The MAX 10 has been in the news this past week, and not for great reasons. This is a most unfortunate outcome for Boeing, and (surprise!) for Airbus as well. Let me explain how we see the MAX10 gamble.
Readers are familiar with our continuous focus on the single-aisle Middle of Market (MoM segment. We believe this is an increasingly important segment. Traffic is growing again. There is a pilot shortage. It is simply physics – the industry needs larger aircraft to move the traffic volume with a limited supply of pilots. Moreover, the state of art single-aisle MoM aircraft has very useful range capabilities. They can be used the same way widebodies like the 787 and A330 are – route development. Only they are far less risky to operate. There is a cogent argument that Iceland’s WOW would still be in business if they had focused on A321s rather than A330s.
The safe bet is always to look at the data. Here’s what we see and this informs our opinion. The first chart is primary evidence that the duopoly is unstable in this segment. This instability is a threat to Airbus, as anyone who understands game theory knows. This is why we say the absence of the MAX 10 is an unfortunate outcome for Airbus. They don’t want this instability and they cannot supply all of the market demand. To be clear, Airbus needs Boeing to have a model in this segment and the MAX 9 is not sufficient. The 2022 data is through September.
Here is another chart that provides context. The absence of a compelling segment offering from Boeing has given Airbus an incredible lead. Back in 2000, this was Boeing market, with the 757 as King of the Hill. Is Airbus happy with this advantage? Of course! Airbus uses this advantage to win deals via the magic of transfer pricing. JetBlue and Qantas are two examples where a combination of A321 and A220s kept Boeing and Embraer out. But even Airbus has to concede this situation is not sustainable.
A healthy duopoly needs two players of approximately equal market share. This segment does not have that. And this unhealthy situation bleeds into neighboring segments, making things worse across the board. Mostly for Boeing, but in the end for Airbus, too. For example, the next chart shows 2022 delivery data through this morning. As you can see, the duopoly isn’t duo.
Moreover, this year we are seeing something remarkable. The history (from 2000) of the single-aisle MoM has been that it represents about 18% of single-aisle deliveries. In 2022, through yesterday, the market share has risen to 32%. It has nearly doubled. Why do you suppose airlines are chasing this segment? This next chart illustrates the 2022 history.
Yesterday Delta, the largest MAX 10 customer to date, took delivery of two A321neo’s Also, on the Delta earnings call, Skift’s Edward Russell asked this question: “I want to ask what Delta’s plan is if the Congress does not extend the waiver for the 737 MAX 10 cockpits that expires at the end of the year?“. Delta’s Ed Bastian replied: “We — I was asked this question on CNBC this morning, and I said there is a plan B. And of course, when we made the decision to buy the 10, we had a lot of conversations with Boeing around that specific question because it’s a big part of our capacity, and we want to make certain that we’re not going to be left without an alternative. So we do have a plan B. We’re not discussing what that plan B is, but there is a plan B with Boeing in the event it doesn’t get certified. That said, we remain optimistic it will be certified.”
This is some optimism. It does not look good for MAX 10 certification this year. Southwest’s pilots are in favor of an extension from Congress, but their focus is MAX 7 which the airline needs ASAP. American’s pilots are against the extension and that airline is MAX8-focused. Delta pilots? As of now, still crickets. United is a customer for MAX 8 MAX 9, and MAX 10 – and not a word.
We reached out for outside opinions with these questions:
- Do you think Boeing will cancel the MAX 10? Or are they bluffing?
- Delta says they have a Plan B – probably the other MAX 10 customers also have this. I think that would be a MAX9 – agree or not? (By the way: Delta said in Farnborough that it would consider options if the MAX 10 was delayed. Check it in our July story.)Boeing too said then that contracts include provisions.
Richard Aboulafia, Managing Director at AeroDynamic Advisory responded: “It was a bluff, probably. An extremely ill-advised bluff. I presume Boeing has its own plan B if they don’t get Congress to grant them an exemption. At least I hope that’s the case. As for the airlines, yes, I presume the MAX 9 is their backup plan, if only because the A321neo will be supply constrained for years.”
Bob Mann from RW Mann & Co.: “First thing is, it came up on the Delta earnings call yesterday and so it’s obviously an issue of some importance, the idea of either, you know, new Boeing MAX airplanes or some kind of Plan B, you know, it’s not clear. You can’t go to another manufacturer and do anything in the same time frame. So that’s kind of off the table. There’s still a lot of Northwest Airlines thought, planning, and management at Delta. And I guess if I were going to put on my Don Nyrop hat, it would be to use up the remaining “green time” on what you got and see how far it goes. See what else is available on the used market and press on. Then I think there’s there’s a strategic plan which is maybe to settle on a slightly smaller MAX 9 version. Which, given the likely performance limitations on a MAX10, is probably not the worst choice. You just get less gauge out of it and hence you get slightly higher unit costs. I’m not sure it’s a bad choice, but it’s just going to be slightly different and I think it would be a far more flexible airplane than a MAX 10.”
Sash Tusa Agency Partners, A&D analyst: “We don’t think Boeing can afford to cancel the MAX10: that would leave the entire [narrowbody] middle of the market to the A321. Unless, that is, it is so close to launching its own MOM that starts at 200 seats single-aisle and moves up from there. But this does not seem terribly likely. In which case, they are bluffing: MAX9 is no competition to the A321neo, except on very short-range routes. A particular problem is that, whichever of these outcomes, MAX residuals get clobbered:
- new EICAS, and that damages all existing aircraft in service
- New MOM, and MAX is an orphan aircraft
- Scrap MAX10 and Boeing (and its operators) have a truncated product range with limited longevity“.
The MAX 10 gamble is becoming a very interesting story – a combination of a bet by Boeing in an election year.
Co-Founder AirInsight. My previous life includes stints at Shell South Africa, CIC Research, and PA Consulting. Got bitten by the aviation bug and ended up an Avgeek. Then the data bug got me, making me a curious Avgeek seeking data-driven logic. Also, I appreciate conversations with smart people from whom I learn so much. Summary: I am very fortunate to work with and converse with great people.
