(image: FlightGlobal)

In a strange turn of events, it seems is backing away from or at least delaying its much awaited A320-family NEO.  There was an expectation that this week we would hear all about the new airplane update.

But news from this week’s conference in Munich, provided information that is 180 degrees from what was anticipated.  In fact the news out this week leaves us a bit perplexed. Here’s why:

  1. Are there internal doubts about NEO?
  2. Is there a delayed decision?
  3. ALC’s Steven Udvar-Hazy opines
  4. France-KLM’s Pierre-Henri Gourgeon also opines
  5. Airbus’ Tom Enders opines

From reading the tea leaves it seems that within Airbus there is a split view.  Mr Leahy seems eager to proceed with the NEO.  But his bosses (Gallois & Enders) seem unconvinced.

It is easy to understand why M Gallois and Herr Enders are concerned – the A380, A350 and taught hard and expensive lessons.  The concern over “limited engineering resources” is perfectly rational.  This concern is also apparent at Boeing.  So there are excellent reasons to be cautious.

Now let’s look at the other side.  Mr Leahy, as chief salesman, is close to customers. He hears customers’ needs and wants to fulfill them.  His primary concern is having a product in place now.  Why? Because Boeing apparently will not offer a 737 that will be as efficient as an NEO – providing Airbus with a window of opportunity.  Moreover, Mr Leahy is really keen on stymieing Bombardier’s CSeries – something he wants/needs to do quickly as possible.

Even as one is sympathetic to the constraints at Airbus, the truth is that the company is in a bind.  Squeezed between Boeing with two programs (737 & 777) selling well compared to one program (A320) at Airbus, the latter needs to protect its core cash earner. (The A330 is deeply discounted to fend off 787 sales)

But even as we believe the NEO is necessary (agreeing with Mr Leahy)  we also believe the focus on the A320 for NEO is not the best place to start.  The A320 sells well as is. But the gap that demands attention is around 200 seats – in the space occupied by the A321 and 757.   The 757 is aging and even with winglets is vulnerable.  We wrote about this when we proposed an A321GAirbus’ A321 would be a great place to start with an NEO.

If Airbus were to provide NEO versions of its A320 and A319 it knows that these airplanes will slow down progress of Bombardier’s CSeries.  That is an attractive option for Mr Leahy obviously.  But when the CSeries starts flying this advantage will decrease because the CSeries will eclipse NEO numbers.   Then Airbus and Boeing will almost certainly attack the CSeries using pricing power. An A321 NEO has no threat on the horizon.

So while Airbus debates the pros and cons of its NEO, the 200 seat market beckons.  And Mr Leahy is probably gnashing his teeth.

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