A320NEO family's dominance poses questions for its rivals
A week of massive order intake has aircraft makers wondering how much further and faster they need to ramp up production to meet demand. But it also raises strategic product policy concerns for some, including , which is grappling with whether to re-engine the 737 or launch the New Small Airplane (NSA).
The scale of the business deals brought to the market is staggering.secured more than 660 orders for its (new engine option) family, driving its six-month order total since program launch to more than 1,020 aircraft. This year was “the best air show ever for Airbus in terms of aircraft numbers sold,” says Tom Enders, Airbus CEO. Most of the 730 deals are firm orders, he says, valued at over $73 billion. “I was pretty much amazed that we sold that many aircraft here,” Enders says of the NEO.
The U.S. airframer, meanwhile, beat Airbus in widebody orders, securing deals for 19-8s, 27 , four and one 767. The company booked $22 billion in commercial aircraft deals.
And it was not just Airbus and Boeing that secured large numbers—took orders for more than 60 aircraft. That has Frederico Curado, Embraer's CEO, saying a production ramp-up is under consideration, although it will depend on how much the orderbook grows in the second half of this year.
Still, Airbus's NEO order surge has left an impression on airlines and industry observers and raised the stakes for Boeing to make a narrowbody strategy decision. The U.S. aircraft manufacturer has said areplacement or upgrade choice will be made by year-end. But Boeing is receiving mixed signals from the increasingly important lessor market about which path to take. Air Lease Corp. CEO Steven Udvar-Hazy, one of the commercial aircraft industry's most influential buyers, is urging it to pursue an all-new design. “Boeing needs to show leadership,” he says. “My feelings are heavily biased toward a new family of aircraft.”
Udvar-Hazy downplays concern that Boeing risks losing a lot of business to the NEO as it takes time to decide on a strategy. “Airbus won't have many positions left after this air show,” he noted here. “If [Boeing] can get it out by 2019 or early 2020, we're very interested.”
Bjorn Kjos, CEO of, says he is “lining up in the long queue of airlines that tell Boeing they have to build a new aircraft.”
Another major European airline buyer says a new aircraft is a must for Boeing.
But International Lease Finance Corp. CEO Henri Courpron believes it is best left to Boeing to determine which option to take. “Does a child want a new toy? Of course,” he said here. “Everybody wants a new airplane, but there comes a time to ask the parental, adult questions [such as], 'How much will it cost?' and 'Do we need it?'”
At the air show,CEO James Albaugh reiterated the company's position that it does not have to make a decision on re-engining until the end of the year. “We have the design pretty much on the shelf to do the re-engine,” he said. “The question is, do we want to evolve . . . or do we want to take more risk and design an airplane for the next 50 years?”
Mike Bair, vice president of advanced 737 product development, adds that “there's no need for an artificial deadline, and by the end of the year we'll have got more direction.” A slip of an announcement into 2012 may indicate a decision to go for an all-new product. However, he says, “we're still going to have re-engining available to us if we hit a show-stopper with NSA.”
Airbus has long suspected Boeing will launch a new program and then pull back, as it has done before, to pursue a more modest effort. Bair says re-engining would produce a 10-12% improvement. For the new aircraft,, and Pratt & Whitney all could offer viable engines that could be ready by 2019, according to Bair.
Regardless of what Boeing does, Jeffrey Knittel, CIT Group's president of transportation finance, says Airbus will be in good shape. “We believe the NEO can stand on its own, whether there is a re-engined 737 or an all-new aircraft,” he said after placing an order for 50 NEOs. Still, he added, “I would hope [Boeing] will come to a decision soon.”
For the time being, Knittel says, “we think the A321 specifically presents a unique opportunity to fill a gap we see in the future.” He notes that it “gets as close to filling the [Boeing] 757 void as any aircraft out there.”
