The A320neo strategy and the 767NG that will never be

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“In terms of the adaptation of the [A320neo], one of the things we’re trying to do to de-risk this program is very much focus on minimum change. And we are conscious because we’ve lots and lots of creative engineers. Our engineers love developing new ideas and developing new things, that’s what engineers want to do. Clearly if we’re not careful we could end up with a situation where this becomes an all new airplane, very, very easily, and so part of my job along with [Airbus A320 chief engineer Wolfgang Engler] and the team is to say that we have to have certain amount of realism into how we do this. We’re doing that because we want to keep a high degree of commonality, from a customer point of view, and because we want to have a de-risking in terms of the technical challenge of the program and a very fast ramp up.” - Tom Williams, Airbus executive vice president programmes

It’s rare that I open a post solely with a quote, but the one above, from Airbus’s Tom Williams A320neo briefing, should offer – not a glimpse – but shines a spotlight into how the European airframer thinks about new products. The incremental DNA of Airbus – rooted in the same principles of Piepenbrock’s Red-Blue and those that brought the 737 Next Generation into existence – identifies the ingredients for bringing a product rapidly to market in a way that seeks to be non-disruptive to its production system and to its customer base. 
It is in this same vein that we see Air Insight introduce its justification for a Next Generation 767, fitted with winglets, new engines, a KC-46A/787-style avionics and flight deck along with a new interior would provide a new commercial lease on life to Boeing’s high margin jet and a product for airlines that don’t need the 787-8′s 7,755nm design range.

With the 767 already a major player in the transatlantic market, a 767NG would enable customers to maintain a great deal of fleet commonality and upgrade their medium range fleets with the NG while adding the 787 for their long-range operations. A fleet change is a traumatic event for an airline, with ramifications throughout the organization, including spares, MRO, and crew training. Upgrading a fleet maintains commonality and enables smoother, lower cost fleet transitions.

Air Insight suggests such a product that is complimentary to the 787 with a theoretical 12% fuel burn improvement from new engines, plus a further 4.4% reduction from winglets boosts the range of a 767-300ER to nearly 7,000nm with the 23,980gal of fuel already in the tanks. The 787′s 33,528gal delivers an 11% boost beyond the performance over a hypothetical 767NG, but does so with 40% more fuel.

This 767NG appears highly unlikely to come to fruition as the 767′s industrial footprint is now sized smaller for steady low rate output for the US Air Force. More importantly an upgraded 767 would be poised to cannibalize a signficant portion of the 787 business case. Though, if an aircraft derived in the same incremental spirit as Airbus is approaching the A320neo – and Boeing approached the 737NG – and is able to cannibalize the investment of its very expensive all-new majority-composite jetliner, then the 767NG is not a bad idea, just one whose idea has come far too late.

27 Responses to The A320neo strategy and the 767NG that will never be

  1. Junior April 15, 2011 at 8:44 am #

    If Boeing wanted to do a 767NG, they would have done it a long time ago, using new engines, winglets and a flight deck closer to the 737NG. Pilot’s adaptation would have being much easier and the cost for the airlines would have being medium to minimum.

    Although the 767 is an amazing aircraft, for both passengers and cargo operations, the market demanded a new airline, and that’s why the 787 is there for.

    Regarding Airbus, i think its amazing how they can offer the same cockpit technology for different aircrafts (A320, A330, A340, A380), with minimum training required. But i think that its time for them to introduce a whole new avionic and cockpit concept and i hope to see that on the A350XWB and for the future successor of the A320 (not the NEO)

  2. RobH April 15, 2011 at 9:49 am #

    It seems to me like a perfect compliment to the 787 line to relegate the 767 to dedicated freighter duty (and military utility) until a 787F comes online in ~15 years. As seen with the 777F, the geniuses at FedEx can justify ROI for new-build jets.

  3. Claveman April 15, 2011 at 11:10 am #

    John….I totally agree with you on this one.

    Yea, a 767NG sounds like a logic step, except that it leaves too much overlap with the 787 for the reasons you noted.

    Of course, non of us will really know until Boeing lets everyone know that the replacement for the 737 is going to look like….

  4. John April 15, 2011 at 4:00 pm #

    One wonders what Airbus will say when Boeing utilizes the new 767 tankers airframe and avionics improvements to create a more competitive product? At the rate the tankers will be produced a few 767NG’s a month will dramatically improve the lines economy’s of scale.

