by Vinay Bhaskara & Chris Sloan
SEATTLE – The single most important question in commercial aircraft manufacturing over the last 24 months has been whether Boeing will finally launch a new mid-sized airplane (NMA) to address the so-called middle of the market (MOM) between its Boeing 737 single-aisle narrowbodies and Boeing 787 twin-aisle widebodies.
Boeing’s current “offering” in this market segment is the Boeing 737 MAX 9, the largest member of its next generation 737 MAX narrowbody family. But the 737 MAX 9 has been beaten soundly by rival Airbus’ A321neo in a market segment that aerospace analysts increasingly view as crucial over the next two decades.
Since mid-2015, it has been clear that Boeing would have to take some action to combat the threat of the A321neo. And while there is still no formal movement, developments over the last six months point to Boeing moving ever closer to revealing its approach to the MOM.
Our latest market intelligence comes from the pre-Paris Airshow bookings held by Boeing last week in Seattle. At the briefing, presentations from Ihssane Mounir, the VP Global Sales and Marketing; Mike Delaney, the VP & GM Airplane Development; and Kevin McAllister, the President and CEO, Boeing Commercial Airplanes, all touched on the NMA and the various approaches that Boeing is considering.
To recap – Boeing has a MOM problem
As we mentioned above, the A321neo has outsold the 737 MAX 9 by a ratio of nearly 8:1, looking purely at current firm orders, and by 5-6:1 after assigning some unassigned MAX orders to the MAX 9.
Either figure is a rough one for Boeing, as the space between 180-250 seats (assuming standard two-class configurations) is one of the fastest growing in the world thanks to dynamics in the Asian market.
The problem for Boeing is that the A321neo is a fundamentally stronger aircraft, both in terms of operating and unit costs (excluding pricing), and in terms of operating performance on metrics like payload and range. So Boeing needs an offering in the MOM space, or it will miss out on thousands of new jet sales over the next 20 years in this market segment.
Boeing executives are blunt about the need for a solution in this space:
“There’s a 100 seat gap between the 737 and 787,” said McAllister, “I see an opportunity here. The dynamics of the world support this. We have saturated markets where there are 757 and 767 replacement opportunities.”
The 737 MAX 10 is still on the table
Boeing’s initial position on the NMA was that it would be a clean sheet jet, developed from scratch. But last year, conversations emerged around a simple stretch of the 737 MAX 9 dubbed the 737 MAX 10, which would add 12-18 passengers more than the 737 MAX 9 and be competitive on unit economics with the A321neo as a result. While the initial response from airlines to the MAX 10 was tepid, it apparently is still very much on the table for Boeing.
“There is very high interest on MAX 10 everywhere,” said Mounir. “We’re not concerned with cannibalizing the 737 MAX 9. It’s a zero sum game. Several customers are considering flying the MAX 9 and MAX 10 [together]. It’s a bit of a trade-off between range and capacity.”
McAllister reiterated Mounir’s comments, noting that “This is not a me-too airplane compared to the A321. The MAX 10’s advantage will be lower costs and [the fact that it is a] lighter airplane. We are actively engaged in discussions with airlines.”
“Long term, don’t bet against the 737,” added Delaney, citing 5% lower fuel burn for the MAX 10 versus the A321neo and operating performance at 97% of that of the A321neo.
A cynic might point out that there aren’t that many MAX 9 orders or customers to cannibalize in the first place, but in any case, the 737 MAX 10 is not guaranteed to be a success even if there is as much interest as Mounir claims.
If the MAX 10 actually is a great hit with airlines due to its operating economics, Airbus has a quick and cheap counter by rolling out its own stretch of the A321neo, dubbed the A322neo.
The A322neo would instantly recapture all of the advantages that Boeing claims the 737 MAX 10 would have over the A321neo, and it would not be expensive for Airbus to develop. In fact, Airbus has already begun shopping the A322neo to customers to test the viability of such a stretch.
NMA is coalescing around a twin aisle, medium-haul design
The Boeing execs also shed some light on the company’s latest thinking about the design for the NMA.
Through conversations with more than 50 airlines and lessors (57 to be exact), Boeing has settled on an aircraft that seats fewer than 250 seats in a dual-class configuration, that has a maximum range of 5,000 nautical miles or shorter, and that burns less than 5 gallons per block hour per seat.
The aircraft should also come with 70-79 cubic meters of cargo volume or less, and the vast majority of customers prefer a carbon-fiber heavy design.
As Mounir notes, with this NMA spec, Boeing is talking about a different class of airplane than the A322neo.
“They’re two different value propositions. We’re talking about an all new airplane that’s designed specifically for the market versus an update. The NMA will be a family of variants while the A322neo will have reached its maximum development. There’s nowhere else to go,” Mounir conclude.
The NMA is the right move for Boeing
At these specs, the NMA looks like the real deal for Boeing and airlines alike. There is still a tangible 757 and 767 replacement market that these aircraft would be perfect for, covering customers like Japan’s All Nippon Airlines (for whom the 787-8 is overkill on intra-Asia routes) and Delta Air Lines (who would fly the MOM to Europe and Latin America replacing 767s and A330-200s).
We could even see the NMA replacing the A330-300 on certain routes in East Asia (allowing the carrier to offer extra frequency at equivalent or lower trip costs), and more importantly, opening up all kinds of new markets. There is absolutely a huge (2,500+ frame) market here over the next 15-20 years.
Delaney laid out the vision during his presentation, “We’re going to put a plane into place with economics and new city pairs that no else can touch. That’s the value proposition. It’s not seen [internally] as a 757 replacement… This is the strategy we took with 787. We can do things no one else has done before. We’re working on twins/ETOPS capable aircraft that fly point to point efficiently. The NMA will also increase profits on existing routes, reduce turn time which is critical, increase aircraft utilization, and restructure networks.”
And unlike the 737 MAX 10, Airbus doesn’t have a clear counter. The A321neo is the smaller jet (the A322neo won’t have the range to be a true NMA competitor) which will appeal to certain kinds of customers, but overall, the NMA should be the leading option for customers who want a medium haul, mid-sized plane.
The 787 will increasingly focus on the 787-9 for an ultra-long haul and long haul, and the 787-10 for high density in this scenario. The best thing about the NMA is that Airbus won’t have a clear counter.
The NMA will take off in the mid-2020s.
According to Delaney, the commercial airplanes team is in continuous discussions with the company’s board regarding the NMA jet, well in advance of an entry into service (EIS) in the mid-2020s. Perhaps the only concern with the NMA is the cost of developing it, which ranges from $5-7 billion on the low end, to as much as $15-20 billion under certain conditions.
That development program is still very much in its infancy – according to Delaney, the only supplies that Boeing is even talking to about the NMA are the three major engine companies (CFM, Pratt & Whitney, and Rolls-Royce).
Another worry with the NMA is project execution – it would be the first clean sheet aircraft built by Boeing since the 787, which had a disastrous development process. Even as Boeing has executed well on its re-engined jet projects (the 737 MAX, 777X) clean-sheet execution remains a valid question to ask.
But Delaney downplayed those concerns, instead positioning the 787 as a learning experience. “What we learned from the 787 and the learnings we harvested from it from it are a huge head start for the NMA.”