As airframe manufacturers in China, India, and Russia aspire to grab a share of the global commercial-aircraft market, they might not yet fully appreciate the problems that could accompany the establishment of a successful jetliner family.
Airbus and Boeing have had to deal with the problem of their own success this year, as they mulled their next moves. While Airbus continued to support the introduction of the A380 very-large airliner and worked on designing its new A350 widebody, Boeing pursued certification of the 787 twin-aisle twinjet, as well as a prospective upgrade for its established 777 family.
More immediate still in 2010 was the approaching need for the manufacturers to decide on their single-aisle product development: should they breathe new life into the A320 and 737 families with new engine choices – the Pratt & Whitney PW1000G geared turbofan or CFM International Leap-X – or plump for new projects that benefit from new and emerging technologies. Both manufacturers talked of decisions being made by the end of the year.
Airbus concluded that a re-engined A320-series – dubbed A320 New Engine Option (NEO) – could provide an interim solution, keeping the basic design fresh until, the company predicted, emerging technologies become available in 2025 (or soon after) to justify an all-new aircraft. Boeing has considered similar moves, but claims continuing engine and aerodynamic improvements offer the prospect of permitting the launch of a new model in, say, ten years' time.
Early this year Airbus Chief Operating Officer (Customers) John Leahy predicted that if an A320NEO were launched in late 2010, Boeing would immediately announce an all-new design for 2020 launch. In mid-November Boeing Commercial Airplanes Chief Executive James Albaugh said the US manufacturer was likely to do exactly that, while senior Airbus executives reportedly remained divided on the A320NEO.
For both companies, single-aisle production provides a valuable stream of revenue and profit as they consider development of larger designs. Boeing and Airbus recently stepped up single-aisle production, with Leahy claiming that Airbus could sell 4,000 more A320-series machines, compared with the 4,125 delivered before this year. Airbus aims to deliver 26 Chinese-assembled A320s this year and 38 in 2011.
Historically, the two have played leap-frog with the introduction of new designs or significant upgrades to competing designs, but currently each company's room for manoeuvre is compromised. Neither would find it easy to commit, say, US$10 billion to a completely new project.
As Airbus accelerates A380 production (with fingers crossed while Rolls-Royce resolves an apparent design deficiency in the Trent 900 engine), it is also developing the A350, for which delivery has been put back to late 2013. The manufacturer has two critical factors to consider: capital and manpower. The military A400M, ramped-up A380 production, and A350 development will require substantial expenditure in the next few years.
Wall Street analysts Bernstein Research noted in November that the challenge for Airbus is ensuring availability of adequate engineering resources to re-engine the A320. Airbus marketing officials have been keen to proceed if the problem can be resolved.
For its part, Boeing is now almost four years late with its much-troubled 787, has the 747-8 also behind schedule and is mulling a 777 upgrade.
At the same time, the two manufacturers are looking over their shoulders for potential future competition in the 150-seat market from Brazil's Embraer and Canada's Bombardier, not to mention other upstart rivals in China and Russia.
Engine Lease Finance (ELF) Chief Executive Jon Sharp believes oil prices could drive Airbus and Boeing decision-making on re-engined aircraft, saying the new engines must “confidently deliver significant fuel savings while maintaining other ownership costs”. Powerplant manufacturer Rolls-Royce has encouraged the airframers to launch single-aisle replacements rather than pursuing interim solutions that could delay introduction of new, "highly integrated and optimised" aircraft.
Boeing's Albaugh argues that, faced with choosing between new engines in 2015 or new aircraft five years later, most airlines would opt for the latter. While new engines could contribute to 15 percent-lower operating costs, related development costs would dilute total savings to less than 5 percent.
Richard Aboulafia, aerospace analyst at consultancy Teal Group, has noted a positive airline response to Boeing’s preference for an all-new design. A major challenge is the timing.
"There will be a moment for a new airplane, a new production programme, and we're working very hard to figure out when that might be," Nicole Piasecki, Boeing Commercial Airplanes’ vice-president for business development and strategic integration, said in November.
Boeing's largest 737 customer, Southwest Airlines, agrees with ELF’s Sharp: increasing fuel costs mean that retention of the current fleet is not an option. The carrier said it wants to know the schedule for a replacement design. “One single thing that [will] improve [airline] economics is to introduce a new airplane," said Southwest Chief Operating Officer Michael Van de Ven.
