An Industry Disrupted

In the early 2000s, Boeing ditched the Sonic Cruiser concept in favour of the 7E7, which would not one-up Airbus’ planned A380, would not even have two passenger decks, and would not be one of the largest aircraft Boeing ever made. Instead, there was the materials revolution, towards carbon fibre and unheard-of efficiency gains, and the fundamental philosophical premise that the future was point-to-point rather than hub-to-hub.

Today, the 787 Dreamliner, as it has become, has seen success for airlines and Boeing but has also been influential across the sector, not least with Airbus having to redesign its original A350 plan to match the 787’s materials usage and the 777X drawing heavily on this expertise.

Yet, even on this now-mature airframe, Boeing is experiencing problems. It is discomfiting for Boeing to have financial questions around its only currently dependable commercial product: the 787. Despite the 787’s strategic accomplishments, recouping costs from development, production and delays may require such a long timeframe that they border on the unachievable.

The 787’s strategic positioning in terms of demand is not as solid as it may have seemed previously. Its production rate will be cut from 14 to 12 in late 2020. Boeing plans for this reduced output to remain for two years, coinciding with weakened global economic forecasts. Production could be ramped up again by early 2023, when there are some expectations market confidence will resume. But with every year, the once-revolutionary technology of the Dreamliner is less revolutionary and more business as usual.

“I believe in three to five years that the global economy will be in a better place,” Emirates president Tim Clark told Airline Business. “Demand for travel will have recaptured its 4–6% growth and the industry will be realigned to the new way of doing things. So probably by the end of 2022–2023, everybody will be in a much better position.”

Clark was speaking in September 2019, prior to ordering 30 787s at the Dubai Airshow in November. That order helps the 787 backlog but does not alleviate a huge amount of pressure.

Many challenges are in the short term: Boeing has built 787s without a customer (so-called white tails, but also the blue and purple special livery it painted) while airlines like Bamboo Airways have been able to secure 787s at short notice, Vistara accelerated deliveries and a high-risk start-up like Korea’s Air Premia has been able to receive slots for new 787s.

With the MAX’s future under a dark cloud, the knock-on effects… will be significant

GLOBALLY, THE GEOPOLITICAL CONTEXT IS NOT A HAPPY ONE

Normalising trade tensions between the US and China would be expected to help the 787 as Chinese airlines order more, including the -10 variant that is not in mainland China but is in use or on order around Asia from All Nippon Airways to EVA to Singapore Airlines. Yet relying on this normalisation at a time where the relationship can be characterised with caprice and volatility would be unwise.

Amidst a bad year for Boeing, the stretched 787-10 grew in prominence. What was once envisioned as a regional or mid-haul aircraft is proving itself more capable in payload and range, a message underscored by Air New Zealand selecting the -10 — which could end up in the history of the 787 being seen as a late but strong bloomer.

Aircraft generations, and reengined midlife upgrades in particular, are driven by engine technology.

Airbus is said to be considering options to improve its A350, the 787’s competitor, which is a substantially newer airframe. Although there is talk of neo-ing the A350, it seems premature to make large changes to a relatively young aircraft, especially where there are not significant advancements in propulsion technology since its début. But redevelopment capacity is greater at Airbus than Boeing, which has multiple new aircraft in design and production.

What changes for both major airframers is the possibility of GE supplying a powerplant for the A350, ending Rolls-Royce’s sole-supplier status. Besides possible technological improvements, airlines would benefit commercially as a choice of supplier creates competition.

Indeed, Airbus and Boeing’s staunchest customers have winced at sole engine supplier status. That was already a concern when ordering aircraft but the drawbacks of a monopoly are now manifesting themselves when it comes to maintenance and support.

In the ever-dwindling margins of aviation, one area seen as still plump is the world of maintenance, repair and overhaul (payments are also cited, as is – with a half joke – IATA).

Independent MROs are sprouting up, airlines want to grow their own capabilities and gather third-party work, and the major suppliers see a future of better returns from supporting their products rather than the product itself.

Some quip that Rolls-Royce basically gives away the Trent XWB at cost price, and while this may be more jest than reality, discounts to existing customers as a result of poor performance of multiple engine types are all too real.

Airlines describe GE and Rolls-Royce relations at either end of the scale. For support, Rolls-Royce is thorough but mandates engine work be conducted at its facilities, and if the engine goes to a third party, Rolls will not support it. GE is more flexible with work location but, like a stereotypical warranty repair centre, is slow to agree to fixes or wants to postpone preventive work until necessary.

It is engine problems — at the fault of GE — that are delaying the 777X, which unfairly gets thrown in the basket of Boeing’s incompetence. The ruptured fuselage during stress test on a prototype 777-9 aircraft made for dramatic photos and headlines, but is not expected to materially hold back development since the failure occurred at the extreme 1% of the test that already puts the aircraft well above maximum conditions.

