Boeing Co. (BA) is coming to this year’s air show in Paris, the home turf of market leader Airbus SAS, with a pitch that customers may struggle to swallow: be patient.
The U.S. manufacturer is still mulling whether to upgrade its 737, the most widely flown airliner, or offer a new single- aisle model for the largest segment of the civil jet industry. Airbus, by contrast, will use the event to advance the initial success of its refreshed A320neo, for which it has secured 434 orders or commitments ahead of planned introduction in 2015.
Boeing’s next move will shape the narrow-body market for decades as rivals in China, Russia, Canada and Brazil attack its duopoly with Airbus. Any decision will ripple to other programs because resources spent on one aircraft won’t be available for others. That gives Airbus a shot at using its new A350 to usurp Boeing’s dominance in wide-body planes.
“Boeing is under some pressure, but it’s not going to rush,” said Paul Edwards, managing director for aerospace and defense at Jefferies International Ltd. in London. “They are losing some orders at the moment but they need to get the decision right because when they do build a new plane it’s going to be around for the next 20, 25, even 30 years.”
With a price exceeding the current model by about $6 million, the A320neo will offer a choice of two new engines, and promises operating savings of as much as 15 percent. That’s attracting airlines at a time when fuel prices often account for 30 percent of their costs.
Asian discount carrier AirAsia Bhd. (AIRA), Air France SA and Lan of Chile are among companies that may place orders at the show, which starts on June 20 at the Le Bourget airfield outside Paris. Yesterday, Airbus won 102 A320neo orders from Go Airlines (India) Ltd. and Philippine budget carrier Cebu Pacific.
Last year at the Farnborough Air Show, which alternates with Paris, Airbus picked up 130 firm orders worth $13 billion, and Boeing secured 103 valued at $10 billion. Bombardier Inc. (BBD/B)’s CSeries, a jet with 110 to 145 seats aimed at single-aisle customers and slated to enter service in 2013, won none.
The initial success of the aircraft has helped lift the stock of Airbus parent European Aeronautic, Defence & Space Co., which has gained 24 percent so far this year. Boeing has advanced 14 percent in the same period.
Airbus is offering either Pratt & Whitney’s geared turbofan engines or the Leap-X by General Electric Co. (GE) and Safran SA (SAF)’s CFM venture for the A320neo. CFM’s Leap-X incorporates new materials in the engine’s hot-section, or core, to cut fuel consumption, while Pratt & Whitney’s geared turbofan uses a gear to slow the outer fan, adding efficency and reducing noise.
Making the engine switch may prove harder for Chicago-based Boeing because its 737 sits closer to the ground, requiring more modifications to the wing box and landing gear. Airbus has said it won’t alter the A320neo beyond fixes needed for the engines.
“Boeing is going to be forced to build a new airplane, a new 737,” United Technologies Corp. (UTX) Chief Financial Officer Greg Hayes said during a presentation to investors at a Deutsche Bank AG conference in New York yesterday. “The pressure from customers is going to force Boeing to do something now rather than later and I think it’s going to be a new aircraft.”
Customers are willing to wait for “something more revolutionary,” said Jim Albaugh, Boeing’s head of commercial aircraft. “We want to make sure we totally understand what a new small plane would look like” before committing either way.
“If they take too long they lose the momentum,” said German Efromovich, chairman of Colombian carrier Avianca Taca Holding SA, which is shopping for 50 to 100 single-aisle planes by yearend. “If there is a manufacturer out there offering aircraft that are 15 percent more efficient than the competition, then Boeing should move fast, otherwise they’ll lose their opportunity.”
The European manufacturer unveiled the decision for the A32neo at the end of last year. Airbus said the jet will offer customers a viable alternative for the next decade before engine technologies advance sufficiently to justify a brand new design. By the end of the show, Airbus seeks to boost the A320neo’s order total past 500. The company is also optimistic it can sway existing Boeing customers to jump ship.
Boeing had also sought to determine its options for the 737 in 2010. The year ended without a decision, and Boeing said in March that it would provide an update by June. Last month, Chief Executive Officer Jim McNerney said the choice may not come until early 2012, because engineers are still validating ideas.
Airbus has said technology leaps to justify a new design won’t arrive until 2025 or even 2030. By then, Boeing predicts the single-aisle market will comprise 70 percent of the total, according to the company’s latest forecast unveiled yesterday.
Both companies learned their lessons from stretching resources too thin. Boeing is more than three years behind schedule on its 787 wide-body jet, and the latest upgrade of its 747 jumbo is close to two years behind target. Both aircraft will make an appearance at the show, as will Airbus’s A380 and A400M military transport. Airbus was three years behind on its A380 super-jumbo, and the A400M has also been delayed.
Neither Boeing nor Airbus can afford a misstep in the narrow-body segment, which will make up the bulk of the $4 trillion market over the next 20 years and earns most of profit that the companies can pour into other programs. Both Airbus and Boeing are increasing production rates of their single-aisle jets to keep up with demand in a recovering air-travel industry.
The success of single-aisle jets has helped fund development of larger aircraft. While representing less than a third of planes shipped, twin-aisle aircraft comprise about half the value, as such planes are often priced at triple or more the price of single-aisle aircraft.
Executives at Boeing say they’d prefer to harness the technology and lessons learned from the development of the composite-plastic 787 Dreamliner and build a whole new model that would be 20 percent more efficient than the 737. That may mean a longer wait for clients, and a short-term upper hand for Airbus as the A320neo wins followers in Paris and beyond.
“The industry needs innovation, not improvement around the margins on an existing product,” said Mike Van de Ven, the chief operating officer for Southwest Airlines Co. (LUV) “What we’re asking Boeing to do is put their card on the table and show us, how are you going to have a product that’s competitive?”