  5. 27w9 April 15, 2011 at 4:41 pm #

    Boeing did a 767NG in 2000. It had a glass cockpit that looked like the 777′s, a 20-ft longer fuselage to carry more passengers, increased gross weight, and uprated [not new] engines. The wings were extended by raked wingtips. There was a “new-look” interior that looked just like the 777′s. It even replaced the 767′s rectangular windows by the 777′s semi-oval ones.

    It was called the 767-400ER and it was a disaster. Only 40 were sold, to just two customers, Continental and Delta.

  6. V V April 15, 2011 at 7:57 pm #

    Never say never. You never know.

  7. Integral Observer April 15, 2011 at 8:27 pm #

    Jon, another good commentary contrasting the RED, evolutionary approach followed by Airbus with the BLUE revolutionary approach followed by Boeing.

    Contrast the 16% fuel burn that could have been achieved on a 767NG with the 18% fuel burn achieved for at least twenty times the cost. As Dr. Piepenbrock has taught the industry, the problem is that Boeing failed to invest in 767 performance improvements in the 10 years prior to the launch of the 787 creating the “need” for an all new airplane to compete.

    As others have commented, it is too late for a 767NG as Boeing built the 787 almost directly on top of the 767. Any 767NG sales would cannibalize the 787 market. Contrast this with Airbus who positioned their A350 in a different segment from the A330. Preserving the A330 market space and preserving Airbus’ option to build an A330NEO.

  8. PMS April 16, 2011 at 2:44 am #

    Would airlines have forced Airbus to resign from the ‘evolutionary’ A350 and start the ‘revolutionary’ A350XWB project if the former had been (like 767NG) more attractive for them?

  9. Industry Analyst April 16, 2011 at 7:20 am #

    Jon,
    The quotes from Airbus’s Tom Williams and Wolfgang Engler continue to highlight the OEM’s “red” strategy of incremental improvement in a maturing market environment, optimizing not just one aircraft, but their entire product and production system.

    This article as well as many of you readers comments indicates that Boeing’s strategy of designing and producing an all-new airplane for the 787, has altered its future strategic options. The 787 materials, production system and supply chain are vastly different then the rest of Boeing’s aircraft portfolio. Should Boeing choose to re-engine the 737, it will likely not achieve the level of benefits that Airbus will from having a common product and supply chain architecture. However, if Boeing chooses to do an all new airplane — given the high costs of technology/performance improvement in a mature industry — it will be forced back in to a 787 model of risk-sharing partners to fund the high non-recurring costs, technology readiness issues, supply chain problems, and recurring costs that exceed customer willingness to pay. Not to mention labor strikes from employees who see profits shrinking as more work (and knowledge) is outsourced to risk-sharing partners.

    Many companies have had similar struggles and come back even stronger through transformational leadership and a long-term vision. Steve Jobs return to Apple and Howard Schultz’s return to Starbucks come to mind. Carolyn Corvi and her leadership team at Boeing were the few who understood how to lead and create profitable airplane programs.

  10. IAM April 16, 2011 at 3:11 pm #

    I think your love affair with Piepenbrock’s Red-Blue needs a rest. Piepenbrock also thought Toyota was a great example of success which in hindsight has led to discovery of coverups and mismanagement.

    The Red-Blue concept also fails to recognize that there is many times a diminishing return on evolutionary development because one can’t take advantage of fully integrated benefits. Sometimes, not always, step changes ARE required to get the full benefit.

  11. Jon Ostrower April 16, 2011 at 4:56 pm #

    IAM,

    Thanks for your comment. In studying Dr. Peipenbrock’s work on Red-Blue, I’ve recently come to understand that there are always outliers for both types of organizational architectures. However, the outliers don’t disprove the overall growth trends about what has made a company like Toyota successful. Yes, Toyota absolutely had well publicized issues with its faulty Prius gas pedals, but to point to that solely ignores what the myriad of other examples of how they organize themselves. I am not for a moment suggesting that you ignore the outliers because it will provide a complete picture when viewed along with other data. 

    The whole point centers around not looking at snapshots in time, but examining what companies do over a span of time, and by no means is any organization perfect. They are, after all, made up people. 

    While leaps like the 787 illustrate Boeing’s overall approach to product development as of late, the 777-300ER/200LR/ERF and 737 NG are good examples of how Boeing has realized long-term sustained success with regular incremental product development by designing platforms that can grow and evolve over time. 

    Thanks again,
    Jon

  12. Industry Analyst April 16, 2011 at 11:52 pm #

    IAM, Piepenbrock’s red-blue theory actually supports your position that there are times when incremental improvement (red) is necessary and times when step changes are necessary (blue); it really depends on where you are on your industry’s “s-curve.”

