Is Scott Kirby Right About an Airbus-Boeing Collusion?

United Airlines CEO Scott Kirby spoke on an aviation podcast last week. He suggested that Airbus and Boeing had an agreement not to develop a new aircraft to replace the Boeing 757. The duopoly offers the Airbus A321neo and the Boeing 737 MAX 10. Neither aircraft, however, has the payload and range to match the 757-200, a remarkable aircraft. image: Chicago Business Introduced in 1982, production of the Boeing 757 ceased in late 2004. Boeing delivered 1,049 aircraft over the program's life. The vast majority were 757-200s. Neither manufacturer saw fit to invest heavily in a middle-of-the-market aircraft. Airbus came closest to matching the 757's performance with the A321neo. It still, however, can’t match the older aircraft in payload and range, but does excel in lower fuel burn. Over a decade, Boeing examined the potential market for a new aircraft aimed at the middle of the market. That NMA concept for a New Middle-Market aircraft was the subject of numerous studies. However, Boeing failed to justify investing in a replacement for the 757-767 market it pioneered in the 1980s. During the same time frame, Airbus was developing an A322 concept. That aircraft was a stretch of the existing A321. Either the NMA or A322 would have resulted in an all-new airplane that would restore the 757's capabilities. With more modern fuel-efficient engines and advanced materials, it might have been more cost-effective for airlines. The Boeing 757 remains a remarkable aircraft, and popular with operators long after it left production 22 years ago. The 757-200 can operate from shorter runways than other comparably sized aircraft. It has a 4,500-nautical-mile range that enables trans-Atlantic operations. With a narrow-body seating capacity of about 185 in two-class configuration, it can serve smaller markets. A stretched 757-300 version was produced with 240 seats but was not a strong seller. That model entered service at the tail end of the aircraft's production life. United and Delta fly both the 757-200 and 757-300. image: United Airlines Hub airport saturation for transatlantic flights created new opportunities for the 757-200. The aircraft was viewed as ideal for bypassing hubs and flying non-stop. Service from smaller cities to domestic hubs or from smaller cities to other smaller cities became possible. United had strong interest in expanding European-East Coast narrow-body operations with the 757-200. Even with older engines and technology, Delta operates over 100 757s and United about 60 in late 2026. What is more remarkable is that the youngest of those airplanes is at least 22 years old. Despite being out of production, the 757 continues to fill a niche with Delta and United. We were surprised back in 2004 when Boeing ceased production of the 757 without a suitable replacement. Boeing continued to produce the 767 in both passenger and freighter roles. The company still offers freighter and military tanker versions today. But the 757 market was orphaned. Boeing did, however, plan to offer a larger version of its 737NG series, the 737-900. With 170-180 seats in a typical configuration, it could meet many domestic 757 mission requirements but lacked transatlantic range. United ordered the 737-900ER to replace its oldest 757s, and later the Airbus A321neo. When the 757 retired in 2004, Boeing was just introducing the 777. It was also in the initial stages of launching a high-technology replacement for the 767. Boeing launched that fuel-efficient composite aircraft in 2004 as the 787. After a much-delayed development and certification program and a $25 billion budget overrun, the 787 finally entered service in 2013, five years later than planned. After the 787 debacle, then-Boeing CEO James McNerney said “no more moonshots” for the company. He realized that the company was likely incapable of designing and completing an all-new aircraft program on time and on budget. The Boeing board, full of GE-trained managers, wanted lower costs and capital expenditures. As a result, Boeing moved to derivative aircraft for its next two major programs, the 737 MAX and 777X. The “no more moonshots” message certainly sent a message to the industry, and to Airbus. That message reflected Boeing’s internal decision-making and signaled to Airbus that its next narrow-body aircraft could likely succeed as a derivative of the existing model. Airbus caught Boeing by surprise with the launch of the A320neo family. A potential order for 400 Airbus narrow-bodies by American Airlines was their wake-up call. Boeing quickly retooled a prior 737 re-engining study to offer a competing aircraft on a timely basis. Even then, Boeing