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Will Boeing and Airbus re-engine their narrowbodies?

15-Oct-2009

Replacements for the long serving B737 and A320 are not due to appear until past 2020, but both Airbus and Boeing are now reportedly studying the possibility of putting new engines on their existing narrowbody offerings.

Boeing and Airbus have been completely dominant in the 100-210 seat narrowbody market historially, but several new challengers have emerged over the past few years. Bombardier has its 100-150 seat CSeries, featuring newer engines than the B737/A320, despite its smaller size. With an estimated service entry of 2013, the aircraft has only secured 50 orders so far, but its high density capacity crosses the line between large regional jets and small narrowbodies, such as the A318.

Bombardier's major competitor in the regional jet market, Embraer, has not yet formally launched a new regional jet/narrowbody programme, but revealed recently that it is considering several design options for its next major aircraft. One of these is a larger design than its current E195, which carries up to 120 passengers.

There is also COMAC’s C919. With 160-190 seats, new engines and a project service entry of 2016, the aircraft is a direct challenge to the Boeing/Airbus narrowbody duopoly, and China’s first attempt to enter the large commercial aircraft manufacturing market.

With these rivals now in the marketplace, pressure is growing on Airbus and Boeing to re-engine their existing narrobodies to offer improved performance before their successor aircraft are brought to the market.

See separate report: Can Airbus and Boeing be seriously challenged in the 100-200-seat single-aisle market segment?

Qatar Airways recently terminated discussions on acquiring the CSeries, reportedly due to Bombardier's "inability to match the carrier’s specific requirements". CEO of the carrier, Akbar Al Baker, told Bloomberg that a redeveloped A320 would put Airbus “at least ten years ahead of the competition on the single-aisle aircraft”.

Boeing has admitted that putting new engines on the B737 is feasible, although much depends on customer needs and investment requirements. Airbus has been less committal, but has admitted that reworking the A320 could be a possibility. New engines for the A320/B737 are not expected to be ready until 2015-2016.

With engineering and design resources at both major commercial aircraft manufacturers stretched with widebody development, the narrowbody replacement programmes have been increasingly pushed back. At one point, Boeing was considering a B737 replacement with a tentative 2012-2015 timeframe.

As shown by Boeing’s recent announcement of more delays to the B747-8 and the related USD1 billion cut to the company’s 3Q2009 results, redeveloping a proven and known product is still a difficult enterprise.

For Boeing and Airbus to redevelop their existing narrowbodies, all the elements need to be right. Unless there is a confluence of technology, sufficient customer demand (driven to a large extent by the price of oil) and available capital and capacity on the side of the manufacturers to deliver a 20%+ step change in cost performance, better narrowbodies may well not emerge until after 2020.

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Air Partner revenue down 23%, profit falls 90%

In other news, UK commercial and private aircraft leasing company, Air Partner, reported a 23% fall in revenue and a 90% drop in operating profit for the 12 months to 31-Jul-2009. Excluding exceptionals, profit before tax was down 57%.

In reaction to the results, the company’s share price dropped 4.6%, leading falls by other lessors at the close of trading on Wednesday. Genesis Lease was down 1%, while both Babcock & Brown Air and Aercap fell 0.5%.

Air Partner noted that the challenging year was marked by intense competition, and accepted some reduction in turnover to maintain the quality of its business in a poor market. Corporate leasing was most heavily affected, with revenue from the sector dropping 30%.

The company’s outlook for FY2009/10 is for continued short-term uncertainty, but a medium term recovery. Forward ordering remains poor, and Air Partner is "focusing on consolidation” for the coming financial year.

Selected Aviation suppliers’ daily share price movements (% change): 14-Oct-09


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