In addition to the NEO orders, Airbus also secured strong sales for its standard single-aisle product and, perhaps equally importantly, a big commitment fromto retrofit all its A320s with winglets. The winglet upgrade is part of JetBlue's deal for 40 A320NEOs and conversion of some backlog A320s to A321s. The retrofits are available for A319s, A320s and A321s beginning in 2013 and should offer 3.5% fuel-burn savings, similar to the forward-fit winglets, Leahy says. The winglet's price will also be similar to the forward-fit, around $950,000, although the retrofit kit could add to the cost. For JetBlue, the winglets promise range assurance on transatlantic flights.
Another key NEO order—from Republic Airways—fuels the competition with's , which the U.S. carrier is also buying. Airbus secured a deal to sell 80 NEOs to Republic, including the first 40 A319NEOs to be sold. Republic officials insist they have no plans to change their CSeries order, noting that the Canadian narrowbody will arrive in 2015 and the A319NEO a year later.
However, Teal Group analyst Richard Aboulafia says it makes no sense that Republic would want both jets. “Competition doesn't get any more direct than the A319 and CS300,” he says. “Republic can talk forever about not cancelling [the CSeries order], but what is their rationale for two planes that do effectively identical jobs?”
At Le Bourget, though, the CSeries showed signs of gaining traction in the market. While it failed to win any orders at last year's Farnborough air show in the midst of a 15-month drought, on the opening day here the Canadian airframer announced a firm order for 10 CS100s, with options for six more, giving new momentum to a program that some competitors have written off as a lost cause. The orders came from an undisclosed “major airline” that will become the launch operator for the 110-145-seat CSeries family.
Bombardier also received a letter of intent fromto acquire up to 30 CSeries jets, including 10 firm CS300 orders, potentially giving the CSeries its first customer in the Asia-Pacific region and its second global airline operator after . Walter Cho, Korean Air senior vice president in charge of fleet planning, said the deal should be finalized in the near future. He added that the airline intends to exercise its rights for the 20 remaining aircraft once the CSeries flies and demonstrates its advertised capabilities, which include fuel burn 20% lower than existing jets and 12% lower than the A319NEO.
The CSeries is scheduled to make its first flight next year and enter service in late 2013, powered by new Pratt & Whitney 1000G geared turbofan engines.
Despite the relatively low order intake compared with the NEO, Ben Boehm, Bombardier vice president for international business, says, “we're not threatened by them.”
It is not just the jet airliner market that is clearly out of the doldrums of the past three years.has announced orders for 88 aircraft through the first six months of 2011, a record for the turboprop maker, supporting its plans to boost output.
But for every upside, there is a downside. One is concern about the ability to satisfy the tremendous demand. “We certainly don't want to get to the point that slots are constrained,” says Tom Williams, Airbus executive vice president for programs. The company has already talked with engine makers about a further production ramp-up, having recently moved to increase single-aisle output to a record 42 aircraft per month.
“We will investigate if we can go considerably higher,” Enders says. Airbus has a few production slots for standard A320s free in 2014 and for NEOs in 2018-19, depending on the turnover from standards to NEOs. Production for theis sold out until 2018-19 and for the until 2013-14.
Curado also notes that supplier issues are a concern as Embraer considers boosting output. “We may have some bottlenecks,” he says, adding that any production increase would be modest at first.
Boeing's Albaugh says, “We have seven years' worth of backlog, but it really needs to be in the three-to-four-year range. We need to burn down the backlog, and we have to respond to the marketplace.” Although Boeing has ramped up production, the order surge in recent days has taken up many of the new slots created through planned production increases.
Some skeptics wonder if the tens of billions of dollars in orders reaped at the Paris air show are too good to be true. Several institutional investors are privately questioning whether the market is growing fast enough to absorb so many new aircraft. Others fret about the ability of the supply chain to keep pace with the production buildup of the Boeing 787 andJoint Strike Fighter as well as the robust rate increases in narrowbody and widebody jets that Airbus and Boeing have planned for the next few years.