The middle of the market finds itself in an unprecedented kind of hot stasis. The Paris Air Show — where nine or even four months ago, Boeing was expected to go full speed ahead and launch its NMA, the aircraft with which it intends to counter Airbus in the middle of the market — is less than two weeks away. Airbus has dominated the MoM with its A321neo, but during its recent Innovation Days media event outside Toulouse, Airbus’ plans for Le Bourget remained rather undisclosed.
The airframer seems to feel no pressure to make the next move given Boeing’s focus on getting the grounded 737 MAX safely back in the air, after crashes killing hundreds of people raised fundamental questions about its capacity to safely engineer aircraft, the FAA’s oversight of aircraft and system certification, and indeed what the full impact will be on suppliers, including suppliers of seats, overhead bins, lavatories, IFE, IFC, lighting, etc. For its part, Boeing has indicated it still intends to decide this year whether to offer its NMA, according to a report by Flightglobal.
Adding to Boeing’s credibility problems, the US airframer’s latest cleansheet program, the 787, has seen its Charleston Dreamliner production head depart following what the New York Times describes as “shoddy production practices and weak oversight at the factory”. Separately, Boeing has informed the FAA that certain 737NG and 737 MAX leading edge slat tracks may have been improperly manufactured and may not meet all applicable regulatory requirements for strength and durability, the FAA said in a statement promising a forthcoming Airworthiness Directive.
Airbus loves to make big aircraft and order announcements at the Paris Air Show, where it has the home ground and can engage more French media in particular. Had Boeing launched the NMA, Airbus would have been expected to counter with further models in its A320neo re-engined narrowbody twinjet family — particularly to extend the capacity of the A321neo and its long-range model the A321LR. And had Airbus still been planning to do so, it would have been expected to signal strongly its intentions at the pre-Le Bourget briefing during its Innovation Days event.
Hands up: that’s a lot of conditional clauses. But Airbus’ response from chief commercial officer Christian Scherer — with later hints from new chief executive officer Guillaume Faury — is that the company will be further developing the somewhat unusual metaphor of the “rock and a hard place” of the company’s single- and twin-aisle aircraft, but isn’t yet willing to talk about the details.
“In the middle of the market, here again there isn’t a one-solution-fits-all recipe on this. What Airbus has in the middle of the market, which by far is most the competitive one — this is where the bulk of the airlines compete with each other, and for every market you have several airlines competing with each other — in this market space you want to have the most flexible economic solution for your customers,” Scherer said.
“Airbus’ solution is the two-fold solution: it’s the A320, A321, in particular the latter, the A321, that for the first time on a single-aisle airplane offers widebody economics and, gradually, widebody range for single-aisle trip costs,” Scherer elaborated. “At the same time we have a very very proven program, the A330, also re-engined so that we keep innovating and staying at the forefront of economic efficiency.
Suggesting that Airbus might well take a leaf from the playbook Boeing used to snatch Hawaiian Airlines’ widebodies out from under Airbus’ nose at last year’s Farnborough Air Show, Scherer noted that “we have a left-hook, right-hook approach to this middle of the market segment, with absolutely unbeatable economics, because these airplanes are offered with the latest engine technology and therefore the lowest fuel consumption, not to mention the comfort levels, but at the same time both programs are so mature that it gives Airbus…let’s call it the pricing flexibility that we need to address this extremely competitive segment of the market.”
Boeing is certainly stuck on the ‘rock’ of the A321neo and the A321LR long-range version of the family, which has significantly outsold its 737 MAX 9 and MAX 10 counterparts. The A330neo is less of a Charybdis to the A321neo’s Scylla, however: the market has by no means gone wild, particularly for the smaller -800 version.
And there was a notable lack of detail from Airbus about what the next part of the narrowbody “rock” will look like: “you can imagine our strategy,” said Scherer at an event where Airbus might have been expected to provide some clarity.
The airframer’s next move has been mooted as what Scherer described with something of a handwave as an “XLR, YLR, ZLR” slate of options. That said, on balance, it seems Airbus essentially has four most likely moves for the A321neo, which one could describe in the current Airbus naming style as follows:
1) the A322: a physical frame stretch of the A321neo, but without the LR’s extra fuel tanks.
2) the A321XLR: an A321neo, but with further supplementary fuel capacity to the A321LR’s existing fuel tanks.
3) the A322LR: the physical frame stretch and the existing A321LR fuel tanks.
4) the A322XLR: both the physical frame stretch and supplementary fuel capacity to the A321LR.
On the “hard place” side, a further option is to create an A330neo that is not “too much aircraft” like the A330-800neo, let alone the larger A330-900neo. This would be closer to the original regional aircraft vision for the A330, but seems less likely, particularly given the tepid response to the original A350 (essentially a re-engined A330) and the sunsetting of the A380. Airbus will not want to be seen to have misread the market again.
Still, the next move in the MoM game is Boeing’s. The US airframer appears strongly constrained by the 737 MAX situation. With every day that passes with the MAX still grounded before the Paris Air Show in mid-June it seems less likely that Boeing will be willing to make new announcements when the world arrives in Le Bourget. US operators of the MAX, meanwhile, are pushing out service reentry into late summer, even if the FAA ungrounds the MAX sooner.
Thus far, the MAX pain for PaxEx suppliers has been mitigated by the fact that Boeing continues to produce the MAX, albeit at a reduced rate, and hardware deliveries continue. For IFC providers specifically, however, grounded planes mean less service revenue.
For instance, at the end of Viasat’s fiscal fourth quarter, a total 47 Viasat IFC-fitted MAX aircraft were grounded, representing “4-ish% of our fleet”, according to CEO Mark Dankberg. But those planes get used a lot, he noted during the earnings call. “I think that, boy, we don’t profess to know anything more than what the market as a whole knows, so there’s hope that they’ll be in service again during the September quarter. We’re going to do what we can to support our airline customers. I think that, given that it’s that size of our fleet, you can think of it as having roughly proportional of revenue in that space.”
Airbus, in the position of strength with the A321neo, is under little obligation to increase demand for what is already a very in-demand aircraft — and one that would pose substantial issues in engine and cabin supply chains if looking to increase supply. Scherer has been clear that he is in a fortunate position in not having enough airplanes to sell.
The timing of the present situation is also of benefit to Airbus, with some complexities. If Airbus continues to sell the A321neo and A321LR as its primary MoM offering, the only downside is if early delivery airline customers feel bait-and-switched by the later arrival of any of the four other options. But even if those customers don’t manage later to change their aircraft to the improved versions before delivery, Airbus could almost certainly mollify those customers with a sweetheart deal, buybacks of the still-in-demand narrowbodies, or even potentially in-service upgrades.
A delay in announcing A320neo family incremental improvements could also perhaps be politic from a type certificate point of view. Scrutiny on certification is already intense during the MAX debacle, and one piece of fallout may be that the way supplemental type certificates for existing aircraft are regulated could change.
With the recent renaming of Embraer’s commercial aviation division to Boeing Brasil – Commercial, it may well be that the PAS19 focus for Boeing is in the regional and small airliner division.
The moves on the MoM chessboard after Le Bourget are clouded in haziness, externalities, chance and happenstance. For every cycle that Airbus continues to dominate the middle of the market, the appeal and purpose of the NMA diminishes, weakening a business case that is already under scrutiny.
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