The narrow-body aircraft market will undergo a major revolution in this decade, with new aircraft competition from the Bombardier CSeries, Comac C919, Irkut MS-21, a re-engining of the A320 family from Airbus, and an anticipated new offering from Brazil’s Embraer.
New technology engines are driving that change. The all-new Leap-X from CFM International promises a 14-16% improvement in fuel efficiency over today’s engines, with the first engines ready for the C919 introduction in 2016. The Pratt & Whitney GTF, which promises a 16% plus improvement in fuel efficiency over today’s engines, will enter service with the Bombardier CSeries in 2013.
It is unlikely that Boeing can launch an all-new aircraft before 2020, given their current cash flow difficulties and additional delays with the 787 and 747-8 programs. Boeing has increased its production rate on the current models, trying to deliver as many as possible before new competition renders those models economically obsolete.
The Risk of Economic Obsolescence with the 737NG
The 737-600, the smallest version of the 737 series, is economically obsolete and went out of production after only 8 years. The popular -700 size, once a market leader, is no longer generating significant customer orders, and will be the next model to become economically obsolete at Boeing. It has been outsold by the Bombardier CS300 over the last two years, which will render the -700 economically obsolete in the 130-149 seat class.
The 737-800 is currently the mainstay of the 737 program, as the larger 737-900 has not sold well, with nearly 80% of its production with a single customer. The 737-800, while an industry leader today, will be rendered economically obsolete by new competitors.
The new technology CS300 from Bombardier, for example, will even offer equal-to- slightly better seat-mile economics than the much larger 737-800. This enables airlines to fly smaller aircraft, which they know they can fill, with significantly lower risk.
Airbus is almost certain to re-engine its A320 family with new technology engines. Unlike the 737NG, which replaced about 80% of the parts from the 737 Classic it replaced, the A320NEO is being engineered for maximum commonality, with a goal of 95%. This is a double-edged sword. On the one hand, by focusing strictly on the engines, Airbus will be able to take advantage of the 15% improvement in fuel efficiency, and combined with its new sharklets, provide a 12% improvement in overall operating costs. On the other, the A320 is still 1980s technology combining a new-technology engine–a compromise at best.
With the A320NEO leapfrogging the 737-800 by mid decade, Boeing has two choices — either respond with a re-engining program, or replace the 737 with an all new aircraft. Unfortunately, Boeing is in a difficult situation with each.
Re-engining the Boeing 737NG is difficult because the size of new generation engines is larger than the existing engines, which already require an asymmetrical design to fit beneath the wings. Because the design of the 737 dates from its introduction in 1967, when engines were skinny, it lacks the ground clearance for new technology engines without modification to engine pylons and perhaps even the front landing gear to provide clearance. The more modern Airbus A320, which entered service in 1988, has adequate ground clearance for either the GTF or Leap-X, both of which are expected to be offered.
An all-new aircraft program from Boeing will be quite expensive, and given its current financial position after the delayed 787 and 747-8 programs, Boeing does not appear to be in a position to introduce a new narrow-body aircraft before 2019-2020, in part becausee the second-generation GTF or Leap-X won’t be ready until then. While such an all new aircraft could take advantage of carbon fiber technologies used on the 787, Boeing will certainly to regain its expertise in program management to avoid delays.
Two new competitors from China and Russia will also emerge with new technology engines, the C919 from Comac using the Leap-X and the MS-21 from Russia using the GTF. Each of these aircraft is expected to take a significant market share in their home countries, and both organizations expect to compete internationally as well as domestically.
Boeing will be significantly challenged mid-decade by the A320NEO at the high end of its narrowbody range, and by the CSeries at the low end of the range. The A320 family is much easier to re-engine than the 737, being two decades newer in its basic design. In the near term, the operating cost advantage will swing to Airbus for larger narrow-bodies.
For smaller narrowbody aircraft, the economic advantage will swing to the CSeries, which will outperform even a re-engined A319, and likely hold its own against a new technology offering from Boeing. The CSeries is the most technologically advanced of the new aircraft, with an aluminum-lithium fuselage and composite wing, the new technology PW GTF engines, and state-of-the-art systems including fly-by-wire. Composite material scalability offers more significant advantage for wide-body fuselages than narrow-body fuselages, and its major advantage, weight, is nearly matched by new technology aluminum-lithium alloys that are much more durable and easier to repair in high cycle operations.
Without a breakthrough in unducted fan engine technology, which would require radical new aircraft designs and require new solutions to noise issues, it is difficult to see Boeing offering a breakthrough new design before 2025.
The Bottom Line:
Boeing’s narrow-body market share will decrease rapidly near the end of this decade. Growing demand in China and Russia will be filled with domestic as well as imported production, and strong competition from Bombardier and Embraer at the low end of the market and Airbus at the high end of the market will render the 737NG program economically obsolete. Can Boeing afford to wait for another generation of new engine technology in 2025 and get by with its existing products? Unlikely. Can it provide a major breakthrough that will leapfrog its competitors by 2020? Not unless it can pull a rabbit out of a hat and develop an airframe so much more efficient than its competitors using the same GTF and Leap-X engine technology. We project that Boeing’s narrow-body market share will fall from over 50% today to under 25% by 2030, as it shares the market with five competitors instead of one.