Earlier this week Airbus’ Tom Enders made an interesting remark. Specifically: “Why should we spend large amounts of money when we can make significant incremental improvements?”
Aerospace is risky and it is not getting less risky. Derivative aircraft are lower risk and can perform very well in economic terms, serving airlines reliably. Indeed, when one looks at the market, one derivative outshines them all, the Boeing 737.
The chart illustrates the reason so many airlines keep buying the 737. Despite being the oldest original design still in service, the airplane keeps on improving. Despite much higher fuel costs, the 737 in its latest guise (-900) is nearly half as costly per seat as the original. One can also see why the -800 and -900 models are the more popular.
Which leads one to believe that airlines can expect the MAX to be following this history and deliver much better economics. Boeing promises 8% better operating costs than its competitor. Given the way Airbus and Boeing calculate their numbers, that number might be higher than how it works out. Using 3Q13 data we estimate the 737-800 has a 0.1% lower operating cost than the A320. However, we are reasonably confident that MAX will be at least 4% better than the NG.
Derivatives can be economically effective for airlines while giving OEMs a much lower program risk.