PARIS – Monday at the 2017 Paris Air Show (PAS), Boeing formally launched the largest variant of its re-engined 737 MAX narrow body family, dubbed the 737 MAX 10. The MAX 10 is expected to feature a larger engine, stronger wing, adjusted landing gear and a fuselage stretched by 6-7 ft.
The stretch and structural upgrades would allow airlines to add 12-18 seats over the 737 MAX 9, growing single-class capacity to 230 seats, just ten short of rival Airbus’ A321neo. In a typical two-class configuration the MAX 10 would seat 188 passengers, five less than the A321neo.
The type was launched at a quick, seven-minute press conference by Boeing’s Dennis Muilenberg and Kevin McAllister Monday morning at the air show. However, the two Boeing executives did not share major design details of the newest MAX variant, so the scope of changes versus the 737 MAX 9 remains to be seen.
Boeing has a MOM problem
The MAX 10 is meant as a solution for Boeing’s most intractable customer segment, the so-called middle of the market (MOM) spanning 170-250 seats (but focused on the 180-220 seat spectrum in particular).
This is an arena that Boeing historically dominated with its Boeing 737-900/ER, Boeing 757-200/300 and Boeing 767-200/300 outselling the Airbus A310 and later the Airbus A321 (at least through the early 2000s).
But in the early part of this decade, Airbus’ improved the A321ceo (classic engine option) to such a degree that it surged ahead, an advantage retained by the A321neo today.
At present, the A321neo has outsold the 737 MAX 9 by a margin of nearly seven to one. Even accounting for unallocated 737 MAX orders, the ratio is still four or five to one, both of which are unacceptable in a critical market segment.
The 737 MAX 9 just isn’t economical or capable enough to match up to the A321neo, which beats it on seat-mile economics and payload-range capabilities.
This is incredibly important because the MOM space in all likelihood will define commercial aircraft and aviation over the next 20 years. Most global aviation growth in the period is going to come from Asia, and Asian airspace is clogged and crowded.
Now in contrast to Airbus’ thesis in the very-large aircraft space, frequency will still matter in the Asian market, and large widebodies will still be constrained to just a few markets. But smaller regional and mainline jets will also be locked out of the market, leaving the focus on the MOM.
But the 737 MAX 10 doesn’t solve it
The challenge is that the 737 MAX 10 doesn’t suddenly give Boeing the upper hand and instantly reverse the seven to one sales ratio. For one thing, the MAX 10 won’t be able to fly as far as the A321neo, limiting its potential for long and thin routes.
It will have no equivalent to the A321LR, and our view is that the flexibility to convert to the LR has locked in surplus orders for the A321neo over the last few years.
We are more optimistic about the MAX 10’s potential to close the gap on seat-mile economics vis a vis the A321neo. Perhaps the MAX 10 can even edge ahead by less than a percentage point if an airline isn’t going to maximize its A321neo seating (both aircraft, for example, could do 185-seat, two-class configurations) and Boeing is flexible on pricing.
But even given this advantage, Airbus has a quick and easy counter. It can stretch its A321neo by 2-3 rows, creating an “A322neo” that seats ~255 passengers in a single class configuration and that retains the unit cost advantage over the MAX 10.
Meanwhile, Boeing cannot stretch the MAX any further. So if Boeing finds too much success with the MAX 10, Airbus will likely launch the A322neo, which it can develop for less than $500 million and less than $1 billion by all accounts.
But for the MAX 10 to serve Boeing’s purposes, it doesn’t have to reverse the A321neo’s advantage. Instead, if it can just maintain parity from here on out and prevent 737 MAX 8 customers from adding the A321neo to their fleets, then it will have served Boeing’s purposes just fine as a bridge to the new mid-sized airplane (NMA) in the middle of the next decade.
Our view is that this will be the ultimate solution to Boeing’s MOM problem, particularly in Asian markets where turnaround time isn’t quite as important as it is in the West.
And unlike the 737 MAX 10, Airbus will have no easy counter. Airbus may not be baited into launching the A322neo by the 737 MAX 10, but the NMA might do the trick. The challenge for Airbus will be that if Boeing designs the NMA correctly, the A322neo won’t be a real competitor.
New customers abound, but the volumes aren’t huge
At the press conference announcing the MAX 10, Boeing stated that the 737 MAX 10 already has 240 orders from 10 customers that will be announced during PAS. On day one, 7 of those customers and 149-167 of those orders and commitments were announced. The customers revealed on day one of PAS included:
- BOC Aviation – new order for 10 frames
- GECAS – conversion of 20 MAX 8 orders
- TUI Group – conversion of 18 MAX 8 orders
- CDB Aviation – 4 new frames and 6 conversions from the MAX 8
- SpiceJet – 20 new frames and conversion of 20 MAX 8 orders
- Lion Air – 50 new frames
- Tibet Financial Leasing – 20 MAX 8s and MAX 10s with the breakdown not reported, so anywhere from 1-19 new orders.
In all, this amounts to anywhere from 85-103 new orders out of 149-167 commitments and 64 conversions. If additional orders develop in the next few months, our view is that they are likely to maintain this ratio of 30-40% conversions of existing MAX customers, particularly cannibalizing the MAX 9 and the 737 MAX 200.
ULCC buyers like Europe’s Ryanair and VietJet will certainly be interested, as will the few Asian legacies and LCCs operating 737NGs. We expect US-based carriers to have less interest in the type. This leaves three customers and 70-90 commitments yet to be revealed for the MAX 10 over the remaining days of the show. At least one of those customers will be another Chinese lessor, China Aircraft Leasing Group (CALC), who placed a pre-show order for 50 737 MAX jets.
Despite the less than thrilling nature of some conversions being a part of its initial order book, the MAX 10 will launch with 240 initial commitments, which is a strong start and much better than the tepid response for Boeing’s upgraded 737 MAX 7 at Farnborough 2016.
Regardless, the launch of Boeing’s latest 737 variant will up the ante in the MOM space, potentially triggering a series of responses that end with Airbus building an A322neo and Boeing finally developing the NMA.
Note: Airways will be live from the 2017 International Paris Air Show this week. Be sure to visit AirwaysMag.com and like our social media pages for the latest information from the show!