Now that Airbus has made the decision to proceed with the A320 New Engine Option (NEO), what is the impact on the aviation industry?
First, the decision was long-expected and in many respects overdue. Many initially expected Airbus to make the announcement at the Farnborough Air Show last July. Airbus CEO Tom Enders had to be convinced that engineering resources would not be diverted from the A350 XWB program, which has now officially suffered its first delay from delivery promised in the first half of 2013 to the second half. In the end, Enders became convinced.
So let’s look at Who’s Who and What’s What.
- Is it correct that NEO won’t adversely affect A350 XWB? I’m not so sure. While engineers won’t be taken away from A350, with the NEO program tapping those coming off the A380 and A400M instead, mightn’t the A350 require these engineers? The A350’s first official delay is not likely to be the last. We’re hearing some disturbing buzz that could portend major problems in production; it’s not about the supply chain—it’s about putting the airplane together. Information is still unfolding.
- Did Airbus have to do NEO to remain competitive with Boeing? You can make this argument, but it’s also not clear-cut. The addition of sharklets from 2012 probably brings the A320 to parity with the 737-800 and keeps the A319 ahead of the 737-700. These improve the range of the A321, but not quite enough to be a trans-Atlantic competitor to the Boeing 757W (for winglet). Re-engining the A320 family gives Airbus fuel burn and operating cost advantages over the 737 family, though there is debate about the magnitude of the margin.
- Does the NEO kill off the CSeries? I’ll talk about this below, but considering that the A319neo is to be the last of the three introduced, in 2017, three years after the competing CS300, this suggests there is a viable market for Bombardier’s new airplane.
- Is Airbus right that the optimal replacement airplane technology won’t be ready until 2025-27 “or later?” This is the multi-billion dollar question. The second, third and fourth generation composite technology is probably already here; the question is manufacturing capacity to serve Airbus and Boeing at the production rates of 40 per month per airplane. Airbus is betting on open-rotor engine technology and right now, based on what engine-engineers tell us, we have real doubts that open-rotor will be a solution. Rather, future versions of the LEAP-X and PW GTF are more likely to be able to be refined to obtain the fuel burn and emissions reductions needed without all the other challenges (design, installation, safety, noise).
- The need to enhance the A320 and A321 is greater than the need to enhance the A319. The A320/321 have marginal US transcontinental range westbound in the strong winter winds. The sharklets help; re-engining gives these airplanes solid trans-con performance. The A321 becomes a true 757 replacement. So, yes, in the end, re-engining makes sense—provided Boeing doesn’t come out with an entirely new airplane by 2019-2020.
- Is the 737 at a significant disadvantage to the NEO? We don’t think so. Boeing believes the all-in direct operating cost advantage of the A320neo is only 3%-4% over the 737-800, and only time will tell whether Airbus—which believes the advantage is much greater—or Boeing is right. But by the time the A320neo and A321neo enter service in 2016, Boeing will have had several years to squeeze another 3%-4% DOC out of the 737, which is already slated to have an additional 2% reduction in DOC entering service in 2011. Boeing is working very hard to find another 3%-4% and if it can do so, the Airbus advantage—whatever it is—might be sufficiently reduced to allow the 737 to hold its own until a replacement, c. 2019-2020.
- Can Boeing do a replacement by 2019-2020? Sure. The questions are, What does it look like? (A) One airplane in the 150-240 seat class? (B) Two airplanes, one in the 100-149 seat class (to compete directly with Bombardier’s CSeries) and the other in the larger category? (C) Is it composite? Aluminum Lithium? (D) Will the engines be advanced enough for 2019? Answers: We think a single aircraft in the 150-240 seat class is most likely, as we don’t think Boeing has the stomach for two airplane programs despite commonalities that would exist. The days of the 757/767 simultaneous development are over and the ghastly cost overruns in the 787/747-8 programs make funding two simultaneous programs problematic. Plus Boeing has to fund the 777-8X/9X programs to compete with the A350 and the renewed 787-10 program. With respect to materials, composites have proved vexing for Boeing and Airbus, to say the least, and advances in Al-Li might make this the preferred solution. No Call on this one. New technology engines, led by the PW GTF, will be ready by 2019, and besides, the 737 is getting to the point where it has to be replaced, sooner rather than later.
- Keep this in mind: Boeing is now the only aircraft company without a new airplane offering of some kind in the 100-200 seat category. The company can’t dilly-dally for more than another year or so before committing. With a seven-year lead time, this is 2012 for 2019 EIS and a year later for 2020. Boeing could make a move in 2011, but this depends on whether some key Boeing customers defect to Airbus or Bombardier.
- Has NEO killed the business case for the CSeries? We’ve known Airbus’ John Leahy for 25 years and love his ability to turn a phrase, but c’mon—this is pure hype. The CS300 will out-perform the A319, it will be ready three years sooner and it’s 21st Century technology vs. a Compromise Airplane. The real threat to CSeries is the pricing power of Airbus (and Boeing) and the family of airplanes Airbus (and Boeing) can offer to kill or dampen sales of the CSeries. But on economics, Lufthansa’s Nico Buchholz, the fleet planner, evaluated the CSeries, A319 and A319neo (when the latter was still pre-Authority to Offer) and chose the CSeries. He is on record saying the A319neo can’t compete with the CSeries.
- Why have sales been so slow for CSeries? Actually, when you plot the advance sales of the A320, 737NG and CSeries on a graph in advance of EIS, the CSeries is marginally better than the launch orders of Airbus or Boeing. But the global economic melt-down, uncertainty over what Airbus and Boeing would do and the capital market squeeze have hindered sales. But all this is shifting now, and Bombardier needs to land some good orders in 2011 to placate the doubters. I think this will happen.
- Why buy the CSeries? Economics are better than the A319, A319neo and 737-700; it’s 21st Century technology; and from a passenger’s standpoint, the seats are much better than any of the other airplanes, with huge overhead bins A carrier like Southwest Airlines, which has 175 737 Classics that need replacing plus an incoming 86 Boeing 717s, could out-market and out-sell its competition for customer-friendly aircraft to match it’s no checked baggage fees, no airfare change fees, customer service-oriented approach that puts the USA’s legacy carriers to shame. The CSeries coach seats are the most comfortable I’ve ever sat in (in the mock-up, obviously). The wider seats in the A320 don’t compare. The 737’s are excruciating and even the 787 and A350 at nine-abreast are awful. Only the A380 coach seats and the Embraer E-Jets match, and the latter has dinky overheads.
- To paraphrase American humorist Mark Twain, the reports of the CSeries’ death are greatly exaggerated.