It is war again. A war of words. This time Seattle and Toulouse are doing battle in the media over the all important narrowbody segment of the market. Haven't we seen this before? Only a few years ago a similar battle was fought over the widebody segments; A380 vs. 747 and 787, later 787 vs. A350 and A350XWB. In the City, we all believe we have a magnificent view over the battle field, but what exactly do we see?
Well, to be honest it's often words. Words and occasionally some artist's impressions in Flight International. In the initial phase of the competition between two aircraft types or even two concepts, the manufacturers are generally trying their utmost to gain market acceptance for their new product, not only from the ultimate users, the airlines, but more and more also from the financial community, the banks and the lessors. Contrary to most other products, it is very difficult, if not impossible, for most financiers to scientifically compare two aircraft types and draw the overall conclusion that product "A" is better than product "B" or vice-versa. Especially in the early stage of development of a new aircraft - outside of maybe a handful of major airlines - only very few decision makers have the information and the analytical instruments necessary to come to any objective conclusions about the relative performance of a new aircraft or jet engine. Let's admit it, for most of us in the City, it is all about perception!
Consequently for the manufacturers it becomes more and more important how the City (and others) perceive their new products. Perceptions need to be "managed". Here, the role of "opinion leaders" like Steve Hazy, Adam Pilarski or Doug Runte can not be underestimated. Recent history has seen some spectacular examples. To name one, after the failure of the Sonic Cruiser, Boeing had to make the 7E7 a success. OK, the initial styling of the plane was groundbreaking, so that was a good start. However, a groundbreaking design also implies an increased risk, or at least a perception of an increased risk. Boeing addressed this by launching an unprecedented campaign to inform all stakeholders about their new product and convince them this would be the best plane ever. Passengers would love the large windows and the quality of the cabin air, for airlines this would be the most efficient money maker ever and for the financial types, this would be a great investment. While we still are waiting for these claims to be proven in day-to-day operations, what really matters here is the fact that Boeing's perception management was extremely successful. The communication strategy changed the perception of the 7E7 from a "high risk" unproven technology to the hottest aircraft ever. Airbus' initial response, in the form of a more-or-less re-engined A330 (the original A350) clearly was not an adequate response. How good this initial A350 would have been in reality didn't matter. Opinion leaders declared it inadequate and Airbus quickly realized it would not be able to fight this stigma. The A350XWB was the solution and while this plane shares a lot of the technology risk with the 787, the -XWB was perceived as the right answer.
Fast forward to today - the battle of the narrowbodies. The players so far: Bombardier CSeries, A320neo Family, Boeing 737 replacement or re-engining, C919, MS21, PW1000G "GTF" and CFMI LEAP-X. Perception of the position of all the players is relative and to a high degree depending on one's own point of view, so beware! What happened so far? Pratt and Bombardier had major concerns about their future in the commercial jet market. Bombardier needed a differentiator for their CSeries, while Pratt needed a platform for their revolutionary GTF engine. 1 + 1 = 2 so they found each other. The comfortable 737/A320 equilibrium was about to "unfreeze". In the background, Russia and China started to prepare their entry into the global jet market. With the launch order from Lufthansa, perception of the CSeries and especially the GTF engine changed dramatically in positive direction. The combination gained credibility and competitors started to respond. LEAP-X was moved forward as a competitor to the GTF. Both engines also found applications in the form of the C919 (LEAP-X) and the MS21 (GTF), slightly changing the perception of these two projects as well, thanks to the engine OEMs (the airframers have not made much of an impression - so far). Although "GTF" subsequently was suggested as an option to refresh the A320 and/or the 737, things didn't move for a while. All lessors pronounced a re-engined A320 or 737 as the "dumbest idea ever", so who would dare to move against this mighty group? Perception changed again when Republic committed to the CSeries in a major blow to the A319. Maybe it would be a good idea to look into a re-engining scenario after all?
The perception of the industry was that it would be easier to re-engine the A320 than the 737. While initially denied, later in 2010 the message from Seattle was that re-engining was doable but it wouldn't bring anything meaningful for the 737. While upward tilted engines, extended pylons and an extended nose-gear would apparently do the trick for the 737, the impression was that this would be a sort of "Frankenstein" aircraft. For a while it looked like the whole re-engining thing was a dead end street again. Until December 1st that was, when Airbus launched their re-engined A320neo. Statements from Boeing's top management as well as a Boeing commercial at ISTAT (themed around Bon Jovi's song "We weren't borne to follow") indicated Boeing's clear intentions not to imitate Airbus with a re-engining scenario. On the same theme of "leadership", Airbus nominated the PW1000G GTF as the "lead engine" on the A320neo, creating a perception for LEAP-X as, well...NOT the lead engine.
So, what is the perception in the City today? Based on the marketing - CSeries is seen as a technically competent aircraft in the sub 150-seater segment. However, more than in the past, potential customers seem to have the attitude of "seeing is believing", seeking conformation of the concept through flight testing before ordering the Canadian jet in volume. Bombardier now seems to suffer the consequences of the delays in the 787 and A380 programmes in term of perceived manufacturer reliability. The C919 and MS21? They remain an unclear proposition without the benefit of strong marketing to communicate program developments and manufacturer objectives. Perhaps the link between CSeries and C919 will change this? Is this link to be perceived as a move out of strength?
The perception of the A320neo is without doubt strong at this point in time. Critical lessors that feared residual value impact of neo suddenly say this impact won't be there, or only after 2025. Interesting, as one major lessor recently booked a significant impairment, reportedly as the result of neo's impact on values of its existing fleet. How about the 737 and it's potential successor? The City is puzzled. Boeing has all but excluded the re-engining option ("doesn't bring any meaningful gains", "not borne to follow"). On the other hand, according to Airbus, even an all new Boeing airframe will not result in a neo-killer. What's the reality? Some perceive that discounting the current 737 will be an option. This would be an extremely dangerous strategy as it will impact the financier's perception of 737 (residual) values dramatically. Other options? Rolls-Royce is perceived as the advocate of the "open rotor" engine, so their silence may continue for another decade or so. With the emerging perception that the 737 may become the #2 aircraft and LEAP-X the #2 engine on neo, would an all-new Boeing with all-new GE (or CFMI) engines make sense as a "neo-killer"? Only time will tell. What seems clear is that after all that has been communicated before, just discounting 737 prices or even a 737 re-engining only may not be perceived as "enough" by many. Clearly more than ever before, "perception management" is critical, even for the mighty manufacturers. But that's just The View from the City.
Article contributed by Bert van Leeuwen, MD Aviation Research, DVB Bank SE