Airbus is said to be considering options to improve its A350, the 787’s competitor, which is a substantially newer airframe

THE 777X PICTURE IS ALSO NOT ENTIRELY ROSY AT THIS POINT

Concern about the 777X is more around commercial success despite it having 301 orders after the Emirates and Etihad reductions, although there is risk with Emirates accounting for almost half of the orders.

One argument against the 777X is that it is very large. Despite traffic growth and constrained infrastructure, most airlines are increasingly conservative. They would prefer to easily fill a 787 or A350 year-round at a decent yield than ride the troughs and peaks that would come from the 777X’s larger capacity.

There are two major arguments for a strong 777X future. First is that assessing the type based on current orders is premature since aircraft programmes historically receive most of their orders after the type first flies and enters into service.

Second is that the 777X will be an ideal replacement for the 777-300ER, which entered service early last decade but only gained traction this decade. For many -300ER operators, replacement talks are still too early. United Airlines and the three big Chinese airlines still have young -300ER fleets, for example.

The 777-8 variant has question marks around it, and indeed is the less popular variant. One -8 customer, Qatar Airways, said it could swap -8 orders to -9s, implying that not building the aircraft — amidst uncertain demand and strained engineering resources — will not necessarily result in a shrunken backlog for the overall programme.

Not developing the -8 would complicate Boeing’s future widebody freighter strategy since the 777-200F’s successor was to be based on the -8. For Boeing, freighters are relatively small in aircraft numbers but highly profitable since Airbus has no direct competing product. Airbus’ only current widebody freighter, based on the A330-200, lacks long-haul range. As a mid-haul freighter, it has high acquisition and operating costs compared to a second-hand or converted freighter.

CARGO AVIATION, TOO, COULD BE A SPOILER IN THE SYSTEM

This small but tidy freight segment for Boeing is being watched by Airbus, which might like to end an effective Boeing monopoly and use a new freighter to highlight its overall newer widebody platform – A330, A350 – than Boeing’s older 767, 777 and 787 families, plus the 747 if production can be sustained.

More comfortable margins on a freighter could be used to cross-subsidise passenger variants. Freighters help absorb programme costs, lessening the burden than if only selling passenger variants.

Airbus long ago cancelled plans for a freighter based on the A350-900 (and before that, cancelled an A380 freighter). Relaunching the project presents technical and commercial hurdles.

An A350 freighter would be a large improvement over the A330F, but might still fall short of payload and range, especially on the key trans-Pacific market. Aside from Gulf carriers, demand for new widebody freighters is mostly from Asian airlines, and they use the freighters almost exclusively to North America. Even Qatar Airways has a trans-Pacific freighter routing. Commercially, Boeing may be feasting on widebody freighter demand, but the segment may not be large enough to share. That would caution Airbus, having already under-performed in the A330F segment.

The freight part of aviation is often seen as less exciting than the passenger part. But might freight lead to clues about one of the most interesting developments: the NMA, or New Midsize Airplane? Boeing is studying a re-engined 767, initially for freighter demand but potentially passenger demand as well, a development first reported by Flightglobal and examined at length in the December/January issue of Australian Aviation.

THE 767X, OR AS YOU LIKE IT: COULD THIS BE A NEW NMA?

The idea would see Boeing use the GEnx powerplant and benefit from the 767 having an open production line, unlike the ceased production line of the 757, which is the primary capacity and range target. The 767 may be too much aircraft for the NMA market, and infringe on sales of the 787, although Boeing has been good at self-cannibalisation to retain the upper hand against Airbus.

There would be some irony that after years of discussing and speculating a “new” clean sheet design, Boeing reverts to a reengining. A plane based on the 767, with a decent cargo hold, might also be against market sentiment. NMA capabilities were seen to be divided by region: North America and Europe wanted a passenger-focused aircraft with little cargo capability while Asia was interested in ample cargo capacity.

Analysis may have evolved in two ways: first the NMA might be better suited to Asia’s LCCs, which have typically not had a large focus on cargo. Second, airlines may have seen the NMA would fly alongside other aircraft types on a route flown multiple times a day, so not having large cargo capacity on the NMA would be fine since other flights would have ample capacity.

But more fundamentally, before there are planes, there are people. The NMA was a major project of Kevin McAllister, who in October was replaced as Boeing Commercial Airplanes CEO by Stan Deal. It is unclear how Deal views the NMA, except that Boeing’s top priorities are returning the MAX to service. But Boeing may be poking around at radical new options.

Boeing’s sales teams have been scoping interest for the Future Small Airplane (FSA) to replace the MAX, according to Leeham News. A new single-aisle aircraft has long been a Boeing consideration.

