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Airbus decision deferred on the A320 NEO, Ryanair and Southwest pushing the debate

19-Oct-2010

The much-anticipated decision by Airbus on whether it will proceed with fitting new engines to the A320 has been delayed until the end of the year. With the company still sorting out A380 production issues and in full-swing developing the A350 XWB, the question of engineering resources has forced Airbus’ executive committee to defer the decision.

Airbus had already delayed the decision, which was to initially have been made at the Jul-2010 Farnborough Air Show. Boeing was expected to follow several months later, but has already delayed its decision until the end 2010 or early 2011.

A meeting of senior engineers at Airbus earlier this month reportedly resulted in a recommendation that the company proceed fitting new engines to the aircraft, known as the A320 NEO (New Engine Option).

According to Airbus spokesperson Stefan Schaffrath, “ensuring the availability of sufficient engineering resources is the decisive factor”. The option to fit new engines to the A320 is expected to require investment of EUR1.5 billion, just a fraction of the EUR10 billion required to develop an all-new aircraft. Airbus estimates that an A320 NEO could be in service by 2015, just in time to spoil the party for COMAC and Irkut, and the new narrowbodies they are developing.

Estimates are that new engines could reduce fuel burn by up to 12-15% over in-service types, although not all those benefits are expected to flow through directly. Other benefits are expected to show in improved range and reduced maintenance.

Regardless of the re-engining debate, the popularity of the existing designs is undeniable: Airbus has orders for 185 narrowbodies this year, Boeing has orders for 382. Airbus and Boeing have both announced major production increases for the narrowbody families, over the next few years. Boeing will go to 38 aircraft per month, Airbus to 40.

Opinions are divided on whether re-engining the A320 and B737NG families is necessary. Rolls-Royce, Boeing and former ILFC CEO Steven Udvar-Hazy have all come out against the option, preferring instead the option of incrementally improving existing aircraft, while working towards an all-new narrowbody in the 2020-2025 timeframe.

Boeing has received a “mixed” response from its customers, while Rolls-Royce does not believe that there is a strong business case for new engines. Mr Udvar-Hazy, who heads new aircraft lessor Air Lease Corp, stated at the beginning of this month that the advantage to operators is “very slim” with new engines on existing airframes.

Supporters of the new engine option include two of the world’s largest narrowbody operators: Ryanair and Southwest. Southwest is the world’s largest narrowbody operator, with 550 B737s in its fleet - 200 older types and 350 B737NGs. It will inherit another 138 aircraft (86 B717s and 52 B737-700s) under its merger with AirTran, as well as orders for another 51 B737-700s.

Largest narrowbody operators

Operator

In service

On order

Total

Delta Air Lines

566

11

577

Southwest Airlines

547

107

654

American Airlines

503

65

568

US Airways

313

77

390

China Southern Airlines

304

80

384

Continental Airlines

288

53

341

Ryanair

252

57

309

United Airlines

249

42

291

ExpressJet Airlines

244

 -

244

SkyWest Airlines

236

236

American Eagle Airlines

232

13

245

China Eastern Airlines

220

45

265

Air China

201

94

295

Atlantic Southeast Airlines

176

 -

176

easyJet

176

47

223

Lufthansa

174

48

222

JetBlue Airways

156

112

268

Pinnacle Airlines

145

 -

145

Air France

144

14

158

Air Canada

143

 -

143

Southwest COO Mike Van de Ven has stated that the carrier needs “new economics” given the threat of higher fuel prices and tighter travel budgets. Southwest is “indifferent” to whether this comes through new engines or a totally new aircraft, but waiting until 2025 to make that change is “not an option”. Boeing commented in Jul-2010 that the carrier would be heavily involved in its decision on which direction it went with its narrowbody programme.

Ryanair CFO Howard Milla stated that the carrier is very interested in the prospect of re-engining. In early Oct-2010, the CFO gave a not-so-subtle hint that it could order Airbus narowbodies, stating that Ryanair would be “unwise” to ignore an option that gave it a significant reduction in fuel costs. In 2009, Ryanair stated it was large enough to run two different types in its fleet.

This would be a radical move for the carrier. Ryanair has pursued a single-type fleet strategy, operating an all B737-800 fleet since 2005. In late-2009 the carrier broke off negotiations with Boeing on an order for up to 200 aircraft, for delivery between 2013 and 2016. At the time, Ryanair CEO Michael O’Leary claimed that it had reached an agreement with Boeing on price, but the manufacturer was unwilling to incorporate terms and conditions from its existing agreements into the new aircaft order. Ryanair still has 58 aircraft on order with Boeing.

What airlines and lessors want is an all-new aircraft, offering double-digit savings in fuel efficiency, MRO and operating costs. Next generation narrowbody replacements from Airbus and Boeing are unlikely to appear until well into next decade, leaving airlines with the option of staying with their current fleets, pushing for the redevelopment of existing airframes or moving to purchase the new aircraft coming into the market from Bombardier, COMAC and Irkut.


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