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 COMPETITION FIERCE IN BOEING MAX VS AIRBUS NEO

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PostSubject: COMPETITION FIERCE IN BOEING MAX VS AIRBUS NEO   Wed Dec 21, 2011 11:16 am

December 19, 2011
Boeing started a year later than rival Airbus in a race to overhaul the USD$2 trillion narrow-body aircraft market, and is fighting hard to restore balance to their tense duopoly.

With Boeing's announcement this week that it has a launch customer -- Southwest Airlines -- for its upcoming 737 MAX, the two plane makers have officially squared off in the competition to make the best -- and best-selling -- narrow-body aircraft: the upcoming MAX vs the upcoming Airbus a320neo.

The two aircraft families feature new engines in their current designs. Both plane makers boast superior efficiency, and with Boeing's announcement on Tuesday of the list prices and a better understanding of the capabilities of the three models of its 737 MAX, the company will have an easier time converting its 948 commitments from customers to firm orders.

"We are in a position to start firming up the 948 commitments we have so far and continue to meet Airbus in different campaigns around the world," Boeing Commercial planes chief executive Jim Albaugh said on Tuesday.

"We got off to a little later start than they did, but I think we've done very well in the four months since we launched the airplane," he said.

Albaugh said Boeing has done enough work on the plane's configuration to make performance guarantees.

Airbus has taken 1,450 orders and commitments including some 1,200 firm orders for its a320neo family, compared with 948 for the 737 MAX, which includes a single firm order for 150 planes from Southwest. Boeing says its remaining order commitments soon will appear as firm orders on its books.

"Right now, the stage is set for 50/50. You look at the numbers," said Teal Group aerospace analyst Richard Aboulafia. "You look at loyalty and so far there's been a very high level of loyalty displayed by customers on both sides."

Airbus orders include 200 aircraft from AirAsia, an all-Airbus customer, while Boeing signed up its loyal Asian customer Indonesia's Lion Air for 201 737 MAX aircraft. The difference of just one plane illustrates the fierce rivalry between the two Asian low-cost carriers as well as their entrepreneur owners.

"I think you're going to see a tremendous run-up in orders of the next six to 12 months," Aboulafia said.

IT ALL COMES DOWN TO ENGINES

The 737 MAX, due to enter service in 2017, will be powered by CFM International engines and promises to reduce burn and carbon dioxide emissions by 10 to 12 percent over current single-aisle planes.

Boeing says the plane also will have lower operating costs.

The A320 neo is due to enter service in 2016, featuring engine options from Pratt & Whitney or CFM International. Airbus maintains its aircraft is more cost efficient.

List prices for the MAX range from USD$78 million to USD$101.7 million. This compares with USD$84 million to USD$106 million for the three neo models.

"Either people are taking two different roads to the same result. Or someone's right and someone's wrong," Aboulafia said.

"The only difference is that Airbus is hedged because they've got a choice of both engines," he said.

Neal Dihora, an aerospace analyst at Morningstar, said Airbus still has a marketing advantage over Boeing simply because it started selling its plane earlier. Airbus unveiled its neo plans in December, 2010.

"Airbus is winning this contest because they're showing that they have a product and the ability to actually get these fuel savings into the market place as opposed to just in the design phase," Dihora said.

Boeing has yet to release the specs for its upgraded 737, but Albaugh said it is appropriate to view the aircraft as a replacement for the 737 Next Generation.

The current 737 models are the domestic workhorses for many airline customers, seating between 110 and 220 people for short- and medium-haul flights. The largest model of the MAX, the -900, can serve as a replacement for the discontinued 757 on most routes, Albaugh said.

"The 900 is an airplane that in our view can do over 95 percent of the missions that the 757 did," he said.

"In terms of a one-for-one replacement of the 757, it's not one for one, but it's pretty close," Albaugh added.

BOEING'S DECISION TO RE-ENGINE

Until its surprise decision to re-engine the 737 last summer, Boeing had made it clear that it preferred to build a new small plane to take the place of its 737 NG.

The company took the heat from analysts as it dragged out a decision over whether to redesign or re-engine. And it stood by as Airbus notched more than a 1,000 orders for its neo and made inroads into US markets.

In July, Boeing finally bit the bullet and said it would re-engine the aircraft, a move many outsiders perceived as a reaction to interest by American Airlines, a loyal Boeing customer, in buying the neo.

American, which is restructuring under Chapter 11, split its giant order for 460 single-aisle jets worth up to USD$40 billion between Airbus and Boeing.

Albaugh said there were more considerations than American and that Boeing arrived at its decision on its own terms after consultation with customers.

"Everybody liked the idea of a new airplane. But they wanted an airplane with certainty on a precise date, and they also wanted to understand what the guarantees of that airplane might be," Albaugh said.

He said Boeing was confident it could build the plane and provide 20 percent improvement in efficiency.

"But what we weren't confident of was what the non-recurring costs would have been for development," he said.

"I was also concerned about the schedule risks associated with that airplane," he said, "so I think we wound up in a good spot."

Albaugh said he believes the MAX has such a pronounced cost-savings advantage over the neo that it will quickly catch up in sales with the neo.

"Right now on the NG (Next Generation), we have more firm orders than they have on the 320 classic," Albaugh said. "And I have I have full expectation that we will split the market on the MAX and the neo as well."

(Reuters)

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