Premium #112 – FILLING THE GAPS IN THE COMMERCIAL AIRCRAFT MARKET

Despite the proliferation of new aircraft models, we count 25 (as shown in the following chart) to be introduced between 2014 and 2020. There are some significant market gaps remaining that could provide substantial opportunities for an OEM that is able to fill the need. Most gaps are created by seat size, though it appears clear that the market is now well covered for the entire 70-525 seat range. But some gaps are not created by seat size, but instead by the optimal range designed for aircraft to operate, along with the routes airlines want to fly them on. A good example for this comes from Delta Air Lines, with their recent statements about the issuance of a RFP for new wide-body aircraft. Delta, with their large transatlantic presence, needs to replace their Boeing 767 fleet, which is currently optimized for a range of about 5,000 nautical miles. With most transatlantic routes in the 3,300-4,000 mile range, airlines need the added capability to ensure flight completion when facing headwinds and adverse conditions. Thus, Delta is seeking an aircraft optimized to a 5,000-5,500NM range capability. The problem is that the newest, and most fuel-efficient models, have been optimized for 7,500-8,500 mile long ultra haul sectors, including the Boeing 787, Airbus A350XWB and Boeing 777X. As a result, the only aircraft that best fits the requirements is the Airbus A330, which has earlier generation engine technology and is not as fuel-efficient as Delta would like. Hence the talk of the as yet non-existent A330neo. Take a look at this chart. Should Airbus create an A330neo? The ideal option for Delta would be an A330neo, with more modern engines. Tony Fernandes, who heads Air Asia, is also interested in the A330neo, as it is the perfect sized aircraft and is also optimized for the right stage length for their inter-Asian and Asia-Europe operations. The chart highlights the range capabilities for today’s wide-body aircraft, and clearly illustrates that range has grown significantly from the current generation of aircraft. Current and planned aircraft are shown in green, and aircraft out of production in red. The medium range market is now essentially the A330’s to conquer. This provides a strong opportunity for Airbus. Many airlines are not interested in an aircraft "that under-fly their range" according to Delta's Anderson. There has been considerable chatter within the industry, and even at AirInsight, regarding the A330neo, but Airbus has been adamant that no decisions has been made, as reaffirmed in a recent podcast with Airbus' Crawford Hamilton here. But with two major customers now publicly asking for the aircraft, could Airbus be the only OEM filling a sweet spot in range that not only encompasses trans-Atlantic, but Inter-Asian flights as well? The "757 Gap" Perhaps the most gaping hole in the industry is replacing the Boeing 757-200. The 757 offered a unique combination of narrow-body economics, larger seating capacity and longer range than any other narrow-body, and was quite successful. In essence, the 757 became the replacement for the DC-8-60 and 70 series to handle long-thin routes under 4,000nm. With 4,000nm range, the 757 also became the only narrow-body to provide the range required for transatlantic operations against the winds coming west. The aircraft became popular in that role as airlines “right sized” routes from smaller cities non-stop to other smaller cities, avoiding hubs congestion or feeding hubs from smaller cities. It proved to be a great route development aircraft. Today’s narrow-bodies don’t come close to matching the range and seating capacity of the 757, as shown in the chart below: The closest aircraft to filling the "757 Gap" is the A321neo, which is finding success in transcontinental US roles with JetBlue and American, but still lacks the range for year round trans-Atlantic operations. This is a gap that Boeing could have filled with the 787-3, the cancelled shorter range version of the 787. Should a replacement for the 757 be a single aisle, or a twin aisle aircraft? Or perhaps a twin aisle within a narrow-body framework, as long advocated by several carriers, including SAS designed as a “people pleasing plane.” Whoever fills this gap will find a replacement market of more than 1,000 aircraft, and likely a growth market of 1,500 more if the efficiency of a new technology aircraft is superior to the existing A321neo and 737-9 designs. Engine Technology is Driving Change While materials and technology have significantly contributed to the efficiency of the 787 and A350 through the use of composite materials and advanced systems, engine technology continues to be the major driver of change. Each new generation of engine offers a fuel burn improvement of about 15%, which in today’s market is quite significant. With Airbus and Boeing each adapting new engines to existing products quite successfully in the narrow-body arena, and the 777-9 effectively doing that, plus more, in the wide body arena, the question is whether Airbus will also jump in as noted in our A330 discussion above. Moreover, Tim Clark CEO at Emirates, is asking for re-engining of the A380 for his next order of 50 aircraft, as the fuel efficiency advantage of the super-jumbo is no longer what it once was against the new technology 777. Aircraft families can last a long time -- witness the longevity of the 737, A320 and the 777 designs. Will the A330 and A380 join them with re-engined models to remain competitive, or begin the gradual fade out to obsolescence? Customers are demanding more from Airbus. The question now is will they get it.

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