Since Airbus launched the A320 neo (new engine options) programme last December (“A350 risks further delay if A320 neo receives go-ahead“, 1st Dec 10), a number of new A320 neo orders have been racked up, including Virgin America’s launch order for 30 firm A320 neo aircraft as well as Indigo Airlines’ yet-to-be-confirmed Memorandum of Understanding (MoU) for 150 A320 neos (“A320 neo orders won’t clear doubts in years“, 12th Jan 11) and key aviation analysts and airframer executives have made numerous comments on the landscape of the future single-aisle market.
Meanwhile, Aspire Aviation thinks that the market calls for a clean-sheet narrowbody replacement from Chicago-based airframer Boeing, currently dubbed as the 737X, have not been clearer ever and the industry voice will only be louder and louder as time passes.
Importantly, Boeing executives are leaning towards a clean-sheet 737 replacement and have said on multiple occasions that the market seems to be asking for a clean-sheet 737 replacement as well.
“It’s our judgment that our customers will wait for us, rather than move to an airplane that will obsolete itself when a new airplane [comes]. I understand why they’re doing [the A320 neo], we haven’t seen the need for it yet,” Boeing chairman, president and chief executive Jim McNerney conceded in last week’s Cowen & Co. Aerospace & Defense conference.
These comments made by Boeing executives are consistent with aviation analysts’ research findings as well.
The Royal Bank of Canada (RBC) aviation analyst Robert Stallard said in a research note that most of the 737 operators surveyed have “a resounding preference” for a clean-sheet 737 replacement.
“Our findings suggest that Boeing won’t launch a re-engined 737 plane and will likely push for a new narrowbody plane targeting the 180- to 200-seat market,” RBC aviation analyst Robert Stallard said in a research note.
Image Courtesy of Airbus
“Customers want a step function increase in unit cost savings and are unwilling to compromise for a paltry 2-4% savings from a re-engined aircraft.” Stallard concluded.
Moreover, Aspire Aviation believes that a clean-sheet 737 replacement with an entry into service (EIS) at the end of this decade will feature revolutionary technologies that would potentially make the Airbus A320 neo obsolete overnight and Airbus faces significant strategic risks by opting to launch the programme despite Airbus has essentially run out of options amid tight engineering resources stretched across the A380 weight reduction programme, the A350 XWB and A400M airlifter project.
“We’re gonna do a new airplane. We’re not done evaluating this whole situation yet, but our current bias is to not re-engine, is to move to an all-new airplane at the end of the decade, or the beginning of the next decade,” Boeing chief executive Jim McNerney revealed.
Should Boeing be able to bring a clean-sheet 737 replacement to the market by the end of this decade, Airbus will then be facing a dilemma with the A320 neo being obsolete just a few years after its 2016 entry into service (EIS) date with the neo programme being difficult to achieve a break-even as the European plane-maker will have to lower its prices dramatically to fend off the potential threats arising from the Bombardier CSeries.
According to Aspire Aviation‘s understanding on the matter, the direct operating cost (DOC) advantage offered by an A320 neo, which is calculated from the formula DOC = COC (Cash Operating Cost) + capital cost, is just close to 5 per cent with sources pointing to a single-digit fuel burn saving of closer to 7 per cent after the strengthening of the outer wingbox and modification of the pylons necessitated by the accommodation of the heavier Pratt & Whitney (P&W) PurePower 1000G and CFM Leap-X engines.
Furthermore, despite the concern voiced by Boeing chief executive Jim McNerney over Airbus approaching the customer base of the 737 Next-Generation to order the A320 neo at a later stage, whether the 737 NG customers would bear so much risk to achieve an unconvincing little amount of net present value (NPV) advantages remains as a doubt and that any 737 order loss would be limited.
“That doesn’t mean that as [Airbus gets] deeper in the development they’re not going to approach our customer base. I think they will,” Boeing chief executive Jim McNerney commented.
After all, with the A320 neo entering service in 2016 and should Boeing be able to develop a new narrowbody product with a EIS in 2018-2020, the net present value (NPV) advantage due to the 5 per cent direct operating cost (DOC) saving of two or more years would be limited. Should a customer queue for the A320 neo emerge such as Indigo Airlines’ A320 neo taking its first deliveries from 2017 onwards, any time advantage enjoyed by the A320 neo would be very small to non-existent.
Further taking into account of the potential new continuous improvements that Boeing is increasingly likely to offer, including a potential cockpit system upgrade to feature 787-style display screens, the already limited direct operating cost (DOC) saving would further be undermined and thereby weaken the business case of the A320 neo altogether, let alone the significantly lower A320 neo residual value as an interim aircraft and the impact on the residual value of the existing A320 family aircraft, a warning repeatedly flagged by lessors and aircraft financiers such as Germany’s DVB Bank and International Lease Finance Corporation (ILFC) founder and then-chief executive Steven Udvar Hazy.
Image Courtesy of Randy's Journal
On the other hand, in contrast to some aviation analysts’ suggestions that there will not be enough new technologies for a new clean-sheet narrowbody and that a clean-sheet successor would adopt a conventional aluminium fuselage, Aspire Aviation’s multiple sources close to the world’s second-largest airframer both indicate a clean-sheet 737X would feature a second or third-generation composite fuselage comprising Boeing’s patented monolithic composite barrels.
While sceptics may doubt whether the second-generation or even third-generation composite technologies would be ready by the time a 737X enters service, the conventional wisdom of never say never should not be discounted nor could it be easily defied.
After all, when you talk about future technologies in 7 years’ time, who knows what would happen? Who could have possibly foreseen the emergence of tablet computers such as Apple Inc.’s iPad just a few years ago?
What is more, the engine technologies will be ready when a 737X enters service at the end of this decade, such as the CFM International’s Leap-X which offers a 15 per cent fuel burn saving, a 16 per cent fuel saving from Pratt & Whitney’s geared turbofan and possibly Rolls-Royce’s Advance3 three-shaft engine that offers a 16-20 per cent fuel burn saving.
Interestingly, UK engine-maker Rolls-Royce has explained why it is opposed to any re-engining programmes in a recent Pacific Northwest Aerospace Alliance (PNAA) conference.
“Fundamentally, we don’t agree with re-engining as a business model. We can’t see value for us, we can’t see value for our customers, we can’t see value for the airframers. People are beginning to buy these airplanes, you’ve read about Virgin America, you’ve read about Indigo, but I ask you, would they still buy the A320 if it wasn’t re-engined. Is Boeing going to stop selling 737s because they don’t have a new engine on it yet? I don’t think so,” Rolls-Royce’s senior vice president (SVP) Dominic Harwood said.
“We’re going to be talking to our customers concretely over the next year or two, very concretely. I think in part because the re-engined Airbus airplane is out there. We’re going to have more concrete discussions a little earlier, I think our customers are going to demand it and we will do it,” Boeing chief executive Jim McNerney lamented.
Last but not least, with the aviation industry now on an unprecedented watershed over the future narrowbody market, only time will tell whether launching the A320 neo or a clean-sheet 737X is a correct strategic decision, though one point is sure in that scepticisms and heated debates are undoubtedly going to persist.