Airline industry insiders are divided about how Boeing should counter the Airbus A321 with a so-called “middle-of-market” airplane. The answer could affect the future of Boeing’s Puget Sound-area assembly work.
The airplane industry is abuzz with divided views on how Boeing should address a major strategic dilemma: What plane can it build to counter the A321neo, the largest of Airbus’ wildly successful new single-aisle jets?
Boeing Commercial Airplanes chief Ray Conner told employees last month he wants to figure that out this year. The two major options are either to produce a larger, revamped 737 MAX variant or to do a clean-sheet design, an all-new 797 airplane.
Enlarging the MAX could be good news for Renton, where the current MAX is assembled.
Choosing to build an all-new jet would open up yet again the future of Boeing’s factories in the Puget Sound region.
And for Boeing, either path is fraught with risk and expense.
“These are questions that involve multibillion-dollar decisions, they involve questions about where you build this airplane,” said Steven Udvar-Hazy, chief executive of Air Lease Corp. (ALC), and renowned as an aviation market leader.
“It’s not whether Boeing can build a good airplane, but can they build it cost efficiently,” he said in an interview Tuesday.
And just as he did a year ago at the same venue, Hazy chose again to raise publicly the discomfiting question of whether Boeing might choose to make its next plane somewhere less friendly to unions than Washington state.
The question seems more urgent after Conner voiced the need to choose a strategy this year even as he also announced job cuts.
Randy Tinseth, Boeing vice president of marketing, said the company is trying to come up with a business case for its next move, and the costs — developing any new airplane, then building each copy — are “always one of the critical aspects.”
Crucial decisions about whether to share development costs with partners, whether to build it from metal or composites, and where the jet will be built will all be part of Boeing’s assessment, he said. No decisions have been made.
‘A 757 on steroids’
Tinseth and Hazy spoke at the annual Americas conference of the International Society of Transport Aircraft Trading (ISTAT), which brings together the major worldwide players who buy, sell and finance commercial airplanes.
An entire session at the Phoenix conference was devoted to discussing the so-called “middle-of-market” airplane Boeing is considering, conceived as slightly bigger and with more range than the Renton-built 757 that went out of production in 2006.
Airlines loved that jet because its overpowered engines and large wings gave it more range and flexibility than any other single-aisle jet. Today, it’s found a niche as a narrowbody transatlantic airplane for United and other carriers.
Ron Baur, United vice president in charge of its fleet, said from the ISTAT stage that he wants to replace it with “a 757 on steroids,” carrying more than 200 passengers with a range of nearly 5,200 miles.
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That could open up long, “thin” routes such as Newark, N.J., to Barcelona, Spain, or Chicago to Manchester, England.
The Airbus A321neo, due to enter service next year, isn’t quite as powerful as the 757, but it’s the nearest an airline can come to it. Boeing’s competing 737 MAX 9 doesn’t fly as far or carry as many passengers.
So far, Airbus has booked 1,052 firm orders for the A321neo, including 100 from American Airlines, versus just 290 for the rival MAX 9.
One senior aircraft-leasing executive, who asked not to be named because he works closely with Boeing, said the new urgency in Boeing’s thinking could be because United and Delta Air Lines are each seeking to replace their aging 757s and might make a move soon.
The chief executive of another leasing company who also works with Boeing agreed that the possibility of those airlines following American could be a catalyst for action.
“Boeing cannot let U.S. airlines jump into an A321 buying frenzy,” he said.
Whatever Boeing does, it’s too busy with the MAX and the 777X to have another new plane available before 2021 at the earliest. But letting customers know it has a plan could stave off a rush to the A321 by encouraging airlines to wait for a better option.
John Plueger, president of ALC, said “it’s time-critical” for Boeing to come up with a strategic response.
He said Airbus’ announced production-rate increase to 60 narrowbody jets per month in 2019 is based largely on the strength of the neo program, with a quarter of those orders for the A321neo model.
Boeing is producing 737s at a rate of 42 jets per month, with announced increases of up to 52 per month in 2018.
Boeing’s 737 MAX 8 model, unlike the MAX 9, is selling well, but Plueger said that’s not enough to match Airbus’ peak rate.
“It’s hard to see that the MAX 8 alone could justify making 60 airplanes per month,” he said.
Airbus content to sit
Meanwhile, Airbus sales chief John Leahy is understandably “quite content with where we are.”
In an interview, he said the industry has no need for a new midmarket plane, since he is selling one: the A321neo.
“There’s a need in Seattle, maybe,” Leahy said. “The A321 is clobbering them.”
In his ISTAT presentation, he showed a slide with a mock gaping hole in Boeing’s product lineup between the 737 and the 787.
He said he welcomed any move by Boeing to produce a new plane by 2022 or 2023.
“We will have the luxury of sitting there, looking at what they do, and answering at a later date” with something better, he said.
Industry experts at ISTAT gave varying opinions about what Boeing should do, a testament to the difficulty Boeing’s leadership faces.
Bert van Leeuwen, a managing director specializing in airplane financing with DVB Bank of Germany, argued for caution. He said further increasing the size of the 737 MAX could be “a stretch too far,” while an all-new plane is too expensive.
“Forget the middle of the market. We don’t need it,” van Leeuwen said. “Let’s stay with the planes we have.”
Boeing’s Tinseth seemed to acknowledge that doing nothing could be the outcome and that this wouldn’t necessarily be as bad for Boeing as the Airbus order backlog suggests.
Casting doubt on the quality of that order book, he noted two small airlines have placed massive but dubious A321neo orders. Wizz Air of Hungary, with a current total fleet of only 65 planes, has ordered 110 A321neos; and Indigo of India, with a fleet of 101 planes, has ordered 430.
“In my heart of hearts, I don’t see a scenario where Wizz Air takes a hundred A321s,” Tinseth said.
Leahy joked that doing nothing is something the Boeing board in Chicago will consider, even if the Seattle commercial-airplanes unit wishes otherwise.
A smart approach
Yet aside from van Leeuwen, most others at the ISTAT conference, including Hazy, said Boeing must do something.
Hazy said an all-new jet would cost $15 billion to $20 billion and would bring the risk of 787-like delays and cost overruns. So he favorsrevamping the 737 MAX, stretching the fuselage, adding new, more powerful engines, raising the landing gear and beefing up the wings to hold the heavier engines.
That “is a smart approach and certainly a lot less risky” for Boeing, he said.
The senior aircraft-leasing executive who works closely with Boeing agreed, saying the Boeing board would in any case likely veto an all-new airplane.
“I cannot fathom that conversation with the board after the painful experience of the 787,” he said.
The risk attached to the decision is amplified by the fact that this middle-of-the-market segment, dubbed MOM in the industry, is an entirely new category between current narrowbody and widebody jets, making it immensely difficult to prove the size of the market.
Yet Norm Liu, the highly respected chairman of GECAS, the aircraft-leasing arm of General Electric, insisted in an interview at the conference’s end that there’s an obvious solution for Boeing.
A GE joint venture, CFM International, supplies all engines on the 737 family, including LEAP engines on the MAX. It also makes half the engines for the Airbus neo family, including a bigger LEAP engine on the A321neo.
“It’s not hard,” said Liu, with a grin. “Just stick the LEAP engine from the A321 on the MAX 9.”
That’s a solution Boeing’s Renton workers might root for.