Boeing was leaning towards making a new aircraft until American Airlines — then a mostly Boeing customer — ordered the A320neo in 2011. Yet the FSA this time may not be so distant an objective.

Leeham News said Boeing is talking to lessors about converting MAX orders to the FSA. Lessors aggressively ordered the MAX, and ended up over-ordering, which was evident before the MAX grounding. The economy weakened, carriers like Jet Airways (with an ample MAX backlog) went out of business, and mid-range fuel prices reduced the imperative for more efficient aircraft.

This iteration of the FSA would address the over-ordering of the MAX, but also present the leap in technology and efficiency to justify replacing 737NGs (and perhaps A320ceos) that airlines are not rushing to replace with current re-engined options.

THE A320NEO’S FUTURE IS INTERTWINED WITH THAT OF THE 737 MAX… OR ITS REPLACEMENT

Any future narrowbody workhorse will be able to re-calibrate baseline demand. The MAX and neo were built around the -8 and A320 respectively. Their smaller variants, the MAX 7 and A319neo, are not as popular while the larger MAX 9/10 and A321neo are in demand. Would a future narrowbody be based around the equivalent of a MAX 9 and A321neo, slim down to only a MAX 8 or A320neo, and then punch up to MAX 10, a future 11 and whatever is beyond A321?

The A321neo is so far more popular than the MAX 9 and 10, which some airlines attribute to the larger MAXes having disproportionately higher maintenance costs than the MAX 8. Starting from scratch with the FSA could address this to the interest of airlines and Boeing: bigger aircraft are more profitable.

Before the update about the FSA, there was a view that the MAX was too tarnished to have a full product life. Yet should the MAX remain Boeing’s single-aisle game for now, it is pressing ahead with business. The MAX at the Dubai Airshow received commitments for 60, including from Sun Express, which is partially owned by Lufthansa. So the quasi-Lufthansa deal extends credibility to the MAX, following IAG’s commitment at the Paris Air Show in June. Even if the aircraft are heavily discounted, airlines would not buy a type they believe to be unsafe.

Airbus does not reckon an A320neo successor would be available prior to 2035. It could be argued Airbus has a commercial bias: the A320neo family is selling well, and aside from Hamburg production issues and external engine problems, is performing excellently.

From an engineering perspective, there is little reason for Airbus to delay development. Its commercial pipeline has only the A321neo long-range variants, which leaves ample slack in its engineering talent after a period of simultaneously developing the A350 XWB, A330neo and A320neo.

Slack in technical development is one argument for Airbus to pursue an A350 freighter again.

In contrast Boeing has to have the MAX 8 and 9 return to service, and then certify the additional MAX variants as well as the 777X, however wide or narrow that programme becomes. It will also need to consider the future of the 787, which is becoming due for a reengining.

Boeing has considerably fewer engineering resources, or at least more demand for them, than Airbus for the coming years. It is unlikely to pursue both the NMA and FSA, considering the cost fallout from the MAX, a potentially shortened production life for its cashcow the 737, and the 777 programme in a transition phase.

For Airbus… its commercial pipeline
has only the A321neo
long-range variants

BOEING AND EMBRAER ARE LOOKING TOWARDS A FUTURE THAT IS CURRENTLY ON HOLD

The addition of Embraer’s commercial business to Boeing’s portfolio, once the transaction closes, gives Boeing not just commercial products but engineering talent. Embraer has consistently rolled out improved, on time and reliable aircraft. But culturally Boeing may not be ready to share work to the extent needed.

Boeing’s future strategy has been centred around the FSA and NMA, evolutions from its early 2000s “Yellowstone” project to develop a new product line: Y1 for single-aisle aircraft and the 767-200, Y2 for the larger 767s and 777-200, and Y3 for the 777-300 and 747. (The recent FSA and NMA discussions might be categorised as Y1 and Y1.5 in the old nomenclature.)

Only Y2 eventuated following Yellowstone: the 787. In lieu of Y3 there was the 747 and 777 reengining, and 737 reengining pressed pause on Y1.

Fundamentally, though, the efficiency realities of the number of seats one can put either side of an aisle means that the Y-numbers are still relevant.

Environmental responsibility may be one agent of change, however. Countries are taking carbon emissions more seriously but also focusing on product lifecycle.

If there are rules for consumer electronic recycling, how long until Airbus and Boeing are made responsible for aircraft in the desert? End-life responsibility may present a commercial opportunity for the after-market support Airbus and Boeing are trying to grow. Having to oversee the aircraft through its life could create a cradle-to-grave proposition, to match the nose-to-tail services prospect currently on offer.

The price of carbon taxes for aviation is unknown, underscoring a challenge to make a more sustainable and efficient product. Some airlines will want a better product because of social conscience or taxes, but regimes will not be unified anytime soon.

