Narrowing the 737RE design
While the aviation world is waiting to see what the Boeing 737RE will be, information that has emerged publically from Boeing and information we’ve obtained gives, we think, a reasonable picture of what the airplane will look like.
This information is current as of last week. Boeing is still settling on the 737RE design and things could change, but from what has been said and on what we have pieced together, this appears to be a reasonable assessment. It appears the 737RE will largely come down to this:
- An airplane that is to have “minimal” change, to use the word expressed by CEO Jim McNerney on the 2Q earnings call;
- R&D cost to Boeing of 10%-15% of that of a new airplane (said James Bell, CFO, on the same earnings call). This will be $1bn-$1.5bn if the assumed cost of a new airplane is $10bn (a widely quoted number but one which is only an outsider’s Wall Street analyst estimate). This further supports the “minimal change” approach. CFM’s portion of the R&D is not known;
- A 66” fan on a version of the CFM LEAP engine (from information we obtained from our sourcing), which eliminates the need to increase the height of the nose gear and cause a ripple effect of changes to other structures;
- A plane that is, all-in, about 10% more efficient than today’s 737NG. By all-in, this includes direct operating costs and ownership costs. This estimate is from a network carrier fleet planner who has seen the data made available so far from Boeing. Since the 737NG already has winglets, the improvement isn’t as dramatic as the A320neo/sharklet combination. Aeroturbopower, which specializes in engine analysis, reaches the same conclusion. This is explained here.;
- A plane that all-in will have about a 2% advantage over the corresponding A320neo (from the same fleet planner)—not the 8% claimed by Boeing to the media; and
- A plane that will have between 90%-95% commonality with today’s 737NG.
In December 2009, our affiliate AirInsight in a report concluded that Boeing and Airbus would re-engine the 737 and A320. We at Leeham News this year hoped Boeing would actually roll the dice and proceed with a new airplane, being bold and reclaiming the initiative it had lost with the delays for the 787 and 747-8. Although Boeing did indeed offer the New Small Airplane to American Airlines, in the end Boeing blinked and elected the re-engine route, saying the risk was too great to market share and production to proceed.
Instead, Boeing now has a me-too airplane to the A320neo. Although Boeing claims the 737-800 is 8% more economical, all-in, than today’s A320 and a 737RE will be 8% more economical than the A320neo, none of the airlines we talked to accept these numbers.
It’s worth noting that in Boeing’s assumptions, officials only grant Airbus a 13% fuel burn savings vs the Airbus claim of 15% and they also assume continuous Boeing product improvement programs (PIPs) for the 737 vs none for the A320. It’s also worth noting that CEO McNerney cited advantages of only 2%-4% for the 737 over the A320 during the earnings call. McNerney also qualified these figures.
The end result is that Airbus and Boeing are likely to have roughly an even share of the single aisle market, adjusting for the Airbus blow-out sales lead of more than 1,300 neos. The market new entrants in China, Russia and Bombardier’s CSeries will achieve their share of the single-aisle market. So will Embraer if it proceeds with a new 130-150 seat aircraft. But clearly Airbus and Boeing will dominate, albeit with a smaller share of the pie, but still roughly equal in sales going forward.