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Analysis: Airbus A320neo First Flight Is a Triumph of Incrementalism

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Analysis: Airbus A320neo First Flight Is a Triumph of Incrementalism

Analysis: Airbus A320neo First Flight Is a Triumph of Incrementalism
September 25
08:59 2014

MIAMI — The Airbus A320neo flew for the first time Thursday in Toulouse, marking the most important step towards entry into service for Airbus’ re-engined airline since the program was launched in December 2010. The first flight took off at just after 12:00 pm local time for a flight of 2 hours and 22 minutes, and was operated by an A320neo registered as F-WNEO (MSN6101)

The A320neo’s first flight occurred on schedule despite rumors that problems with the Pratt & Whitney PW1100G, whose smaller cousin, the PW1500G delayed flight testing for Bombardier’s competing CSeries program earlier this year, would push back the planned date. However, according to Airways  sources at the Tolouse-based airframer, testing of the A320neo’s second engine, the CFM International LEAP-1A is running behind schedule. The LEAP-1A has been chosen by a slight plurality of A320neo customers over the PW1100G (35% to 31%) despite the latter engine’s potential for better fuel burn and maintenance cost performance, though nearly 34% of firm orders for the A320neo have not yet been assigned an engine. CFM is the sole supplier of engines for rival Boeing’s competing 737 MAX with its LEAP–1B engine, and according to sources familiar with the respective programs, has been prioritizing resources and investment into the LEAP–1B.

Operating Economics Boosted


Alongside the first flight, Airbus has stepped up its effort in the war of words with rival Boeing, along with an update to the A320neo’s cost savings reflecting the increase in the maximum seating capacity of the A320neo to 189 seats thanks to the Space Flex design that rearranges the galley area. At the ISTAT Europe conference earlier this week, Airbus Chief Operating Officer, Customers John Leahy, presented updated performance estimates for the A320neo, which Airbus projects will burn 20% less fuel per seat versus the current A320ceo thanks to the aforementioned capacity increase and a performance improvement package (PiP) from Pratt & Whitney. The comparable figures for the A319neo and A321neo are 19% and 23% respectively, taking advantage of increases from 156 to 160 seats and 220 to 240 seats respectively.

However, it is well known that the A320neo’s operating economics will lag behind those of the 737 MAX 8, mirroring the present day gap between the A320ceo and the Boeing 737-800. The performance of the 200-seat 737 MAX 8, dubbed the 737 MAX 200, is also expected to be 20% better than the present-day 737-800, preserving the advantage held by Boeing. At the ISTAT Conference, in an interview with Leeham News and Comment, Kiran Rao, Executive Vice President, Sales & Marketing for Airbus, took aim at the higher capacity MAX 200. “At 200 seats the vast majority of [the 737 MAX’s] seats are at 28 inch pitch. Even at 194 the seat pitch is 28, as the lost seats are replaced with galley,” he says. “For the A320 at 189 seats, the majority of seats between Door 1 and mid cabin exit are at 30 in pitch. Behind the mid- cabin we are also at 28 in pitch.”

Despite Mr. Rao’s commentary, Airways  projects that the 737 MAX 8 (or MAX 200 for low cost carriers [LCCs]) will continue to hold an economic advantage over the A320neo. The A320neo currently has more firm orders than the 737 MAX 8 by a ratio of 2,484 to 1,952 but the latter aircraft has outsold the A320neo since it was launched, and Airways  eventually projects that the 737 MAX 8 will outsell the A320neo.

Family Success


However, despite Boeing’s edge in what the Chicago-based airframer has described as “the heart of the [narrowbody] market,” the Airbus A320neo family will likely outsell the 737 MAX over the long run, eventually stabilizing at a market share of 55-57%. The rationale comes from the dominant superiority of the A321neo versus the 737 MAX 9, which it has outsold by a ratio of 724 to 212. The 737 MAX 7 and A319neo have sold 55 and 49 copies respectively and are effectively irrelevant to the long run future of either program. But the A321neo represents a real advantage for Airbus, to such a degree that Boeing will likely be forced to launch a 757 successor.

Airways  is less confident than Boeing that the narrowbody market will be centered on the 737-800/A320 sized aircraft over the next 20 years. The trend in commercial aviation since the 1960s is a near continual increase in the size of the average mainline narrowbody aircraft; ranging from the Douglas DC-9-10/20 to the, Boeing 737-300 and McDonnell Douglas MD-81/82, to the A320 and 737-800 in the present day. The world’s aviation infrastructure is finite and increasingly embroiled in regulatory snafus (the Middle East excepted), and Asian markets in particular will need to up-gauge service in several markets in order to capture the growth in that continent’s middle class. It’s not unforeseeable that Airbus sells 2,500 copies of the A321neo over the next 15 years while Boeing trails with 1,250 737 MAX 9s and however many 757 replacement aircraft it can sell in the last four or five years of that window.

