Boeing to Decide on 737 Engine by Midyear as Airbus A320 Gets Record Order

Boeing Co. said it will decide by midyear whether to offer a new engine for its top-selling 737 or wait to develop a replacement plane, after Airbus SAS unveiled a record order this week for its redesigned A320 model.

“We have had a very difficult time making a compelling business case for why we should re-engine,” Boeing Commercial Airplanes President Jim Albaugh said yesterday in an interview in Washington. “We continue to study the subject and we’ll announce our decision sometime in the middle of this year.”

Airbus, Boeing’s only larger commercial rival, won a record preliminary order valued at $15 billion at list prices from Indian low-fare carrier IndiGo Airlines on Jan. 11. IndiGo’s plan to buy 180 A320s includes 150 of the model that will be equipped with new engines.

Airbus’s Dec. 1 decision to build that plane focused analysts’ attention on how Chicago-based Boeing would respond. Success in selling narrow-body jets such as the 737 and A320 determines the industry’s pecking order because Airbus and Boeing derive most of their earnings from the planes.

Boeing has said it is capable of reworking the 737 to offer new, more efficient engines, while saying that the potential demand may not justify the investment. The company’s orders more than tripled in 2010, led by the 737, which features an upgraded interior and a package of improvements that will boost fuel efficiency by 2 percent.

‘New Engine Option’

Airbus, based in Toulouse, France, is redesigning its A320 rather than focusing on a successor that wouldn’t be ready until the middle of the next decade. The company said last month that airlines would be able to start taking deliveries in early 2016 for the jet it calls the A320neo, for “new engine option.”

“If you’re going to buy Airbus planes and you had to choose between the Neo and what I call the ‘Classic,’ I can understand why they would choose the re-engined airplane,” Albaugh said in the interview, which followed comments to reporters in his capacity as chairman of the Aerospace Industries Association.

Both the 737 and the A320 are twin-engine models that seat about 125 to 185 people. List prices for each plane range from about $65 million to $95 million, depending on the version.

Net orders for Boeing’s 737 totaled 486 last year, compared with 46 for the wide-body 777. Airbus, a unit of European Aeronautic Defence & Space Co., hasn’t released 2010 orders and deliveries.

Boeing fell 32 cents to $69.83 at 4:15 p.m. today in New York Stock Exchange composite trading. The shares have gained 14 percent over the past year.

To contact the reporters on this story: Gopal Ratnam in Washington at gratnam1@bloomberg.net; Susanna Ray in Seattle at sray7@bloomberg.net.

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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