Lacking the means but not the desire, Boeing is setting aside the creation of its first advanced single-aisle transport of the 21st century in favor of a more conservative new engine 737. But even that relatively prosaic approach is not without manufacturing peril.

Chairman/CEO James McNerney says the company's Renton factory, Boeing's touchstone for lean manufacturing south of Seattle, may not be able to swallow a 737NE project alongside its busy schedule assembling the Next Generation 737, although at this stage nothing is decided.

For the past year, McNerney and other Boeing executives have made it clear that their preference is to proceed with the company's New Small Airplane (NSA) as the successor to the 737NG. The airplane was expected to be another step in Boeing's evolution as the industry's most ambitious user of weight-saving, non-corroding composite materials for airframes. Where appropriate for short-haul, single-aisle routes, the NSA also was likely to draw deeply from the electric architecture that is one of the twin-aisle 787's hallmarks.

But doubts crept in to Boeing's single-aisle study groups about the company's ability to produce an all-new aircraft. And, major customers became more cautious, signaling a shift from their earlier interest in a step-ahead NSA ready for service in 2019-20 in favor of a more immediate payoff of a re-engined 737NG at mid-decade, which is when rival Airbus is introducing its re-engined A320.

“The technology is there” for the NSA, says Boeing Commercial Airplanes President/CEO James Albaugh. “But there is the issue of the production system. How quickly can you ramp [it] up and how efficiently can you go to 40, 50, 60 airplanes a month. Quite frankly, we did not have those answers.”

An official name for this new-engine 737 (737NE) will have to await the formal authorization of the board of directors sometime this month, green lighting an “authority to offer” it to customers. Boeing says the 737NE will have a 10-12% fuel-burn advantage over the 737NG and an approximately 8% operating-cost-per-seat advantage over Airbus's new engine option, the A320NEO.

While not directly connected, the fact that Boeing has had to take five production “pauses” in its 787 program—including one for the month of July—provides background for Albaugh's comment. The 787's supply chain is experiencing parts shortages at the same time that some suppliers need additional time to implement change orders from the aircraft's flight-test program.

McNerney described this pause to re-balance production flows as a “good news” move to analysts last week. “We're agile now,” he says of the program. He would not be surprised to see holds taken throughout the life of the 787's production, even as a push to build rates to 10 aircraft per month by the end of 2013 is emphasized.

Across all five of its airplane product lines, Boeing is planning a 40% productivity increase by the end of 2013. The 737 is the biggest of those and it is to reach 42 airplanes per month in 2014, up from 31.5 currently. With the prospect of the 737NE looming, managers expect they may have to produce as many as 60 per month by the end of the decade.

Aside from the pressure this puts on its own suppliers, who are experiencing buildups from Airbus and others, the capacity of Renton is being questioned. Theoretically, it could handle more than 60 aircraft per month, says 737 General Manager Beverly Wyse. McNerney calls it “one of the great aerospace factories in the world.”

But it would require significant investment to take on a new program. Until milestones for the 737NE effort are solidifed, “major investments in Renton are beyond the current plan,” McNerney says. Until that is sorted, “I can't confirm where we would put” 737NE production.

Other regions in Washington would be eager for a Boeing plant, just as other states would. But McNerney is cautious about naming potential locations.

“We have other options and we're going to study them all,” he says. The key will be their competitiveness to Renton.

One obvious candidate is the North Charleston, S.C., facility, where final assembly of Line No. 46 for the 787 is just getting under way. The decision to open that factory had been challenged and brought before the National Labor Relations Board by the International Association of Machinists and Aerospace Workers (IAM). The union's stance is that Boeing opted for South Carolina's non-union employment atmosphere in retaliation for a 2008 IAM strike. McNerney denies this and predicts the company will prevail in the dispute. But he also is downplaying the site's prospects as a 737NE facility. “Just getting the 787 done [there] in the next few years is a big challenge,” he says.

Over its history, the 737's seating size has steadily crept up and its operating costs have come down, largely thanks to the introduction of new engines. In that regard, the 737NG is the fourth generation for an airplane family that will pass its 50th anniversary in commercial service in 2018. That is when American Airlines, the pending 737NE launch customer, wants to take first delivery.

While Boeing is set to launch the program on American's order for 100 airplanes, it has penciled in “mid-decade” for its entry into service, so it's possible another carrier could beat American to the punch.

It was on July 20, at one of the industry's most unusual press conferences, that the 737NE was “launched.” American Airlines Chairman/CEO Gerard Arpey, with Airbus CEO Tom Enders and Boeing's Albaugh in attendance, announced that the carrier was placing 460 firm single-aisle orders along with enough options and purchase rights to raise the total to 925. For Boeing, this means 100 firm orders for each of the 737NG and 737NE families, plus 100 options. Airbus grabbed the biggest share with 130 firm orders for A320 and 130 for A320NEO, plus all the other options. There has never been a deal quite like it.

American is to take up to 55 narrowbodies a year in 2013-17 from existing Airbus and Boeing product offerings. Its new aircraft are to arrive from 2017-22. American's lease and payment obligations total some $38.5 billion, it stated in a July 25 filing with the U.S. Securities and Exchange Commission. Additionally, the airplane makers have committed $13 billion in lease financing for the initial delivery period.

Arpey said neither Airbus nor Boeing could have absorbed American's whole order, a point neither Enders nor Albaugh contested.

Still, after months of Airbus officials predicting that market and technical realities would force Boeing to abandon its NSA effort in favor of a re-engined 737, it appeared the Seattle-based manufacturer was pushed to draw up a hasty plan for re-engining or face losing one of its best U.S. customers to Airbus. While American had ordered some Airbus widebodies in the past, its fleet is now reserved for Boeing. The carrier operates 128 737-800s, 124 757-200s and 247 MD-80s, the latter two types earmarked to be replaced.

McNerney says the American deal came about as Boeing was already beginning to see a shift in airline preferences away from the new technology NSA.

Enders responds that technologies “are not maturing fast enough” to support an all-new single-aisle now, so re-engining is the only current option.

“This was not something we sidled up to at the last minute,” McNerney says of the 737NE decision. “Admittedly, our view of the marketplace has changed over the past two months.”

Configuration studies for what new systems might be on the 737NG will continue well into the fall when the airplane is expected to receive its formal program launch.

At this stage, what is known is that CFM International's Leap-X will be the sole powerplant offered, just as its CFM56-7B is for the 737NG. The GE Aviation-Snecma partnership already has a strong start in the race to power the NEO, holding 910 orders for its Leap-X1A to power 455 NEOs against Pratt & Whitney's PW1100G. CFM says that represents 63% of all new engine option orders for which powerplants have been selected.

With Darren Shannon in Washington.