A320neo

Airbus puts the market potential at 4000.

However, while the numbers are alluring, the risks are not insignificant.

Airbus president and CEO Tom Enders responded candidly to concerns that Airbus resources will be stretched too thin in producing the A320neo while coping with A380 production challenges, development of the A400M and development of the A350 XWB by saying that “finding the necessary resources for the A320neo wasn’t exactly a walk in the park. ” Enders explained: “The enabler was to devise a stringent phasing of critical engineering assets throughout our various development programs and to optimise the management and organisation of all our programs and R&T projects. Our international engineering centres, suppliers and partners play a big role in this. ” Only in October did New York based Bernstein Research warn that Airbus may have cooled on the re-engine of its A320 aircraft, because it was becoming “increasingly hesitant based on challenges associated with resource availability. ” Bernstein said at the time: “While we have expected Airbus to re-engine, it appears that Airbus is laying the groundwork to back away from that decision. ” The research group noted that the hurdle for Airbus is ensuring that adequate resources are available to do the re-engine with the specific problem being engineers experienced in wing design and stress which are a scarce resource.

But those problems weren’t evident at the launch.

Enders said that Airbus is “confident” that the A320neo will be a great success across all markets and with all types of operators.

“We are leveraging a reliable, mature aircraft and are making it even more efficient and environmentally friendly. ” Airbus says the efficiency improvements translate into a savings up to 3600 tonnes of CO2 annually plus a double-digit reduction in NOx emissions, reduced engine noise, lower operating costs and up to 500nm (950km) more range or two tonnes more payload, according to Airbus.

In a statement, CFM International president and CEO Eric Bachelet said: “We are obviously honoured to be part of this exciting program. This is a natural extension of the long and very successful relationship we have enjoyed with Airbus since the inception of the A320 family program in the early 1980s. ” But if CFM was honoured, Pratt & Whitney was ecstatic as the Airbus decision was the ultimate vote of confidence in its geared turbofan (GTF) technology.

“We are very proud that Airbus selected the PW1100G engine to power the A320neo and we are committed to flawlessly deliver 100 per cent of the benefits of this extraordinary new engine,” Pratt president David Hess said.

The PurePower PW1000G series, as it is now known, is also the sole source engine on the Bombardier CSeries, the Mitsubishi Regional Jet and Russia’s MC-21.

The A320neo will have over 95 per cent airframe commonality with the standard A320 family, with the new engines requir-ing “limited modifications, primarily to the wing and pylon areas. ” But Airbus needs a premium of US$7 million for the A320neo business case, reckons Bernstein in a client report issued in early December, and will continue to offer the standard A320 at the same time.

On balance, Bernstein sees the move by Airbus as bold.

“Enders could have taken the low risk option of continuing to make incremental improvements on the A320, which would have continued to split the market with Boeing, led to a long string of deliveries with a huge and growing backlog, and meant no added risk to the company’s existing development programs,” Bernstein told clients.

Bernstein, while calling the move risky, notes the allure of potentially higher prices for the A320neo and the painful situation created for Boeing.

It does not see the Bombardier’s CSeries and China’s COMAC C919 as serious challengers, although Airbus does.

Bernstein believes that Boeing will be forced to respond, although noting that Boeing has been “very negative about the likelihood of it re-engining the 737. ” For both Airbus and Boeing the singleaisle platforms have been cash cows with production rates nudging an unprecedented 40 a month.

Boeing has three options – an all-new aircraft by the end of the decade, reengining, or continuing to make incremental improvements.

And this is where it gets really sporty.

If Boeing re-engines the 737 the premium that Airbus hopes to get for the A320neo will be competed away, but for Boeing the development costs for the 737 are much higher – as high as $4 billion compared to $2 billion for the A320neo – because of the need to modify the undercarriage to allow for the bigger fan diameter.

Bernstein says that the Airbus A320neo move “is clearly negative” for Boeing.

“We believe Boeing will be forced to respond and if it does not, we expect Boeing will be at a long term competitive disadvantage on its most important product,” Bernstein notes.

Industry concerns have been expressed that Boeing management appears to be firmly against re-engining the 737 with a view that the A320neo would have a relatively small impact on overall airline economics, that customers do not want a new engine, and that the A320 would still be disadvantaged relative to the 737 based on fuel burn.

However, these are the same arguments touted 10 years ago when Boeing said that the 767 was a superior aircraft to the A330.

Bernstein points out that despite the fact the A320 has a four-five per cent higher fuel burn than the 737 it has still secured 50 per cent of the market.

