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Thursday, January 27, 2011

Boeing Bets On Replacement 737 Over Reengining

Boeing is betting that technology will mature enough by 2019/2020 to support a new airplane to serve the all-important 100- to 200-seat market, rather than taking the option of re-engining 737NGs to compete with the Airbus A320 New Engine Option (NEO) program.
“If we can come up with the right airplanes in the roughly 2019/2020 [period], I personally think the market will wait for us,” CEO James McNerney told analysts during a 2010 earnings call Wednesday. “But we have to work through the airplane [to see] more precisely what it will look like.”
The company expects to spend most of the year evaluating the tradeoffs of introducing an all-new airframe with new engines, systems and, perhaps, greater use of composites in the fuselage to improve its overall lifecycle performance versus the interim step of re-engining the current 737 to achieve immediate fuel burn improvements.
If Boeing’s bet on an all-new airplane is feasible by the end of the decade, it will leapfrog Airbus’s NEO, which is to enter service no earlier than 2016. Airbus has bet that new technologies will not be mature enough to meet a decade-end deadline. It expects a 15% fuel burn gain for customers who chose either one of its engine offerings-- the Pratt & Whitney PW1000G geared turbofan or CFM International LEAP-X.
But if technologies are not mature enough until 2025 then Boeing will need to consider reengining to meet the NEO challenge. It will make that decision by year end, McNerney said. He did not mention engine choices, but they include the LEAP-X or PW1000G.
Boeing and Airbus are no longer operating in a duopoly vacuum. Bombardier’s 130-seat CSeries, to be powered by the PW1000G, and China’s C919 with the LEAP-X are both scheduled to enter the market at mid-decade.
There is a risk for Boeing’s and Airbus’ traditional customer base in this face-off. If they opt for the Airbus solution they will be investing in an interim approach that could sour only a few years later if Boeing’s all-new replacement is viable. On the other hand, if Boeing is unable to complete an all new design by the end of the decade and waits too long to respond to the NEO, Airbus will have gained an advantage.
McNerney’s comments are in line with what he and senior Boeing officials have been saying for more than a year. But coming on the heels of Airbus’ announcement, they are an important reiteration of the company’s insistence that it sees more opportunity in waiting for a full replacement for the 737.
The risk for Boeing is that airlines may grow impatient. Only last week, Delta Air Lines CEO Richard Anderson told analysts that he was most “excited” about the CSeries and NEO because of their promise of improved fuel burn. His clear implication was that Boeing will be out of the mix. Delta expects to place a firm order for some 200 small, medium and large aircraft by year-end with an option for 200 more.
Although he did not mention the NEO, McNerney implicitly criticized an interim engine upgrade strategy. “For me, putting our backlog at risk twice—once for the re-engine and then for the cost [of developing an all-new aircraft a few years later], only makes sense if the new airplane wants to be developed in 2025 and beyond,” he said.

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