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Friday, February 11, 2011

Boeing Leans Further Toward 737 Replacement

In what is being viewed as the clearest indication yet of Boeing’s determination to forego re-engining the 737 in favor of an all-new design, CEO James McNerney says product development studies point increasingly to a clean-sheet replacement design for entry-into-service around 2020.
Speaking today at the Cowen and Company Aerospace and Defense Conference in New York on, McNerney said that although Boeing is “not done evaluating this whole situation yet … our current bias is to not re-engine [but] to move to an all-new airplane at the end of the decade, or the beginning of the next decade.”
McNerney reinforces signals that came early as July 2010 that Boeing’s preference is increasingly swinging toward a full-up replacement for the single-aisle market, despite the pressure exerted on its product development strategy by Airbus’s recent launch of the re-engined A320NEO (new engine option).
Commenting on the Airbus gambit, McNerney says, “The NEO, on paper closes the value gap that we have enjoyed [with the 737]. On a typical cash-on-cash analysis, we tend to do better. And I think part of the rationale of the NEO is to close that gap. Now, will that put some pressure on our margins? Yes. Maybe, but they’ve got to complete the development.”
An official decision on whether to re-engine the 737 or proceed with an all-new design is expected from Boeing around mid-year.
At Boeing’s recent fourth-quarter earnings results call, McNerney also said, “If we could come up with the right aircraft in 2019-2020, I think the market will wait for us. But we are working through what the aircraft more precisely will look like. Putting our backlog at risk twice, once with re-engining, not to mention the cost, and then with the new airplane, only makes sense if it’s required in the 2025 timeframe. We are preserving the option if we’re wrong - but I don’t think so.”

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