Airbus’ Greatest Triumph


Airbus’ control of the largest narrowbody segment underscores the remarkable success of the entire A320neo family of aircraft. Indeed, the A320neo, not the A350 or the troubled A380, is the greatest achievement for Airbus in the last 26 years (since the launch of the A320ceo) or perhaps even the 47-year history of the company. The A350 and A330neo were responses to the success of the Boeing 787 and the A380 was a prestigious project to be sure, but was plagued by delays and received tepid response from the market. But with the A320neo, Airbus finally seized control of the strategic dynamics of the large commercial aircraft, and it is poised to maintain substantial leadership in the narrowbody sector for at least one development cycle.

Setting aside the sales dominance of the A320neo, its more powerful achievement lies in what it represents strategically. After the initial success of the A320ceo, which Boeing more than countered with the more profitable 737 Next Generation, Boeing held the upper hand in the strategic balance between the two companies. Between the success of the 777 and the 787 Dreamliner, Boeing seized the upper hand in the more lucrative widebody segment of the market, while the tepid response to the A350 (really A330neo) Mark I sent Airbus scrambling back to the drawing board, and it couldn’t come up with a successful response (in the form of an A330neo) until Boeing was sold out for so many years that availability of mid-sized widebodies became a real challenge for several airlines. But with the A320neo, Airbus forced Boeing out of its complacent shell and plans to launch a clean-sheet 737 replacement in the early 2020s. But the success of the A320neo forced Boeing’s hand into a re-engining project that it didn’t want to undertake. The remarkable customer response to the A320neo, shifted the upper hand to Airbus, whose platform offers the opportunity for more savings in the long run due to its dual source engines and larger fan size (the A320neo’s wings are higher off the ground than those of the 737 MAX). Boeing’s initial belief that it could weather the storm by upgrading the 737NG was proved wishful thinking by American Airlines’ landmark order for 130 A320neos in July 2011, and Boeing was forced to scramble for an answer.

The Age of Incrementalism 


While the launch of the A320neo is certainly a joyous occasion for Airbus on its own, its impact on the aviation world is far more deleterious. The Airbus A320neo, by virtue of its success, has ushered in what we call an “Age of Incrementalism,” in which the major original equipment manufacturers (OEMs) avoid the massive investment and risk involved in developing clean sheet airplanes for the safe harbor of re-engined aircraft. Once the A320neo made it clear that airlines would accept a re-engined airplane so long as it delivered substantial improvements in operating economics (driven primarily by new engine technology), OEMs around the world began tailoring development towards re-engined projects like the Embraer E2, Boeing 777X, 737 MAX, and A330neo.

Bombardier’s CSeries, the 787, and the A350 all pre-date the A320neo, so none of the big four manufacturers is likely to build a new clean-sheet airplanes for ten years. Those ten years will see massive innovation in fields as disparate as automobiles and cloud computing, but the commercial airliner business will not participate. Aviation needs more of the 787 and A350, and less neo and MAX. For all of the faults of the 787, it represented genuine innovation in its body composition of carbon fiber reinforced plastic and in its passenger comfort advances. But the Boeing-Airbus duopoly (and Embraer-Bombardier beneath them) has gotten too comfortable. And the world of commercial aerospace suffers accordingly.

Eurasia to the Rescue?


Perhaps the best hope for restarting innovation in the commercial aerospace sector comes from the developing world; namely Russia, China, and East Asia. China is probably 30 years away from building a viable competitor to Boeing and Airbus aircraft (and we actually believe that a consortium involving some or all of Korea, Japan, India, Vietnam, and Taiwan might be the first Asian competitor for Airbus and Boeing). But Russia is a more interesting case. Recent geopolitical events and sanctions placed on the Russian economy have led the Russian government to increase investment in its domestic programs such as the Irkut MS-21. Russian technology and (more importantly) reliability is catching up with that of Western aircraft as evidenced by the improving performance of the Sukhoi Superjet. And its not inconceivable that at some point over the next decade, the Russians will launch an aircraft program that upsets the Airbus-Boeing duopoly, and in much the same manner as the A320neo, force the hand of executives in Tolouse and Chicago.

 

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About Author

Vinay Bhaskara

Vinay Bhaskara

Senior Business Analyst, Big Airline Enthusiast, Avid Airport Connoisseur, Frequent Flyer, Globetrotter. I Miss Northwest Airlines Every Day. vinay@airwaysmag.com @TheABVinay

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