PARIS – On day one of the 2017 Paris Air Show (PAS), Boeing officially launched the 737 MAX 10, the newest and largest variant in its 737 MAX family.
The MAX 10 adds 12-18 seats (2-3 rows) to the smaller 737 MAX 9, bringing total seating capacity to 230 passengers in a single class configuration and 188 passengers in a typical two-class configuration, within 10 seats and 5 seats respectively of rival Airbus’ A321neo.
According to our metrics, this extra seating capacity will allow the MAX 10 to more or less match the A321neo’s operating economics on most missions, though the A321neo will still have better payload/range performance, particularly with the A321LR variant. The 737 MAX 10 is not a trans-Atlantic plane; the A321neo is.
Day one order book is balanced
In the press conference announcing the 737 MAX 10 Monday morning, Boeing executives revealed that the type had 240 orders and commitments from 10 customers that would be revealed throughout the week.
Of those, anywhere from 149-167 orders and commitments were revealed on day one from seven different customers, of which 85-103 were new orders and 64 were conversions from existing 737 MAX orders.
The reason for the uncertainty is that the breakdown of MAX 10 orders from Tibet Financial Leasing versus MAX 8 orders was not revealed. The full breakdown of 737 MAX 10 customers announced on day one is as follows
- Lion Air – 50 737 MAX 10s (MoU)
- CDB Aviation – 4 737 MAX 10s
- SpiceJet – 20 737 MAX 10s (MoU)
- Tibet Financial Leasing – 20 737 MAX
- BOC Aviation – 10 737 MAX 10s (MoU)
- TOTAL: 85-103
- SpiceJet – 20 737 MAX 10s
- GECAS – 20 737 MAX 10s
- TUI Group – 18 737 MAX 10s
- CDB Aviation – 6 737 MAX 10s
- TOTAL: 64
A good mix of initial customers
There are no true global giants of aviation at least amongst full-service carriers in the day one order book, but Lion Air and SpiceJet are low-cost powerhouses in the Asian region, which in and of itself is validation for the MAX 10.
This variant will be made or broken in Asia, where market conditions of growth and infrastructure constraints most necessitate large narrowbody aircraft variants. The other key validation comes from the number of lessors that placed an order for the type (five of the first eight customers including Tuesday morning’s order from Aviation Capital Group).
Just a couple of months ago, lessors were pouring cold water on the 737 MAX 10, indicating their preference for a new mid-sized airplane (NMA) from Boeing and expressing skepticism about the MAX 10’s economic viability.
Even if you assume that a GECAS order was a foregone conclusion given that GE joint venture CFM’s LEAP-1B engine will power the 737 MAX 10, four different lessors still committed to the type on day one. That does not point to anywhere near as limited a customer base for the MAX 10 as its critics claim.
Proportion of conversions is no cause for worry
One other criticism bandied around on day one of the show was the notion that because so many of the MAX 10’s orders were actually conversions from existing MAX orders, that this somehow validated criticisms of the MAX 10 and made day one less impressive.
Frankly, that point of view misunderstands what the real strategic purpose of the MAX 10 is for Boeing. The 737 MAX 10 cannot reverse and flip Boeing to an advantage in the middle of market (MOM space) because its operating economics are not going to be better than that of the A321neo. Instead, Boeing needs the 737 MAX 10 to get it from its current 20-25% market share in the MOM space to 40-45% of new orders moving forward.
And just as importantly, Boeing needs to ensure that current 737NG and 737 MAX 8 customers do not opt for the A321neo at the top end of the market, as some like American Airlines or Norwegian Air Shuttle have chosen to do.
If the 737 MAX 10 can achieve these two goals then it will be a success for Boeing – it is too limited of a plane to do much more than that. Any sort of market leadership in the MOM space will have to wait until an NMA.
It’s also important to note that most of day one’s conversions were from the 737 MAX 8. Our view was that the MAX 10 would likely cannibalize orders for the larger 737 MAX 9, but the actual figures appear to be focused more on the middle 737 MAX variant, which is a sign of relief for Boeing.
We don’t think the MAX 9 will sell very well over time (probably no more than 500-600 orders by 2023), but it will not be entirely eliminated by the MAX 10.
Who are the next customers?
Aviation Capital Group (ACG) ordered 20 737 MAX 10s on Tuesday morning, becoming the fifth lessor to buy the plane), and a sixth lessor, China Aircraft Leasing Group (CALC) is expected to join them on either Tuesday or Wednesday.
The final customer is still unknown at this point, but it could include Indian full-service carrier Jet Airways or Romanian low-cost carrier Blue Air. CALC plus one additional carrier would represent 50-70 additional commitments to the MAX 10 per Boeing’s comments.
The more interesting question is where the MAX 10’s order book can get to. By virtue of finally building a strong MOM option for existing 737 customers, we don’t think that 600 or even 800 orders are out of the question by entry into service (EIS) in 2020 or so.
We expect in the United State that Alaska Airlines, United Airlines, and Southwest Airlines will all be customers for the type, as will Copa Airlines down in Panama.
In Europe we expect Ryanair to buy the type (perhaps cannibalizing some of its 737 MAX 200 orders) along with Norwegian Air Shuttle, and in Asia China will be good for at least 100-150 frames by itself.
SpiceJet and Lion Air aren’t done ordering the MAX 10 either, and they could be joined by Vietnamese ULCC VietJet Air, though VietJet does have the A321neo on order. So we are more bullish on the MAX 10 than most.