    Many of the readers here have commented that the commercial aircraft industry has reached a mature state where the rates of change of technology innovation and capability/performance improvement have slowed (for example, you can already fly from almost any two city pairs in the world – can’t get much better than that); meaning a “red” environment. As Ostrower and others have stated in prior blogs –it’s not that customers don’t want step changes in fuel efficiency or faster aircraft, it’s just that the technology either won’t be ready for a very long time and/or is prohibitively expensive to justify the incremental performance gains that result.

    Remember the palm pilot? Dead, right. Unlike commercial aircraft, this was a space in which the rates of change of technological innovation was growing at a rapid pace (blue environment), and only those who knew had to do radical step change improvement (such as Apple) have survived. This is an area where sticking to an existing design architecture, supply chain, and production system will kill your business.

    So Piepenbrock’s theory is not an argument about which is better: red or blue, incremental vs. step change improvement. It’s about understanding your environment and how to match your strategic design to compete profitably in that environment.

  13. Adamo April 17, 2011 at 6:38 am #

    It seems to me, Boeing should start thinking about creating smaller version of B787 to cover B767-200/300 market. B787-7 (for transatlantic routes) could be lunched with B787-9 (for Asian/Middle East market).

  14. Scentsy April 17, 2011 at 12:13 pm #

    It’s just incredible to me that a 30 year old airframe is still being built and delivered(and in demand!) today! I still have to wonder if Boeing discontinued the 757 too soon.

  15. Aerospace Historiographer April 18, 2011 at 12:27 am #

    It seems that rather than having an emotional, faith-based reaction to Dr. Piepenbrock’s “Evolution of Business Ecosystems”, Mr. Ostrower appears to be interested in a fact-based approach to understanding success and why success happens. The “Evolution of Business Ecosystems” is the result of Dr. Piepenbrock’s collaboration in countless sessions with business leaders all across the world. As Integral Analyst stated it is not an ideology promoting incremental innovation in all circumstances, instead the type of innovation needed depends directly on where the industry is on the “s-curve”.

  16. Red-Blue Student April 18, 2011 at 12:45 am #

    Mr. Ostrower has learned that “the outliers don’t disprove the overall growth trends about what has made a company like Toyota successful.” But Red-Blue theory also teaches us that all companies, blue and red, are disintegrating. Blue companies are much futher down the path of disintegration than red, as exemplified by Toyota’s $133 billion market cap being greater than the sum of Ford, GM/US Government, and Chrysler/Fiat combined. So while Toyota’s system will remain integral many more years, we will continue to see examples of Toyota’s disintegration.

  17. PMS April 18, 2011 at 8:00 am #

    “Jon, another good commentary contrasting the RED, evolutionary approach followed by Airbus with the BLUE revolutionary approach followed by Boeing.”
    So, why was Airbus forced to shift from the A350 (RED) project to the A350XWB (BLUE) one, then?

  18. JEB April 19, 2011 at 12:05 am #

    PMS, great question. I appreciate both you and Jon facilitating an opportunity to discuss and learn together.

    I would say that the 787 did force Airbus to be more “Blue” with the A350XWB than they would have desired, but on a relative scale it is much more “Red” than the 787. Airbus is continuing flight deck commonality, leveraging composite panels versus a composite barrel and utilizing existing suppliers more in line with their current production system. It seems they will get a significant margin of the operating performance gain with a reduced, and less risky, capital investment.

    Airbus has also placed the A350XWB so that it squarely takes on the 777 and replaces the obsolete A340 while continuing to leverage the A330 where it makes sense. It seems they are optimizing across a larger product and stakeholder space than what Boeing is which is what a more “Red” firm would do in a mature market.

  19. PMS April 19, 2011 at 6:05 am #

    JEB,
    That’s why I think Boeing considers a twin-aisle body:
    1. In the three-part analysis presented recently, Jon pointed out that the game is changing in a small narrow-body sector (since both Bombardier and Comac proposed their narrow-bodies).
    2. It thus seems to be reasonable that the 797 will not be a direct replacement of the 737NG but rather its larger nephew.
    3. As the non-recurring costs of 737NG are (I suppose) already amortized, it can still be offered along with 797 as a cheaper solution – directly competing with the Canadian-Chinese duo.

  20. AcDc April 19, 2011 at 8:19 am #

    Boeing did place the 787 directly on top of the 767 market, but they did split it with the -800 and -900 versions. As Jon has pointed out, airlines are migrating en masse to the -900s. This seems to support the arguement by Addison that there is still some market for a 767 replacement for the 4000/5000 nm routes. Otherwise, from my perspective, it looks like Boeing just got shut out of an entire segment that will be using the 330 only.