A more sustainable aircraft would be a global product but used in disparate regions: a Europe that is confronting environmental changes, North America that sees it will need to, and then remaining parts of the world that can be more ambivalent.

Airbus and Boeing have both created businesses around China needing factory-fresh aircraft. There are growing calls within Chinese aviation and the leasing community for China to develop a second-hand aircraft market. The acquisition cost of new aircraft is not justified by the benefits over cheaper second-hand aircraft, the argument goes. The US market — the closest comparison to China — has a large second-hand part: United Airlines is flying ex-China Southern aircraft, for example. Closer to home, Korea’s large LCC sector blossomed by using cheap older aircraft.

The counter-argument is that airlines are retiring aircraft younger. One of Singapore Airlines’ early A380s has been parted out while an Emirates 777-300ER has been scrapped. Looking at the fleet workhorse, the 737 has been progressively retired earlier, AirInsight found. The first generation 737-100/200 were retired around 30 years old, while the Classic 737-300/400/500 were retired at 21-24 years and now the 737 NG is being retired at 16-18 years.

Cycles are clocking up faster as airlines boost utilisation, but aircraft are not being worked as hard as they used to. This has environmental arguments on both sides: replacing aircraft earlier draws more resources, but keeping them in the air means flying an inefficient, polluting-heavy aircraft. The environmental economics on this fundamental question is by no means clear.

Many airline corporate social responsibility reports have a young fleet as their first line of defence. Yet a counterargument is that when they reduce their fleet age by taking a new aircraft and sending a medium-age aircraft to another airline, they are essentially transferring their responsibility to another airline rather than making a net improvement on that aircraft. The thinking is similar with biofuels, which in the aircraft burn the same as conventional Jet A/A1. The environmental benefit is in the lifecycle of the biofuel feedstock, transferring aircraft emission responsibility from fuel to feedstock.

All of this industry context together becomes very complicated for Boeing, for Airbus, and for the other airframers either in the game or hoping to be.

Ultimately, the 737 is the world’s best selling aircraft in the world’s largest demand market segment.

The idea of the 737 MAX disappearing still feels far-fetched, but the idea of its eventual replacement being accelerated is certainly not.

The questions now are how much of an economic and environmental improvement it will be, whether and when Boeing can engineer it, and how the company will be able to conduct its business differently so that the lessons of the 737 MAX are truly learned.

PICKLE FORKS AND COWLINGS

Amidst an annus horribilis for the 737 MAX, not even the stalwart 737 NG was unscathed. 737-800s undergoing conversion work in China from passenger to freighter aircraft were discovered to have cracks in their “pickle fork.” The name, stemming from a U-shaped device for spearing pickles from a jar — and one wonders how well the phrase translates — is a structural element with serious implications that, per a resulting FAA airworthiness directive, “could adversely affect the structural integrity of the airplane and result in loss of control of the airplane”.

Some 50 aircraft are said to have cracks, which are difficult to fix as repair work has to be holistic and not just targeted. This involves the parts that connect the wings to the fuselage and cover around a quarter of the fuselage’s circumference.

The AD required checks on aircraft with over 30,000 cycles, but airlines including Lion Air and Qantas have found cracks on aircraft under the 30,000 threshold. The pickle forks were designed to last 90,000 cycles, or about until retirement. There were cracks on a Qantas -800 with under 27,000 cycles while two Lion Air NGs had cracks despite having fewer than 22,000 cycles.

The FAA initially mandated inspections within seven days for aircraft over 30,000 cycles while aircraft between 22,600 and 30,000 cycles had to be inspected within 1,000 cycles.

The cause is unknown, as is why it is manifesting in some but not all or even many aircraft. Not to confuse correlation and causation, but a preliminary analysis by Ishka of 37 impacted NGs found most were between line numbers 1,000 and 1,500. Yet potential sister ship impacts can be argued the other way: it was an ex-Jet Airways aircraft found with cracks, and India did not find any other former Jet NGs still in India with cracks as well.

Late in November, the issue evolved from pickle to cowling. Boeing will redesign the NG’s engine fan cowling to improve integrity if a fan blade breaks. The change was recommended by the NTSB as part of an investigation into the 2018 Southwest Airlines flight that experienced a ruptured fan blade that killed one passenger.

While the retrofitted engine cowling applies only to the NG, both the NG and MAX are impacted from sub-standard wing slats the FAA says were installed on approximately 130 NGs. Dozens of MAXes are affected as well. Boeing said the slats have not been identified as causing any in-service issues.

Voices of reason note that more 787s are impacted by Trent 1000 problems than NGs have pickle fork cracks. Yet the short but high-profile and tragic history of the MAX ensures that any time something comes up – a return to the gate, diversion or future airworthiness directives – attention will be outsized.