Exploring Boeing’s Strategic Move Against Bombardier

The move by Boeing has flummoxed many very smart people. What could be behind this decision to go after Bombardier? The selection of the ITC was a fast track attempt to impede Bombardier. But the evidence of actual damage, rather than potential future damage, does not exist. Boeing is run by smart people. They are not irrational. What could be behind their view of how the market is evolving? In cases like this, we go the data to see if there is a guide to make the confusion clearer. Here’s what we found. We split the market for single aisles into four categories as in the chart below. The chart illustrates active airline fleets during four periods from 2000 to 2015. In 2000 the smallest segment was over 40% of the single-aisle segment. By 2Q17 it had dropped to 24% - but intriguingly, the number of active aircraft remained very similar. In 2000 there were 3,744 and at 2Q17 there were 3,678. The 131-150 segment has shrunk substantially from over 2,100 to about 600. The 150-179 segment has exploded from 2,136 to 8,727. At the top end, the fleet grew from 1,023 to 2,394. Breaking down the data into Airbus and Boeing we note the following. Airbus has focused on three categories and relentlessly increased its share. Boeing competes in all four segments and has seen declines in the smallest two segments. It is important to note that all this happened way before there were competing products from Bombardier or Embraer. Moreover, let's look at the average fleet ages. The smallest segment is getting younger slowly - but it remains over 20 years old on average. Similarly, the 131-149 seat segment is also aged. The 150-179 seat segment is not only the largest, it is also the youngest. This underscores its vitality. The largest segment is only slightly older than the 150-179 seat segment, and getting younger. Breaking down the ages by OEM for the big duopoly we see the following. Airbus is squeezing Boeing on both ends of the single-aisle market. At the bottom end, Airbus has seen its share rise from 8.3% in 2000 to 37% by 2Q17. In the 150-179 seat segment, Airbus went from 42% to 48%. At the top end, Airbus has gone from 16.9% to 45.8%. Airbus has been winning share as other OEM equipment has retired. Airbus is now neck and neck with Boeing in the largest and most important segments. Boeing's only market strength has been in the 150-169 seat segment. The 180-245 seat segment, once the exclusive preserve of the 757, has seen the Airbus A321 steadily rise. The larger 737-900 can’t match the A321 in fleet growth. Indeed, the case can be made that 757 retirements are being replaced by A321s. If Boeing is being squeezed, what can it do? It has refined the MAX7 with 138 seats to better compete with the A320neo. But few orders are extant. It has the MAX8 which is going to replace the -800 doing very well. The MAX9 and MAX10 are attempting to slow down the A321. What we have seen, however, is that since the MAX10 was announced, most of its orders have come from conversions from the MAX9. We have previously noted that there is a strong rumor that at the forthcoming Dubai show the 797 will be announced. It can’t come fast enough to staunch the A321 challenge. But, perhaps, here’s the reason that Boeing decided to attack Bombardier. It needs to ensure the sub-150 seat segment remains open to its MAX7. The Airbus products are evolving, its family growth is going to with the A321. The A319neo is struggling just like the MAX7. The struggle will get much worse as the C Series and E2 enter this segment. Looking at backlogs for the new models in the 130-149 seat category, the C Series share appears Pac-Man like in shape, ready to devour the A319neo and 737MAX7. If the C Series catches on, large orders are possible that would be unlikely to go their way, and that would open the potential for a stretch of the aircraft that could compete with Boeing's cash cow, the MAX8. Accordingly, Boeing must reach for whatever solution it can find to hamper that progress. Why hammer Bombardier? Bombardier is a master at stretching aircraft and may grow the C Series beyond 150 seats. Why not hammer Embraer? Embraer does not have the E2 in the US yet. Moreover, Embraer has made it abundantly clear it will not grow the E195-E2 any larger. Since Boeing has seen that the market will not help its MAX7, it turned to the next source of relief, the US government.

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