A320neo Engine Choices - Market Share Analysis

The engine battle on the A320neo family is underway, and of the 3,678 orders to date for the family, decisions have been made for about 60% of orders, with 40% remaining undecided. The market share, as of March 19th, is shown in the following chart. Since undecided at 40% is the market share leader at present, those customers will clearly be the swing votes in the market share battle, which is ramping up in competitive intensity. To date, for engines that have been selected for the A320neo family, CFM is in the lead with 1,211 orders, or about 55.2%, versus 983 for Pratt & Whitney at 44.8%. Historically, CFM had a 56.3% to 43.7% lead over IAE, which would represent a 1.1% market share gain for P&W if current percentages hold true. So is the GTF gaining ground on LEAP? Based on the historic ratio of the CFM-56 versus the IAE V2500 on the A320ceo family as a baseline, it is too early to tell. For those customers operating both ceo and neo models, most have stuck with the same manufacturer for engines, with only nine exceptions. Of those, seven were converted from CFM to P&W, versus two from IAE to CFM. That would indicate that some future movement of market share is possible - but with 40% of the outstanding orders yet to select an engine, we won’t know for quite some time. Many customers are apparently waiting until the engines enter service, and they can obtain more accurate data on fuel consumption and maintenance costs to make their decisions. With a seven year backlog of orders for the A320neo, those decisions, for many customers, are not imminent, and they can afford to take their time. The other element in market share is the mix of aircraft types, as shown in the table below. Historically, CFM has been stronger on the A319 and A320, but IAE had the lead with the A321. With a shift in orders upward from historic levels, and the A321 gaining a proportionally larger share of the total, we would expect more orders for P&W, if past is prologue. Let’s examine the order book by model. The A319neo has 49 firm orders, of which 37 selected CFM, none P&W, with 12 undecided. Of course this is a very small segment of the market. Historically, the A319ceo was 66.2% CFM to 33.8% IAE, so the lead for LEAP is not unexpected. While we would normally doubt that the A319neo will ever be built, given the 49 orders for the aircraft, we recognize that Airbus has made some historically poor decisions in moving ahead with unsuccessful programs, including the A318, A340-200 and A340-500. Logically, like they did with the poor selling A350-800, they could move all A319neo customers to the A320neo and cancel the program. But logic doesn’t always win the day. The A320ceo, the bread and butter model for Airbus, was historically 58.0% CFM to 42.0% IAE. To date for neo, the ratios are quite similar, at 57.6% of decided orders for LEAP and 42.4% for GTF. This slight differential indicates not much change on the baseline model for orders taken to date, and that CFM's market share is holding. The A321ceo, the largest model in the family, is where IAE took the lead, with a 63.7% to 36.3% lead over CFM. That trend has also continued in decisions to date for the A321neo, with 59.7% favoring the GTF and 40.3% LEAP, a slight improvement for LEAP largely driven by the American Airlines order for 100 aircraft. Apart from that order, the preference for P&W appears to be continuing for the largest model in the series. The Bottom Line Much like most Presidential elections, there is a strong base in each camp, but the election will decided by the “undecideds.” If we read the exit polls, and changing demographics, it appears that resurgence of the A321 in the marketplace should favor P&W, and the early indications of existing customer switches also favor P&W. But this vote remains too close to call, and will be an interesting battle to watch.

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