Sharklets bring a three-four per cent fuel improvement with the new engines accounting for a further 12 to 13 per cent improvement.

Other factors that will come to bear are the much quieter engines that promise significant environmental gains. Both engines will deliver a 60 per cent reduction in NOx and 10-15dB noise reduction because of the dramatic increase in the bypass ratio to up to 12:1.

So on top of the fuel savings the re-engined A320 could likely beat curfews or at least beat various noise restrictions such as London City. While these types of airports with noise restrictions only number a few today, analysts see this trend continuing.

For Boeing the consensus has the company either offering the CFM LEAP-X engine only, or offering both candidate engines. Bernstein sees four reasons favouring Boeing remaining with a single (CFM) source supplier.

It highlights contractual questions relating to the existing sole source agreement, lower development costs associated with only one engine configuration, continuation of the existing CFM service and support relationship structure, and the LEAP-X’s ability to use a slightly smaller fan size compared to the GTF.

Up until the launch of the A320neo, Boeing has argued strongly that the impact of the re-engine aircraft would not be as great as touted. Bernstein says these reasons were: • Fuel burn advantage not that large. Airbus and the engine suppliers are promising 15-16 per cent better fuel burn with the PW1100 or LEAP-X for actual mission performance. But, this includes sharklets.

The impact of the engines alone would only be about 12 per cent. Boeing has argued that with the inclusion of nacelles, added weight, and drag, the fuel burn savings could be even less.

• Minimal impact on direct operating costs. Because fuel is only about 20-25 per cent of short to medium haul direct operating costs, the fuel burn advantage translates into two to three per cent lower direct operating costs at best for airlines.

• The A320 is less fuel efficient than the 737 today and Boeing can make further incremental improvements. Therefore, the competitive impact of the re-engine will be even less.

• Higher maintenance costs. Higher costs will erase any small cost advantage gained from lower fuel burn. New engines typically have significantly higher maintenance costs and poorer dispatch reliability than established engines.

• Lack of commonality. For airlines that currently fly 737s or A320s, the added complexity of adding a new engine will also offset the fuel burn advantage.

Bernstein suggests that Boeing has three options if it must respond, and while “none are good” re-engining appears to be the best.

The three options are:

• Do nothing. Boeing could continue with the 737 and make incremental improvements.

In this approach, Bernstein says Boeing would price lower, with the view that reducing price would be less costly than developing an all-new aircraft. This strategy would be consistent with Boeing’s view that the value of the new engine on the A320 is limited. Bernstein says “this is the worst option and one that is most reminiscent of Boeing’s reaction to the A330 in 2001-2, when management believed that the 767 was superior. Bernstein warns that it knows of “no examples in which an OEM [original equipment manufacturer] decided not to match its competitor and won based on pricing. ”

• All-new aircraft. If Boeing has an approach for an all-new 737 that could be available by 2020-21, this strategy could be successful. The problem Bernstein sees is “that there does not appear to be a technology leap, other than engines, that would position a new aircraft well.

• Re-engine. While not ideal, Bernstein sees this as the best way to preserve Boeing’s position with the 737. “Re-engining would preserve Boeing’s fuel burn advantage on the 737 and deliver the noise and emission advantages of the newer engines.

Boeing will face more challenges than Airbus on the re-engine because it has less ground clearance on the 737.

Boeing undertook serious studies from 2009 whether to re-engine the 737 (737RE), accelerate a replacement program (737RS) or to do nothing (737DN). Early on, Jim Albaugh, CEO of Boeing Commercial Airplanes, said the 737DN was not an option.

According to a report published by AirInsight, a cooperative consisting of the aviation consulting firms The Arvai Group, Innovations Analysis Group and Leeham Co, Albaugh believes that a 737RS with new technology can be available for a 2019- 2020 EIS, a view that contrasts sharply with the Airbus position that the technology will not converge until 2025-2027 or even later.

AirInsight believes that Airbus is clearly betting the open rotor, or unducted fan (UDF), as a key answer and that composite fuselage technology has not advanced far enough for “downsizing” to the 150-200 seat aircraft class.

Albaugh disagrees, believing second or third generation composite fuselage technology advances will be ready in time for a 2020 EIS. At the same time, AirInsight says that Boeing does not appear to favour the open rotor, instead believing the GTF and LEAP-X technology and advances will offer the fuel savings goals of 26-30 per cent by 2025 without the challenges unique to the open rotor.

If Boeing was to go down the all-new option it could also address the 737’s cabin width issue, which has cost the aircraft sales.

The next 12 months will be fascinating as Boeing mulls its options and strives to outsmart Airbus in an intriguing game of one upmanship.