the scorecard would be reversed.
Last year, of course, Airbus pounded Boeing at a time when it had the NEO defined and Boeing’s MAX was still evolving. But Boeing ended the year with about 1,000 orders and commitments while Airbus ended the year with about 1,200 firm orders and another 200 or so commitments. So while Airbus ended the year ahead, we believe it was essentially because Airbus had a firm product and Boeing did not.
Something doesn’t pass the sniff test here.