    Sometimes what you design isn’t what customers use. Boeing needs to realize that the 787 is an evolving product and be willing to protect market share by modifying their roadmap as well. Does it serve them better to have 787 cancellations with 330 orders, or 767 orders? Either way, airlines/lessors are clearly abandoning their enthusiasm for this new aircraft…

  21. Claveman April 19, 2011 at 10:55 am #

    I think PMS pretty much hit it on the head.

    Adding to point #3…Boeing has already stated that they expect to keep making the 737 for at least 20 more years….and over that time I’m sure we will see significant gains in performance.

    One important point to remember….the 797 needs to save airlines money in time….as in fast turn arounds and reliability. The money to be saved is not in long distance fuel burn at cruise…..

    Make a plane with a fast turn around….real low noise…..reliable…and great climb fuel burn….and you will make the likes of South West very happy.

  22. jafa April 19, 2011 at 6:08 pm #

    Claveman – “fast turn around, real low noise, reliable, great fuel burn… “and, you forgot, fast scceleration / deceleration…. Mc Douglas came up with that aeroplane aeons ago and went out of business.

  23. Uwe April 20, 2011 at 5:31 am #

    IMHO Piepenbrock’s Blue/Red Model is another myopic keyhole view on processes.

    (apropos Toyota: what beyond a major smear campaign and
    Toyotas helpless floundering in the rainOsh* remains
    after the NTSB report attributed (nearly?) all problems
    to user error and bandwaggon jumping?)

    Airbus process ( to stay with the R/B picture) is doing
    lots of “red” things and then colortransform those and fold
    them into a from new “blue” thing.

    Thus a lot of risk items are already validated in the
    stable generation. ( see the linux kernel as a comparable
    developement model )

  24. Aerospace Historiographer April 21, 2011 at 3:40 am #

    Uwe, thanks for your comments. It seems that you agree with Red-Blue in principle but perhaps you do not fully understand the scope of the theory to realize this. Dr. Piepenbrock’s work covers the evolution of industries from birth to maturity and ultimately through decline. This comprehensive theory has been built through the interaction with hundreds of senior leaders at the world’s largest and most prestigious companies. The feedback from these leaders is consistently that Red-Blue is the least myopic business theory they have seen. Jon has merely scratched the surface with his posts and I encourage you to continue learn with all of us.

  25. Paulo M April 22, 2011 at 6:18 pm #

    Such a great post, and a treasure of comments!

    Regarding the 767NG, I continue to ask why was the 787-3 discontinued. As you may already know, the 787-3 was the shorter span (lighter weight), shorter range 787. Does that not invalidate the 767NG from the outset?

    I think you all should read the following Theodore F. Piepenbrock, 2009 presentation – like me to understand, learn:

    http://esd.mit.edu/symp09/presentations/day3.session1b.piepenbrock.pdf

    It deals with United vs Southwest, Boeing vs Airbus & General Motors vs Toyota.

    One interesting point to note is that Boeing tends to maximize shareholder value, while Airbus (EADS) tends to maximize stakeholder value. Why then is it that Boeing has consistently had higher market cap than EADS over the last decade? It’s neither black or white (red or blue), it’s entirely dependent on the environment. Further, is Boeing setting itself up for long term decline by consistently have a confrontational relationship with its workforce?

    And further still, as the industry reaches maturity in design, materials & manufacturing techniques, how will companies differentiate — especially as labour costs begin to reach parity?

    Is Toyota’s “decline” related to organisational architecture (red or blue), or a failure to properly live up to being red – i.e. offering a genuine (tested, validated) red incremental improvement.

    The Economist carried a debate on Japanese “incremental innovation” versus the West’s “disruptive innovation”. I wrote some thoughts on their group in LinkedIn, but it looks like only members can read that. Anyway, that’s just another name for Piepenbrock’s Red-Blue.

  26. Paulo M April 22, 2011 at 6:50 pm #

    Another Piepenbrock presentation (2010) https://lgosdmdev.mit.edu/VCSS/web_seminars/docs/piepenbrock_061110.pdf

  27. PMS April 23, 2011 at 3:24 am #

    Thanks Paulo M,
    The presentations are enlightening – from my point of view, it looks like the red-blue model is a colored (I’m afraid whether it is the best word…) version of the good-old tactical-strategical trade-off in game theory.