The first in a two part Paris Air Show news analysis exploring the strategic questions facing Boeing and its decision about the future of the 737. This analysis builds on the discussion of tactical decisions facing Boeing as it develops the technology for the new conceptual jet. READ PART TWO
"The engineering culture at Boeing is naturally attracted to the design of an all-new airplane," says Doug Harned of Bernstein Research, who has advocated for a re-engined 737.
There are two teams vying for the endorsement of Boeing's top leadership. One advocating for an all-new aircraft delivering 20% improvement in fuel burn and a 10% or greater improvement in cash operating costs. The other, working to further evolve the 737 with a new engine and a host of other improvements to yield a 10-15% improvement in fuel burn, without requiring massive engineering changes to today's aircraft.
A comparatively low investment is required to achieve the first 10-15%, but the fight against physics forces the price of that last 5% improvement to cut deep into the company coffers.
"I'd be less than candid if I didn't say the leader in the clubhouse is the all-new airplane," says Boeing CEO Jim McNerney.
But those inside the clubhouse describe the debate this way: It's between those who want to build a new aircraft and those who want to make money. It may sound like a tongue-in-cheek way to describe the debate over the future of the 737, but they say the size of the investment and the break in commonality from today's narrowbody could cost Boeing dearly in marketshare, allowing its customers an unconstrained flexibility to look to Airbus, Bombardier, Embraer or even Comac for its next jump in fuel burn reduction.
Strategically, MIT and Oxford academic Dr. Theodore Piepenbrock's exploration of this question, known colloquially as Red-Blue, remains an inescapable fact that every jump of 20% in fuel burn delivers diminishing returns, while the bill for such an investment grows with each successive leap, a reality plainly acknowledged by Boeing leadership.
Piepenbrock posits that for mature industries like aerospace, airlines and automotive manufacturing, small steps that manage risk, investment and take advantage of product evolution - not revolution - not only gain marketshare, but reap the financial benefits. Red-Blue points to the methodical and organic growth of Southwest Airlines, which used the 737 generational commonality as its vehicle to grow. In comparison, United Airlines would habitually make major - and expensive - changes to its fleet size and staffing to take advantage of the up or down swings in the market. As United showed last decade, after a while the big leaps can nearly be fatal.
Boeing doesn't like following. It likes paving the way, forcing others to respond to its moves with their own leaps, as it did with the 787.
"We don't want to be driven by a date and we also don't want to be driven by what the competition might be doing. We're certainly mindful of what they're doing, but this is a big decision and we're going to take the time necessary to get it right," says Boeing Commercial Airplanes CEO Jim Albaugh.
Looking to history, Boeing's original leap was a following move and paved the way for all that came after. The 707 was a marvel for Boeing; a fast-follower after De Havilland's Comet, which was relegated to a place in history steeped overwhelmingly in nostalgia and technical trailblazing rather than longevity and commercial success.
What followed two decades later was the 767, its powerplants halved, jumping forward with a digital flight deck, a 33% reduction in flight crew. The 767-200's initial range was pegged at 2,000-2,700nm, eventually growing to nearly 6,000nm with its -300ER and -400ER iterations, almost tripling its capability through small adjustments, earning it the title of Boeing's most profitable jetliner. Its own success was the result of the same incremental strategy employed by Boeing on the 737, as well as the 777.
The same was achieved with the two-crew, two-engine 757, which replaced the three-crew, three-engine 727, and the two-engine two-crew 777 replaced the 747-100 and -200.
The lineage of the 707 is today seen in the 787, the airframer's first third generation jetliner, representing the mid-size category. Boeing, running out of major levers like crew size and engine count to significantly reduce cash operating costs looked to next generation engines from General Electric and Rolls-Royce and the aircraft's composite airframe and more-electric systems for the next 20% leap in efficiency.
"We paid billions upon billions in the learning process there," says McNerney of 787's development. "We just booted it."
While a major step-change in efficiency, the realities of the 20% improvement often disregard the fact that each successive leap yields a smaller decrease in absolute fuel efficiency improvement. If 20% saves 2000lbs fuel on the first leap, the second only saves another 1,600lbs, a third only another 1,380lbs. Every time an airframer pulls the 20% lever, the next pull gets smaller.
"As you go to more efficient airplanes, often times the price goes up and that's because you're pushing technology and doing things that have never been done," says Albaugh of the cost to achieve that next 20% jump.
Albaugh says he believes the technologies developed for the 747-8 and 787 will serve as the basis for New Small Airplane, which is today assumed to be a majority composite design: "We've learned a lot, and if you take those technologies and apply them directly to the NSA I think we could do it without that exponential jump in cost."
Though downsizing the composite technology remains an unanswer question for Boeing says Nicole Piasecki, Boeing vice president of business development, "At some point on the scale curve, composites won't make sense at this point in time," who points to the Mitsubishi Regional Jet's transition from composite to aluminum wing as an example, "We're confident we're going to have some good [material] choices, but the jury is still out in terms of scalability."