Paris Special

Every decade or so the multibillion dollar transatlantic chess game between Airbus and Boeing becomes less about quiet tactical play and instead more in line with an aggressive Latvian Gambit.

Such is the state of the board ahead of the Paris air show. With the larger back-row pieces committed - the Airbus A380, Boeing 747-8 and 787 flying and the A350 undergoing initial assembly - the attention is on the front rank: the best move for the narrowbodies.

Airbus has gradually pushed out the horizon for an all-new replacement for its best-selling A320 family. The airframer's original timeframe of late this decade became 2022, then 2024, as it questioned the soonest availability of radical fuel-saving technology required to justify the investment in an all-new aircraft.

In tandem there has been little incentive to risk upsetting sales of the A320 and 737 families. Between them they secured 960 orders last year, 75% of the total number of airframes sold.

"I wish I could get more slots in 2013-14," said Airbus chief operating officer for customer John Leahy in April. "I'd love to have slots in 2012."

In 2009, when Airbus underlined its commitment to the A320 by formally launching a reinforced wing and the option of a fuel-saving "sharklet" wing-tip, and began speaking openly about alternative powerplants for the type, the airframer showed clearly that it was leaning towards a modernised, re-engined version.

 

FAL A320 - Airbus
 © Airbus
Airbus is manufacturing A320-family aircraft at the rate of 36 a month

 

Just weeks earlier, Boeing chief Jim McNerney admitted the case for re-engining the 737 was "stronger" than he had originally foreseen.

Opening moves out of the way, one year later Airbus became the first to call "check". The manufacturer challenged Boeing outright by combining sharklets and two new engine options to create the A320neo, the result of which has been to focus attention on Boeing's counter. With the launch of the A320neo has come a degree of taunting, Airbus virtually daring Boeing to follow its lead into re-engining.

Leahy claims that Boeing has been "backed into a little bit of a corner", having been forced into the catch-up role while also being left with a decision Airbus thinks is inevitable.

"They'll have to come up with some answer to this airplane," he says. "They can't just stay there in denial and say 'Our airplane is so good that nobody will want the Neo'."

Airbus believes the tightest engineering, combined with the best engines available, would have only produced a 3-3.5% efficiency advantage within an all-new aircraft. Which, it believes, leaves Boeing opting either to spend vast sums developing a wider-fuselage narrowbody with reverse-engineered 787 technology - for little economic advantage - or simply to re-engine the 737.

 

Boeing 737 delivery field
 © Boeing
Crowded Boeing 737 delivery field

 

As part of its campaign Airbus has cited NASA ultra-high bypass research suggesting open-rotor technology will not become available for another two decades, and that the need to reconfigure the airframe to match the engine design has "probably pushed" its own proposed A30X "to the next decade". In between, the market potential is huge: by 2030, Airbus estimates, the global single-aisle fleet will double to more than 20,000 aircraft, with fewer than half of this being met by the current fleet and aircraft on backlog, leaving some 12,000 airframes open.

The ultimate test of faith would be for Boeing not to be tempted into an immediate response.

"Boeing can do a re-engine and achieve similar benefits as an A320 re-engine," says Boeing Capital managing director of capital markets Kostya Zolotusky.

"Today, our customers do not see sufficient improvement in total operating costs from re-engining. Our customers are not convinced that a couple of percent improvement in total airplane operating cost is worth the loss of fleet commonality and reliability."

Zolotusky also suggests that the airframer does not want to be pressured into an unnecessary update. "It is important not to lose sight that the [CFM56 and 737] combination is delivering the most reliable commercial airplane product ever built," he says. "The entire low-cost carrier business model is primarily driven by higher aircraft utilisation, which depends on high reliability," he adds.

Although the 737-800's list price is $81 million while that for the A320 is $85 million, Zolotusky maintains that the 737 is "consistently appraised" about $4 million higher than the A320. The A320neo will have a list price $6 million above that of the baseline A320.

"Even if Airbus does achieve all the benefits they are advertising for Neo, the A320 will still be less economical on seat basis than the current -800," says Zolotusky. "This means they may be able to reduce their discount relative to [737NGs], but the NG family will continue to be very competitive. More importantly, our continued investment in improving the NG family will yield much more efficient NGs by 2016."

IndiGo A32neo - Airbus

 © Airbus
 IndiGo is committed to 150 A320neos

 

Budget carrier IndiGo Airlines, lessor International Lease Finance, Lufthansa and others have taken the number of A320neo commitments to more than 300. But Zolotusky is unimpressed. "To date, all Neo customers are customers who had no choice. If you are an A320 operator and plan on taking A320s in 2016 and beyond, you have to buy Neo," he says. "Buying an obsolete A320 engine combination with additional weight in the structure is not going to happen." But he adds that the backlog status at Boeing brings problems with slot positions.

"Switching to 737NGs would also be hard because Boeing barely has sufficient delivery positions to sell to its existing customers. Lessors will buy both Neos and NGs because, to my knowledge, no lessor is planning to be a one-manufacturer remarketing franchise."

Zolotusky says the strong demand for the 737 means Boeing can be "deliberate, thoughtful and not rushed" - especially by goading from Toulouse - into addressing the sub-787 market.

But an operations executive at one of Boeing's major 737 customers, Southwest Airlines, suggested in May that 2020 was "too long to wait" to replace its ageing 737-300s and -500s.

Airbus's Leahy believes that capturing such a customer by turning them to the A320neo would force Boeing to abandon an all-new aircraft. "[Re-engining] was pretty obvious to us, the only way forward," he adds. "We think it's going to be pretty obvious to them."

The airframer expects the price of oil to hover around $110/barrel by around 2015 when the A320neo comes into service, with the Pratt & Whitney PW1100G the first engine to market.

But Boeing says: "Today's 737NG has lower operating costs than the airplane our competitor may have in service five years from now.

"Unlike our competitor we have consistently incorporated fuel-efficiency improvements into the NG since its introduction in 1997. Today's airplane is 7% more fuel-efficient than the airplane we first delivered."

Studies suggest new-technology engines could be installed on the 737NG and indicate potential fuel-efficiency improvements of 10-12%, it adds. Boeing adds that the question of narrowbody evolution "deserves very careful and deliberate consideration". While a new engine on the type is an option, it says it is not the only option. "Re-engining any airplane is not a small undertaking. There are certainly fuel-efficiency improvements, but there are also engine maintenance costs, spare engine costs, capital costs and increased operational complexity issues to be considered from the airlines' perspective. Customers question whether the bottom-line improvements available from re-engining are significant enough to warrant the risks of introducing more complexity into their operations."

Boeing says there is a "clear desire" for the airframer to "bring something revolutionary to the market as soon as possible". It adds that while "some airlines... prefer a larger aircraft", the "heart of the market" will continue to be served by 737-sized aircraft.

"Ultimately we believe there could be more value to be shared between ourselves and customers if we bring the right new airplane to market toward the end of the decade," it says, adding that it is working with all three engine manufacturers to "understand the technological advances they may be able to offer".

There can hardly be an end-game, much less a checkmate, in this contest. Whether Boeing opts for safe defence or surprise attack, or just keeps its rival guessing, interest at Paris is unlikely to be solely on the home player.

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