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June 16, 2024
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The Airbus A320neo family success and pressure mounting on airlines for better fuel efficiency sooner, rather than later, mitigate for a 737RE in the near term. A re-engined 737 would provide the fuel efficiency carriers need by 2015-2016, rather than waiting til 2019 for a new aircraft program.

Boeing’s current cash cow is being outsold this year by a wide margin, and the success of the Airbus neo clearly indicates airline focus on solid fuel savings. With oil likely to remain between $90 and $100 per barrel for the foreseeable future, and crippling emissions taxes looming in Europe, fuel efficiency today is the name of the game.

For Boeing, which has continuing problems with its 787, evidenced by another stoppage of the supply chain (which in the past has meant further delays) and delay announcements by several airlines, cash has been bleeding and will likely to continue to bleed into 2012. Rework problems are significant, and compounding that, the 747-8 also appears to be ramping up production at a slower rate than expected.

Given that backdrop, and the apparent inability for Boeing to develop a new design within a reasonable time, a 737RE is a low risk solution that will enable the company’s cash cow to continue beyond 2015-16, when the neo otherwise would make it economically obsolete.

While we won’t learn much more until Boeing’s financial reports on the 27th, it appears that further bad news on the 787 and 747-8 will result in pushing back a new narrow-body airplane even further. Boeing’s customers are ready to jump ship, and it needs to do something quickly to avoid losing market share to Airbus and Bombardier.

A 737RE would fully close the economic gap with Airbus for -800 and -900, and somewhat close it against Bombardier’s CSeries for the -700, and enable Boeing to remain economically competitive given its pricing power and high production volumes.We understand that Boeing has been leaning towards a re-engining program, given customer pressures and the reluctance of the Board to authorize another new aircraft program until the 787 is stable, which unfortunately won’t likely be the case until 2012.

While Boeing would prefer to play leapfrog with Airbus with a major jump, the success of the neo and delay of the 787 have created a circumstance in which Boeing will be unable to make as large a leap as they would have liked. While Boeing‘s indecisiveness hasn’t yet caused a major customer defection, several key Boeing customers are ready to jump ship, and Boeing needs to announce its decision soon. The financial update on the 27th of this month would be the perfect time.

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