remained a year behind Airbus in entering service. Boeing's new model became the 737 MAX. Boeing intended the MAX to be a low-cost development. Management pushed for an on-time and on-budget program. Cost pressure from the Board and senior management filtered down the organization. The results, unfortunately, cost 346 lives in two fatal crashes from a design flaw. Boeing later could not deliver a MAX for 20 months, seriously damaging the company’s profitability and balance sheet. Later, a near-crash caused by missing bolts in a major quality escape brought additional scrutiny and restrictions on Boeing. That led to an overdue change in CEO and corporate culture. Fortunately, Boeing was in an excellent financial position when that process began, because the debacle cost billions. The FAA increased its scrutiny, and Boeing had the certification of its last two MAX models delayed by six years to 2026, and essentially had to restart the certification of the 777-9, despite significant completed test flying of the prototype. That brings us to today, with Boeing facing a “prove it” attitude from the FAA and a series of agreed-upon quality performance indicators that govern its production ramp-up on the 737 MAX. Those restrictions include the new "north line" production facility for the flagship MAX 10. The MAX 10 is the model that comes closest to replacing the 757 and was certified only two weeks ago. With the MAX 10's uncertain demise and timing, Airbus secured more than 5,500 orders for its A321neo family. That family includes an extra long-range version that can operate on routes up to 4,700 nautical miles. That additional range provides some of the 757’s capabilities with modern fuel-efficient engines to reduce fuel burn and emissions. The MAX 10 lagged in orders during the MAX troubles, and has about 1,555 on the books at the end of September. Airbus knew that Boeing wasn’t going to respond with an all-new airplane. They also knew that they had a major advantage in ground clearance with the A320 family design. Today’s larger engines, with wider fans, provide exceptional fuel efficiency from higher bypass ratios. The problem for Boeing is that the engines didn’t fit completely under the wing, since the 737 was first designed in the mid-1960s, when jet engines were cigar-shaped. If mounted normally, the larger new engines would hit the ground. Boeing needed to modify the 737 MAX to fit the engines under the wing, and those changes altered how the airplane handled. While the handling changes were not unsafe, the new model simply flew differently than the older model. Southwest, which ordered more than 300 MAX aircraft, negotiated a contract clause requiring Boeing to pay $1 million per aircraft if the new model required pilots to undertake further simulator training. To avoid those payments, Boeing devised the Maneuvering Characteristics Augmentation System to provide pilots with a similar handling experience. That system failed to account for a single point of failure, and was the major cause of the two fatal crashes. Before the A320neo, Boeing made it clear to the world that it wouldn’t undertake all-new programs. That message was received at Airbus. But was it a tacit agreement? We don’t think so. More likely, it was one competitor seeing an opening after errors at the other duopoly member. Our view is that the McDonnell-Douglas executives who assumed high-influence positions at Boeing after the 1997 merger focused more on cash than on product quality. Their overreach led to “no more moonshots” and the MAX debacle that crippled Boeing to the point that it couldn’t afford to launch the NMA after 2019. While neither competitor built a new aircraft, explicit or even implicit collusion doesn’t appear to be the case here. But the result is the same—two competitors that don’t want to rock the boat too much. This was especially true with one competitor listing heavily near the water. Of course, that also means no new and efficient 757 replacement. Given 787 delays, the 737 MAX crashes, the global pandemic, and delayed certification of the MAX 10, United wasn't going to receive aircraft on time. Supply chain delays also impacted Airbus production ramp-up, delaying deliveries. The result has pushed airline timetables out to the right, something airlines dislike given the disruption to schedules and operations. United has invested in JetZero and other new technology efforts in the industry. Perhaps a new technology program will emerge from a new entrant rather than an existing player. But given the high capital requirements, that remains a long shot in a duopoly-dominated environment.

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