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Boeing’s MAX orders and the case for MAX10

Next week we may learn more about the MAX10.  There are many rumors already, the latest of which is that Ryanair is interested in this model too.  Boeing is likely to announce the launch of the aircraft along with supportive orders and options.

Since the MAX was first announced, there have been several tweaks to the program.  There was the MAX8-200 that Ryanair launched.  Then there was a redefined MAX7.  Now we have a MAX10, effectively replacing the slow selling MAX9.   Why has there been so much tweaking?

From Boeing we will likely hear them argue that the ability to tweak the aircraft so much demonstrates the inherent strength of the design.  The 737’s fundamental design is so good that it has been around for 50 years and is still able to be optimized to meet evolving customer needs.

From Airbus’ perspective, we will likely hear that Boeing has been forced to do these tweaks precisely because the design is 50 years old, and because the aircraft no longer meets market needs as it once did.

Next week we are bound to hear multiple variations on these arguments. Our perspective is quite simple – Boeing’s MAX7 isn’t competitive with the more efficient CS300 and E195-E2 and the MAX9 isn’t competitive with the A321neo, being outsold by a very wide margin.  The 737 MAX is really one successful and two unsuccessful models in the current three model family.  Perhaps this is why Boeing does not report sales by model – the results could highlight that weakness.

What do the data show?

In the overall narrow body competitive battle, Airbus is in the lead, as shown in the following chart of orders, has a larger backlog and a higher concentration of orders in the larger and more profitable A321neo and A321LR.  This portends a future 60/40 narrow-body market share lead for Airbus, something Boeing can’t afford to let continue.

In 2016, the gap continued to grow, as Airbus had nearly a 1,200 aircraft lead with its neo over the Boeing MAX.  The following chart shows cumulative orders, indicating the need for Boeing to step up its game.  While Boeing narrowed the gap somewhat in early 2017, Airbus remains in the overall narrow-body lead with additional orders are expected for both companies in the remainder of 2017.

Boeing does not report MAX orders by model, so analysts have been forced to make value judgments based on customer announcements of types ordered and extrapolate known data to the entire fleet.  At this point, 34% of MAX orders are unidentified by type, although analysts consider about 80-90% of these to be the popular MAX 8 model.  Of the known orders, the breakdown is shown below:

Clearly, this appears to be primarily a one-aircraft family rather than three, based on the poor performance of the MAX7 and MAX9 in the marketplace.  Neither has sold well, with the first already redesigned and the second about to be replaced.

Boeing’s decision to work on a MAX10 is clearly rational, as they are losing the largest and most profitable narrow body segment to Airbus. Their problem is that the MAX family exists, but the market isn’t buying across the family, focusing singularly on the MAX8.  Boeing does not want to lose a single sale. The difference this time around is that Boeing has not defined what the market wants as well as its competitor has.

What does the market want?  Let’s take a look at the Airbus neo family and compare the A320 family against the A320neo.

The A320ceo family was fairly well balanced across all three segments, with the base model about 60% of the market, and smaller and larger models just over and under 20%, respectively.  But markets have been changing in recent years, with the smaller end of the segment losing ground and the larger sized aircraft gaining momentum.  The neo models, as shown below, have shifted away from the small segment to the larger segment, with the A321 at 28% and likely to grow stronger, as shown in the chart below.

The gap between the MAX9 and A321neo is significant, and it is quite clear that the MAX9 simply hasn’t been competitive.  Therefore, Boeing must do something to fix the MAX9, and that means stretching to the MAX10.  If Boeing doesn’t do this, the gap between neo and MAX will continue to grow.

The Bottom Line
Boeing needs the MAX10 to close the gap with Airbus at the largest, and most profitable, portion of the narrow-body marketplace.  Next week we will have a better idea of how Boeing’s new model will compete head to head with the A321.

© 2017, Ernest S. Arvai. All rights reserved.

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