Boeing Shifts Focus to 737 Successor Rather Than New 777 Model

Boeing Co., shifting focus on its next new aircraft, is now leaning toward developing a successor to its best-selling 737 single-aisle jet before making improvements to the wide-body 777.

A new plane probably would be wider than the 737 and seat about 150 to 220 people, said Mike Bair, who leads the team formed last year to study the concept. Once that jet enters service, as soon as 2019, Boeing could put new engines and wings on the 777, he said.

“Six or nine months ago, we were leaning toward a bigger airplane sooner,” Bair said in an interview yesterday in his office near Boeing’s Everett, Washington, wide-body jet factory. Now, “most of the emphasis is on a new, small airplane.”

A decision to build a new narrow-body jet, which Bair said will come by June, is pivotal as Boeing jockeys for sales with Airbus SAS. With the 787 Dreamliner and new 747-8 jumbo-jet variant running years late and costing billions of dollars in charges, Boeing has vowed to stagger future aircraft programs. That means picking the market segment that will get priority.

Airbus took an intermediate step with its single-aisle A320 on Dec. 1, offering upgraded engines on the so-called A320neo as of 2016. Chief Operating Officer John Leahy has said Airbus may not have a new narrow-body before 2027 because it doesn’t expect enough advances in engine technology before then to warrant a $10 billion development program.

‘Significant Change’

“This is a significant change in thinking by the Boeing Company,” said Doug Runte, a managing director at Piper Jaffray & Co. in New York. “An all-new 737 replacement would be an aggressive move to challenge the A320neo and limit its potential market penetration and lifespan that could create real difficulties for Airbus.”

Boeing fell 55 cents to $69.57 at 4:15 p.m. in New York Stock Exchange trading as rising oil prices dragged down airline shares and some suppliers. Runte doesn’t rate Boeing, which has gained 8 percent in the past year.

The company’s shift follows a pickup in demand for the 777 that has prompted Chicago-based Boeing to plan a 66 percent boost in production through 2013, as Airbus has indicated that its planned competitor, the A350, may be delayed.

Bair said the new plane may arrive sooner than expected because of a “better understanding” of new technology on the 787 and its possible benefits on a single-aisle jet, the plane type that produces the bulk of earnings for Boeing and Airbus.

Dreamliner’s Gains

The potential gains should be similar to those achieved with the composite-plastic Dreamliner in the twin-aisle market, Bair said. That would mean a boost of about 20 percent in operating efficiency through lighter materials, as well as the use of more electricity to power the jet’s systems.

Engineers have learned from the 787’s production that its composite-plastic construction can be scaled to a small jet more easily than they thought, Bair said. Should Boeing decide to offer a plane starting in the 130-seat range, it could use new aluminum-lithium materials that are lighter, stronger and less prone to corrosion than traditional alloys, he said.

The size of the new model is the most challenging decision left, Bair said, because Boeing will have to make assumptions about air travel in 2030, when the jet would be in its prime. Engineers are studying how to speed loading and unloading, with either a wider aisle or possibly two aisles, he said.

A new plane by the start of the next decade would far outstrip competitors, said Bair, 54, who was named to the 737 project in January 2010 after serving as vice president of business strategy and marketing for Boeing’s commercial airplanes business and previously as chief of the 787 program.

‘Really Good Run’

“We don’t see anything that says, ‘If we were to do this, then five years later we’d get leapfrogged,’” Bair said. “We don’t see anything on the horizon that could deliver that. We think we’ve got another really good run.”

Narrow-body jets are the workhorses of airline fleets worldwide, flown mostly on domestic and short-haul routes. The 737, the world’s most widely flown jetliner, was developed in the 1960s and redesigned in the 1990s.

With 2,164 unfilled orders, the $78 million plane makes up 63 percent of Boeing’s backlog. That’s prompted the company to raise production to a record 31.5 a month, and it’s planning an increase of another 21 percent beyond that over the next two years.

New-Engine Savings

Boeing still could follow Airbus’s lead and offer new engines on its 737, Bair said. An updated 737 could achieve savings of as much as 11 percent in fuel burn, he said. The trade-off would be a heavier plane subject to increased strains on landings and requiring more maintenance, Bair said.

That along with other expenses would yield a reduction in costs of just 2 percent at most, and most airlines have told Boeing that the company should focus resources on a more attractive option, he said.

“We’ve taken all the work we’ve done on re-engining and put it in a box on the shelf,” Bair said. “If something changes over the next six months or so and we come to a different conclusion, we can always pull it out and go do it.”

Boeing would only decide on a new 737 engine if engineers determine there’s not “enough in the toolbox” by midyear to proceed with a new jet, Bair said.

“I don’t think that’s going to happen,” Bair said. “We’ve got a lot of work left to do, but the technologies we can bundle up for the back end of this decade look pretty attractive.”

To contact the reporter on this story: 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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