Boeing Co. (BA) is counting on the 737 MAX, the new version of the world’s most widely flown jetliner, to help capture half of a $2 trillion market in the next 20 years and fend off a challenge from Airbus SAS.
Powered by more efficient engines, the 737 MAX has already won 496 order commitments in “a very positive indicator of demand for what has been viewed as a ‘me-too’ offering,” Robert Spingarn, a New York-based Credit Suisse analyst, said yesterday in a note to clients.
Deliveries of the 737 MAX should begin in 2017, two years after Airbus’s upgraded A320neo, Boeing said yesterday after its board gave formal approval to the jet. The commitments are spread among five different customers, the company said.
The directors’ go-ahead followed an agreement in July to sell 100 of the jets to American Airlines as half of an order with the Chicago-based planemaker. American split a purchase of 460 aircraft between Boeing and Airbus, which began offering more fuel-efficient engines on its A320 narrow-body in December.
The Airbus order broke an exclusive arrangement between Fort Worth, Texas-based American and Boeing dating to 1987, compelling the planemaker to shift to the quicker, cheaper option of upgrading the 737 from its stated preference of developing an all-new jet.
Boeing’s 20-year forecast projects global sales of 23,000 narrow-body jets in the next two decades, at a value of almost $2 trillion. The company ranks second in commercial deliveries to Toulouse, France-based Airbus, which has rung up more than 1,000 orders and commitments since unveiling the A320neo in December.
“This is an airplane that’s going to allow us not to just maintain the market share we have, but one that will allow us to grow the market share,” Boeing Commercial Airplanes President Jim Albaugh said at a news conference in Renton, Washington, near the factory where the 737s are built.
Boeing should be able to command a premium price for the new version, said Albaugh, who declined to comment further. The average 737 has a catalog price of $78 million. The MAX will use modified Leap-1B engines from CFM International and offer 7 percent lower operating costs than rivals.
“In today’s operating environment, it is critical for us to maximize the fuel- and cost-efficiency of our fleet,” said Vasu Raja, managing director for corporate planning at AMR Corp.’s American. “Boeing’s latest evolution of 737 product is an important step forward for airlines and our customers.”
Fuel use on the 737 MAX will be 16 percent less than the existing A320 and 4 percent less than the neo, said Marc Birtel, a Boeing spokesman. The plane will also be slightly more efficient than Bombardier Inc.’s new CSeries narrow-body jets, said Nicole Piasecki, Boeing’s business-development chief.
“Boeing made the right decision to re-engine,” said John Leahy, Airbus’s chief operating officer, adding that the 737, which was launched in 1965 and redesigned in the 1990s, isn’t as modern as the A320 family.
Leahy had advocated against Boeing’s previous preference for an all-new plane by 2020, saying it would skew the competitive landscape since Airbus didn’t foresee having its own new jet until the middle of the next decade.
Engine Fan Size
Engineers are studying whether to use a 66-inch or 68-inch fan size for the new engines, up from 61 inches now, Albaugh said. They have been told to make minimal changes to the rest of the plane -- essentially only stiffening some sections to handle the heavier engines -- and avoid the temptation to creep toward the new-plane development that the company rejected, he said.
The new engines will be offered for the current models, the 737-700, -800 and -900, to be renamed the -7, -8 and -9.
A fleet of 100 737 MAX-8s would save an airline about $85 million in fuel a year compared with the 737-800, according to the company.
Boeing climbed 83 cents, or 1.3 percent, to $66.86 at 11:37 a.m. in New York Stock Exchange composite trading. The stock’s gain yesterday was the largest among the 30 companies in the Dow Jones Industrial Average.
Albaugh is “challenging the team” to get the 737 MAX to the market as soon as possible, while being mindful of the delays that have plagued the two current development programs, Piasecki said. The 787 Dreamliner is running more than three years late and the 747-8 is two years behind schedule.
“Given our recent track record, we are being very prudent and disciplined to make sure that whatever we talk to our customers about, we actually have a plan to deliver on,” Piasecki said after the press conference. “I think you’ll see improvements on the 2017” delivery target.
With airlines reluctant to switch between planemakers, most 737 customers “will be taking a serious look” at the new jet, Robert Stallard, an RBC Capital analyst in New York, wrote in a report yesterday. Like Credit Suisse’s Springarn, he rates the shares as “outperform.”
Albaugh said that while Boeing will work with carriers if they want to convert existing orders to MAX contracts, most customers probably will stick with the current 737. Boeing’s existing jets will still cost less to operate than the A320neo when including expenses such as maintenance, the company said.
Sales and production of the current 737 should run “well into the end of this decade,” Albaugh said. Delta Air Lines Inc. last week ordered 100 737-900ERs, boosting a backlog that was already more than 2,100 planes.
The company has teams looking at where to build the 737 MAX, with Renton “at the top of our list,” though other brand- new sites are being considered, Albaugh said. He expects to make a decision in six to eight months.
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