A second aerospace analyst has weighed in with the opinion that Boeing is likely to choose a replacement for the 737 rather than a re-engine solution.
Heidi Wood of Morgan Stanley published this note today, as Boeing’s investors’ day begins.
The bottom line – Another New Plane Ahead – BA’s Going To Do A New Single Aisle: We believe Boeing will be announcing a new narrowbody replacement to the well-worn and highly popular 737 instead of the less costly, but inferior solution of re-engining.
This means a $13B-type R&D effort ahead in lieu of a possible $2-3B R&D for re-engining, which was previously in our model. We are now lowering outyear estimates to reflect a projected new narrowbody 2012 launch and 2017-2018 entry into service (EIS, first delivery). We believe consensus earningsexpectations will be revised down significantly on higher R&D.
Why An All New Plane? We expect Airbus to announce an A320 re-engining sometime before yearend; BA will likely announce its plans around the same time. It is not generally known, but on a re-engine to re-engine equivalent basis, we believe the Airbus A320 ends up w/ a 8-10% better fuel burn than the 737, rendering the $3B R&D cost to re-engine largely ineffective. The 737 has been refreshed three times already since its first inception in 1967. And with 5 low end single aisle competitors ~mid-decade, we think BA is prudent to be pre-emptive with an all-new airplane.
Joe Nadol of JP Morgan and Joe Campbell disagree, thinking a re-engine is more likely.
So does Boeing rival Airbus, where COO-Customers John Leahy suggests all the talk about a replacement 737 is Boeing disinformation aimed at muddying Airbus’ waters.
Day 2 summary after the jump.
We’re at the Airbus Innovation Days and here are some highlights:
Aviation Week has a good piece entitled “Embraer at Crossroads,” that discusses how the company evolved from nothingness to a major player in the industry. Faced with a threat from Bombardier’s CSeries and emerging competition from China and elsewhere, Embraer has to decide what it is going to do.
Although Bombardier’s CSeries continues to faces challenges, AvWeek makes it clear that the CSeries and Pratt & Whitney’s GTF engine are influencing decisions pending by Airbus, Boeing, Embraer and airlines.
Boeing is leaning toward a new airplane to replace the 737 rather than proceeding with a re-engining program, an aerospace analyst wrote in a report issued today.
Richard Safran of the boutique Buckingham Research came away from Boeing Capital Corp’s annual investor’s update with an analysis that is a potentially paradigm-shifting conclusion that Boeing will forget about the widely-assumed plan to re-engine the 737 to meet an expected decision by Airbus to re-engine the A320 family–itself a decision largely driven by competition from Bombardier’s CSeries.
This is our quick take because we’re really busy.
Bombardier has positioned itself for a major CSeries order in China with the announcement on March 30 of a $3.85bn financing deal with a Chinese financial institution.
CDB will provide the financing for Bombardier’s Q400 turboprop, the CRJ and the new CSeries. Bombardier already contracts with the growing Chinese aerospace industry for major fuselage sections and other components for all three of these airplanes.
Geneva, Switzerland: Here is a report we did for Commercial Aviation Online from the Aircraft Finance and Commercial Aviation conference, followed by some additional commentary and reporting exclusive to this column concerning the prospect of re-engining the Airbus A320 and Boeing 737. Our additional commentary includes a discussion of the Bombardier CSeries and the PW GTF engine.
Here is a podcast we did today on the topic.
Update, March 24, 10:15PM Central European Time:
The reaction to the WTO Final Report at the Aircraft Finance Conference is a Big Yawn, even among Americans here in the Geneva, Switz, venue. As one person with close ties to Boeing put it, “Nobody cares.”
At a briefing we attended Tuesday night about the final report, we didn’t hear anything that meaningfully changed our commentary below.
The Final Report on the US complaint about illegal subsidies to Airbus is due tomorrow (March 23), but it will remain confidential until sometime in April before a public version is released for all to see.
Partisans on both sides of the dispute are already lining up in pre-issuing statements and, in the US case, an orchestrated media campaign touting how dastardly Airbus has been.
Yeah, well, whatever.
This story has suddenly picked up speed as both Airbus and Boeing discuss re-engine options for their single aisle airplanes. Scott Hamilton and Jon Ostrower discuss the nuances facing both firms – the engine options, the competitor moves and of course, the CSeries which seems to be driving a lot more of the discussion than many would give it credit for. The stakes are huge for Airbus and Boeing as their biggest money makers are faced with being leapfrogged by new engine technologies that enable a CSeries to take away crucial orders. Republic’s recent order was more influential than many think – and the chance to win at United is quite real for the CSeries. Consequently a lot of time is being spent at Airbus and Boeing talking, designing and considering options. This is a fascinating story unfolding before us.
Here is a 28 minute podcast by Innovation Analysis Group on this subject. It could have been longer….