Meanwhile, Malaysia-based low-cost carrier AirAsia wants a re- engined A320, saying that Airbus should decide this year: “We need a decision,” says AirAsia Chief Executive Tony Fernandes. “Both Airbus and Boeing have taken a long time deciding.” Others in favour of re-engining include Delta Air Lines and Ryanair, although Albaugh says Boeing will continue incremental 737 development unless a clear consensus emerges in favour of new engines.
The US manufacturer claims major 737 operators are not requesting new engines. "There are virtually no customers pushing us to re-engine, [but] if airlines want re-engining we will look very seriously at doing it," says Piasecki.
Still, that does not mean Boeing will decide quickly, according to marketing vice-president Randy Tinseth: "It's a very dynamic situation. We said we'll make the decision this year, but we are going to take time, all the time for us to make the right decision," which could be pushed back to 2011.
Bernstein Research says Airbus customer feedback has been positive and the A320NEO business case is attractive. The manufacturer has established initial agreements with CFM International and Pratt & Whitney. Bernstein analysts think final decisions will depend on senior Airbus management's "tolerance for risk, [although] with A320 sales likely to continue for some time there is very little downside" to not re-engining.
Lessor AerCap Holdings believes that recently announced performance improvements and the CFM56's "superb" on-wing performance make the 737 a formidable competitor to "any re-engine alternative". Albaugh acknowledges that in the short term an A320NEO could take significant numbers of 737 sales before Boeing introduced a new single-aisle design in, say, 2020.
Reluctance to launch
Bernstein has perceived a creeping reluctance by Airbus to launch the A320NEO, stimulated by three considerations; cost, constrained resources, and commitment to the introduction of "sharklets" in 2012. Airbus will use the forthcoming "sharklet" wingtipped A320 variant as the benchmark for comparing A320NEO performance.
A320NEO impressions shown to EADS investors in mid-November suggested Airbus expects a fuel-burn reduction of 15 percent, a bypass ratio of 9:1-12:1, and a fan-diameter increase from 64 inches to 81inches.
In evaluating future single-aisle options, Boeing identified three possibilities: a re-engined 737, an all-new design, or no change. It has also said it might make no decision. In November, a Boeing 737-800 began five months' certification testing of proposed performance improvements that will be phased in from mid-2011, including aerodynamic and powerplant changes expected to reduce fuel burn by 2 percent.
While Albaugh believes an A320NEO would yield a 3-4 percent improvement in direct operating costs, he says this would only bring the variant in line with current 737s. Perhaps teasing his competitor, the official claimed in a September internal Boeing webcast that there is a further option: a "737NG+" that would perform well against an A320NEO and provide a stepping stone to a 2020 737 replacement.
With modifications beyond those already announced, the NG+ could provide incremental 737 improvements without Boeing's incursion of significant expenditure on a new engine.
Bernstein Research said an Airbus "no-go" decision would be the best outcome for Boeing – and possibly for the European company as well. While the A320NEO could offer Airbus a US$7-8 million price premium per aircraft, the analysts think this might only yield short-term gains against the 737NG.
Powerplant manufacturers are expected to share the risk in any A320NEO, with the P&W PW1000G lined up to replace the International Aero Engines (IAE) partnership’s V2500 engine, giving the US company all the revenue from sales instead of the share it now receives as an IAE partner.
Rival CFM is, of course, already well placed on the current A320 series, but requires a western airframe application for its new Leap-X engine, which has so far been chosen only for China's new Comac C919 airliner.
The fully developed Leap-X 2C variant may not become available until 2018, two years later than previously planned. An initial 1C model is expected to offer 10-12 percent fuel savings, compared with the later variant's 15-16 percent, which would be available until any all-new Airbus design replaces the A320 after 2025.
P&W Chief Executive David Hess pointed out that it is not definite that Airbus and Boeing will follow the same tack on re-engining. "It's conceivable they could go different ways," he said.
In the end, Boeing’s Tinseth said, airlines and leasing companies will both play a key role in market developments.
"We're looking for our customers to lead us in that decision,” he said. “Some airlines are saying a 15-percent improvement in fuel burn is a 'no-brainer' and at the other end of the scale are leasing companies, [which want] nothing to change – ever."