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The 180-230 Seat Segment »
Commercial Aviation Analysts
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Industry followers have been seeing a lot of opinions over the past two weeks on the 757 replacement issue. The arguments are essentially that Boeing must do something, but what should that something be?

Boeing has good reason to be hesitant. The company is busy with a number of programs plus it is ramping up 737 production. There is plenty going on to keep its employees face down and focused. Of course there are the futurists looking ahead and they are concerned with some fundamental issues:

  • What do airlines want?
  • What do airlines need?
  • How large is the segment?
  • What will an offering in this segment cost?
  • What can such an offering sell for?

Here are some thoughts to add to the futurists thinking.

What do airlines want and need?
There appears to be a sizable market for aircraft between 180-230 seats. Airlines are being persuaded to up gauge from the 150-170 seat segment for both capacity growth and lower seat-mile costs. The order books reflect that trend, as shown in the following chart. Recent activity in the 180 seat narrow-body market has been quite robust.

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How large is the segment?
Airbus has said they believe there could be demand for more than 1,000 A321LR models. Boeing appears less bullish, but their 737-900ER and 737-9MAX aren’t particularly competitive in terms of range, runway performance or loads, and have fallen well behind the A321 in orders.

The Boeing 757, during its existence, sold 1,049 aircraft, of which 919 were 757-200s, 1 757-200M, 80 757-200PF and 55 757-300s. Given traffic growth since the 757 was introduced in 1982, we believe this segment could support 1,500-2,000 aircraft, with the A321LR taking the lion’s share of the market.

The order book clearly indicates who is in the lead. Airbus had about 1/3rd of its single aisle 2014 orders in this segment. By contrast, for Boeing, it was only about 3%. That explains their public stance, and the reason many analysts suggest Boeing needs to do something quickly.

Today there are 550 passenger 757s that will soon be retired and seeking a replacement. That’s a lot of aircraft from Boeing customers to cede to Airbus without a fight.

What about development costs and sales prices?
Accurate aircraft cost data and margins are tough to obtain. But it is clear Airbus will benefit from extending the current A321neo concept into the A321LR, which is the neo with additional fuel tanks. As a result, Airbus faces minimal development cost impacts in offering an A321LR. Boeing cannot tweak the 737-9MAX to perform as well as the 757, and their MAX8-200 series further reflects the 737-9MAX as “a stretch too far.” Neither is competitive, which is the core of the Boeing conundrum.

Our research indicates current market pricing for the A321ceo at $47m and the 737-900ER at $45m. The 9MAX appears to be pricing at $47m and the A321neo at $51m. Of course, for major campaigns, one can throw most prices out the window, remembering that each OEM will price to the point of economic indifference based on operating cost projections.

While there are only a few routes flown by the 757 that require the range of the A321LR, fleet commonality is an important consideration for airlines, and if a route requires a range of more than 4,000nm, the 737-9MAX cannot compete. (A view confirmed by Icelandair) The concern is not for the few sales an A321LR might take, but that once in the Airbus camp, the operator might choose the rest of the A320 family over the 737. This is what should have Seattle concerned.

While both major OEMs try to have a competitive offering in every bracket, Boeing appears to have a more robust choice of sizes in wide-body aircraft, with the 777-300ER and 777-8X being larger than Airbus’ largest twin, the A350-1000. Airbus needs to scramble to fill that gap. In the 180-230 seat market, the A321neo and A321LR clearly outclasses the 737-9MAX, which is reflected in the order book with 758 to 217 firm orders, respectively.

Bottom line

We estimate a market for about 1,500 aircraft in this segment over the next twenty years. Boeing’s current offerings do not meet what airlines want and need in the segment, and don’t measure up vis-à-vis its competition.   Boeing indicated that a re-engined 757 program was not feasible last week. Revising the cancelled 787-3 is one option, but the high cost of the 787 could impinge on margins, and would provide a twin-aisle solution as a single-aisle replacement. The 787 debacle and cost overruns resulted in Boeing being unable to introduce a new narrow-body program on a timely basis, and when Airbus announced the neo and won the American Airlines campaign, it forced Boeing into the MAX program.

Boeing is stuck between a rock and a hard place. The current strategy of the 737 won’t win at the top end of the segment. The company won’t do another “moonshot” clean sheet development of a new narrow-body for some time. New engines for a 1982 design would require too many other “upgrades” to be cost-effective, and the 787-3, which could be compelling at the high end of that market, may be simply too expensive to build.

It appears to be 4th down and 20 yards to go for Boeing. Senior management has some thinking to do – and maybe not too much time to clarify those thoughts into a decision. The logical step may be to go into punt formation, send out the defense, and re-group with an all new narrow-body for the 2025 time frame.

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One Response to The 180-230 Seat Segment

  • Intra-Asian deployment of this class of aircraft calls for CLS to supplement main deck revenues with lower deck pay-freight bonus. The market lower deck ULD standard is LD3 or LD3-45, which invalidates 767 MAX (LD2) or 737 MAX (bulk loading). It also invalidates the 757 MAX revival for the same reason (bulk loading). Remains the NSA avenue (post-2025 time-line). A lot of river Arno water will have flowed under the bridges at Firenze by then, specially if Airbus screws open the taps for A321 or A322 throughput to reach total (A32X Series family) 65-70 units/month ? Boeing have allowed themselves into a corner as far as the feeder market is concerned. I see only one salvation : a 787-3 pushed up-front time-wise with a strong top-level (Chicago) kick in the ass, with a serious structural liposuction and scaled-up RR Ultrafan or MAX powerplants with EIS target around 2019 or latest 2020 ?

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