Leeham News and Analysis

737 Re-Generation

Update, January 1:

We always get a sense of satisfaction when Boeing confirms our news. Here’s an excerpt of a Bloomberg story picking up on the 737 “re-generation” piece we did for Aviation and the Environment magazine (see below).

Boeing considers 737 enhancements

Bloomberg News

January 1, 2009

Boeing Co., whose 737 is the world’s most widely flown plane, said it’s studying new “product enhancements” as replacement plans for the aircraft have been delayed toward the end of the next decade.

The Chicago-based company is considering rolling out more changes to the current version of the jet as it has done since 2000, with improvements to performance, comfort and navigation, Russell Young, a spokesman in Seattle, said Wednesday.

“We will share the details of future enhancements when we have decided to implement them,” Young said.

With environmentalists and the slumping economy putting pressure on the industry, Boeing is considering a bridge model that would provide a 10 percent improvement until a replacement is ready, according to the current edition of Aviation and the Environment magazine.

The full story may be found here.

Original Post, December 22:

Here’s a teaser for a story we’ve written for the next issue of Aviation and the Environment magazine; the full magazine may be found here; the article referenced below begins on Page 18:

Is Boeing planning a major 737 improvement programme?

The current stated position of Boeing and Airbus is that the next-generation of single aisle aircraft will be available around the 2020 mark. Would it make sense to delay this date if significant performance and environmental improvements could be made to the current generation relatively quickly?

Boeing is quietly studying how to improve the 737 Next Generation, according to sources quizzed for a report in the December/ January issue of Aviation and the Environment, who all have knowledge on some level of the Boeing studies.

Among the possibilities being explored is the placement of a scaled-up version of a Pratt & Whitney geared turbofan engine on the aircraft. This would necessitate a massive structural change of the 737, with the introduction of a new wing, taller landing gear and a redesigned wingbox. Boeing is also looking at CFM’s LEAP-X engine, although the engine maker says it is developing the engine for an entirely new platform. In addition, the 2016 certification date would push the arrival of an entirely new aircraft out much further than 2020.

Additionally, a new avionics system seems likely, in which RNP would come as standard. A range of internal systems improvements are being considered, which would make building and maintaining the aircraft easier.

The combined fuel burn improvement of these measures could be as much as ten per cent – potentially making it very attractive to airlines as a “bridge” aircraft…

Please see the upcoming issue of the magazine for the full report.

Boeing revises 787 schedule again

As expected, Boeing revised its 787 schedule, now listing the first flight in the second quarter next year and first delivery into the first quarter of 2010. These represent slips of about six months.

The Boeing press release may be found here.

The timetable infers a nine month flight test program. Most observers believe this is aggressive. Aerospace analysts are nearly unanimous that a full year is more likely.

Boeing’s statement is vague about when in the second quarter it now expects first flight. Based on information we have, we think the end of the second quarter is the most likely scenario, but the first flight could also slip to the third quarter. This is also based on information we have.

Boeing wants to get the program moving, but insiders tell us that there remain risks and uncertainties that continue to cast doubts on any schedule announced.

Update, 10:15 AM PDT: Addison Schonland, Jon Ostrower and Scott Hamilton have a 20 minute podcast discussing the 787 delay and new management changes announced by Boeing shortly after the 787 delay was announced.

Update, December 12:

Reaction is mixed about the delay and the management changes.

First, on the delays: These had been widely expected, both as a result of the strike by the IAM, the discovery of fasteners incorrectly installed and of reports (including our own) that software integration continues to be an issue.

Aerospace analyst Howard Rubel of Jefferies Co. calls the newly announced schedule “realistic” and has a buy on the stock. Robert Stallard of Macquarie Capital (with an Outperform) is less kind. He writes in a note issued afterward:

Given its 100% failure rate in forecasting the 787 timetable so far, we expect airlines, suppliers and investors to be suitably skeptical on to whether this latest revised schedule will actually be achieved.

Goldman Sachs (Sell) believes Boeing will run over both new time estimates. Goldman projects a 3Q09 first flight instead of Boeing’s projected 2Q09; and a 3Q10 delivery instead of Boeing’s projected 1Q10, the major difference being a one year flight test program instead of a nine-month schedule put forth by Boeing.

The market reacted benignly to the announcements Thursday, with the stock trading down less than 2%. But today is a different story. While the market is off (at 9AM PST) less than 1%, Boeing is off 4.75%.

On the management changes:

Surprisingly, some inside and close to Boeing don’t know whether Pat Shanahan’s appointment to oversee all new airplane programs is a promotion or a kick upstairs because of the continuing problems with the 787 program, which he was brought in from Boeing’s Integrated Defense Systems unit to oversee and fix. Shanahan still oversees the program, as well as the troubled 747-8 development, but a new person, also from IDS, has been appointed to directly manage the 787 program. This person reports to Shanahan.

It’s telling of Boeing’s credibility problems that even some inside Boeing question just what the Shanahan moves means. The efforts to read between the lines is like reading The Kremlin at the height of the Cold War.

Analysts generally applaud the moves as an effort by Boeing to fix problems. One of Boeing’s industrial partners believes Shanahan has done a good job and that he is on track to do greater things at Boeing. The Wall Street Journal reporting suggests Shanahan is now one of two candidates to succeed Boeing Commercial Airplanes president Scott Carson, who is on countdown to mandatory retirement in about four years. The other contender, announced in the management restructuring, according to The Journal, is Ray Conner. Conner comes from a top position in sales but has a solid background in supply management and this is his new position position within BCA–something that has been a key stumbling area for the 787. Conner doesn’t report to Shanahan; he reports directly to Carson.