United was the holdout, a firm customer, with MAX9s delivered and MAX10s to come.  But the outcome is that these larger MAXs cannot do what the airline needs.  The world has moved on and the 757 cannot soldier on forever in passenger service.  Doing a couple of flights every 24 hours as a freighter, yes. But running a half dozen times per day in passenger service, probably not.

Moreover, many of United’s competitors (US domestic and beyond) have selected the A321 to replace aging 757s.  To borrow (an unfortunate) phrase: to compete with an A321neo you need an A321neo.  In an industry that constantly seeks the lowest seat-mile costs, Boeing does not offer what the market needs: a credible 757 .

The A321 ascendance is ascribed to fumbles by Boeing from the 787, then 747-8 and then MAX.  In the end, does not matter where the “blame” lies.  Airbus and Boeing played the cards they had.  It was much discussed in Paris this summer among the media that the decision by Airbus to the A321XLR was the most important news item.  Also at the show, GE’s David Joyce, for the second year in a row, voiced his company’s reservations about the NMA.  As, probably, the leading choice as engine supplier for the NMA, those reservations reverberated.

Now that American, Delta, and United have all selected the A321 in some form, the die is cast. These three airlines together operated the most 757s.  If they have chosen the A321 as the replacement, any other airline considering its own 757 update would be foolish not to follow.  The sophistication of the analyses these three airlines put into fleet selections is quite rigorous.  If all three go with the A321, that is highly influential.

Airbus
In the various Airbus offices, there will be cheering today.  Winning United was big.  The pushing back on the A350 orders is not as big a deal as is made out.  United waited a long time to acquire 777-300ERs even though they were the best in class.  Better to run down its 747s and other models and squeeze every last dime out of those frames.  Moreover, do not think the A350 order is done for. Airbus will tweak and refine that aircraft. Just Boeing has done with the 777.  Airbus gets to enjoy today.  But only today.  Boeing lost a skirmish, not a major battle.  Airbus is seeing its needing to be replaced as its customers now buy the A321neo in greater numbers.  The obvious (but not public) focus is to stretch the A220 to 160 seats. Airbus has a lot to work on.  The A321neo success is disrupting its A320 family.

Boeing
It will be a miserable day for Boeing.  United and Pratt & Whitney come from the same origins as Boeing.  Boeing has been upset by Airbus at United before.  But since then the airline has proven itself a reliable customer.  United has not stepped away from MAX.  Nor has United (like Delta) lost interest in the NMA.  The United A321XLR decision impacts the lower end of the middle of the market.  There is still a segment that remains undecided.  The 767s also need replacing.  If the lower end MoM has shrunk, this will focus Boeing’s attention on the larger, twin-aisle, segment.  Boeing has a lot of work to do besides fix MAX.  Crucially, Boeing needs to move on the NMA. The United A321XLR deal actually helps that because Boeing can focus on the upper end of MoM – less compromise probably makes for a better outcome.

What’s Next?
Airlines need to replace their 767s.  Airbus offers the revised A330neo, which may turn out to be an effective option.  There has been some interest, but not at the level Airbus hoped for.  This partly because of the relative youth of current A330s in service.  Airbus talks about the “natural replacement” of A330ceo with A330neo. But, crucially, this does not answer the 767 replacement.  American and Hawaiian selected the 787 for this.  Delta went for the A330neo.  United is holding on a bit longer.   Twin aisle aircraft are more profitable.  Boeing cannot be easily dismissed in the twin-aisle segment as it has been on the 757 replacement.

If one looks at the active 767 fleet, there is an attractive replacement market. The table lists 767s in passenger use by build year.

A key item here is to notice that the 767-300 was the sweet spot.  That is the size airlines will focus on.  Airbus numbers for active A330s are 429 A330-200s and 667 A330-300s.  Of these, the A330-200 falls into the middle of the market better than the -300.  Together, the 767 and A330-200 replacement market is a respectable ~750 aircraft.  Throw in a 30% growth factor, as airlines move towards smaller aircraft flying more frequently, and the segment opportunity might be closer to 1,000.

The 787-8 is not the ideal MoM upper segment option.  Therefore a place exists for the larger NMA.  Such an aircraft will almost certainly the A330neo in performance terms.  The big NMA questions are by how much in economic terms and what it will cost?  The gaps will have to be substantial – i.e. >15% better fuel burn and a market price of ~$70m.  That is the area of focus for Boeing.  Dithering over the 757 replacement cost Boeing key deals.  Dithering over the 767 replacement has to end quickly.

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