Saturday, November 25, 2006

What Boeing Needs To Do (Part 1)

I had planned this post after Airbus announced the launch of the A350XWB program. But Airbus, ever dysfunctional, has stalled its decision as it deals with consortium politics.

Assuming Airbus does launch the A350XWB, what should Boeing's next step be?

Boeing currently has a two-prong strategy: Update existing airplanes (737 and 747) with new technology to keep them competitive, and create breakthrough technologies on new airplanes (the 777 and now the 787). With the first 787 now under construction, the question for Boeing is "What comes next?"

A good resource on Boeing's future commercial airplane plans can be found here.

The Boeing Y2 project became the 7E7, which eventually became the 787. Like every Boeing commercial airplane in the last 25 years, the 787 outgrew its original target as a 757 and 767 replacement. Now the smallest 787s (the 787-3 and 787-8) are on par with the 767-300, and the stretched 787-9 has a seating capacity greater than the largest 767, the 767-400ER. At the same time, Boeing has pushed the 737 to near 757 capacity with the latest 737-900.

Most expect Boeing to next launch the Y1, a 737 replacement using composite technology pioneered on the 787. But instead of a 100-200 seat direct 737 replacement, Boeing needs to look instead at follow-on to the 757-200, 757-300, and 767-200 aircraft. For simplicity, I will refer to this market as the 200-250 seat market. This would fill the gap between the 737-900 and the 787. It should also offer the option of a mainline 180-230 seat version to target the 757 market, as well as a smaller, 150-180 seat version to target the upper portion of the 737 market. There should also be an option of a later stretch to 250-280 seats to target the 757-300 and 767-200 markets.

While a U.S. domestic capable aircraft would seem obvious, airlines are increasingly using the 757-200 as a transatlantic aircraft. Continental Airlines currently uses 757-200s in transatlantic service, and Delta will start 757 transatlantic services in 2007. This means a long-range option (transatlantic, at least) is required for a 757 follow-on.

Another factor affecting the 757 replacement market is increasing demand for 757s in charter and cargo service. FedEx plans to acquire 90 757s on the second-hand market. A vibrant second-hand market makes it easier to replace aircraft. These trends, along with airlines retiring 767-200s and redeploying other 767s and some 757s to international service could put pressure on Boeing to bring a 200-250 passenger aircraft to market sooner.

What should a new Boeing 200-250 seat aircraft look like? I'll cover that in my next post.

Part 2 | Part 3 | Part 4

Tuesday, November 21, 2006

Airbus' Dillema

What a difference two years makes. Boeing has been on a tear lately, to say the least. At the same time, Airbus has been in free fall.

Here is a brief summary of Airbus' current problems:
  • The A380 is two years late, and due to changes in the air travel market, may never reach original sales forecasts. The first A380 cancellation happened when FedEx canceled its cargo A380Fs in favor of Boeing 777s. Another potential A380F customer, Emirates, recently ordered Boeing's new 747-8F freighter.
  • Airbus' current large aircraft, the A330 and A340, have been dealt a near-fatal one-two punch by Boeing's 777 and 787. Again Emirates recently canceled its Airbus A340-600HGW order in favor of more Boeing 777-300ERs.
  • Airbus' A330/A340 follow-on, the A350, was basically a warmed-over A330 and was so panned by customers Airbus was forced to return to the drawing board to completely redesign the airplane, resulting in the A350XWB.
  • The A350XWB engineering effort is directly competing with efforts to address the A380's problems.
  • At the same time, Airbus has to plan for the "Airbus NSR", or "New Short Range", the follow-on to the very successful A320 line of mid-sized airliners.
How did Airbus get into this mess? I believe Airbus never saw the threat of the Boeing 777, nor the threat of two-engine long-range airliners to the three and four engine long range market, despite having a monopoly on the large twin-engine market with its A330. Airbus built the four-engine A340 for the long-range market. The A340 was basically a four engine version of the A330, using the proven engines of the A320. Airbus built a very good second generation A340, the A340-500 ultra long range aircraft and the high-capacity A340-600. However, all major international routes in the northern hemisphere can be served by twin engine airplanes. And Boeing was determined to make the 777 an international player from the start. It was no secret.

What Airbus should have done is recognized the threat of Boeing's big twin, and instead of the A340-500 and A340-600, it should have built a larger, longer-ranged, twin-engined A330 using the wing design of the A340-500/A340-600 and the 777's engines. This would have stalled Boeing's success, and allowed Airbus to offer existing customers a long-range, large capacity aircraft with significant commonality to its existing A330s.

But the past is the past. What is Airbus to do now? There are several options, none of them good.
  1. Cancel the A380. Pros: It will likely never break even. It would allow Airbus to concentrate on the A350XWB and NSR. Cons: With 166 orders, Airbus would have to pay out penalties.
  2. Cancel the A350XWB. Pros: Airbus could fix the A380 and focus on the NSR. Cons: It would cede the most profitable portion of the market to Boeing's 777 and 787, and leave Airbus as a niche player in the wide-body market.
  3. Go forward with the A380 and A350XWB. Pros: Airbus would remain in the large airplane market. Cons: The A380 will likely not break even, the A350XWB will be too late to market to overcome Boeing's 777 and 787 momentum, and Airbus may cede the narrow-body market to Boeing's 737 follow-on.
My view is option 1 makes the most business sense. Option 2, is the face-saving option. Option 3 would be devastating, and return the European airliner industry to what it was in the 1960s and 1970s, a pure niche player.

I was almost certain Airbus would choose option 2. However, Airbus feels an all-new NSR follow-on aircraft for the 737 and A320 market is not viable until around 2014, which means they don't have to make a decision for two to three more years. Because of this, in the next few days Airbus is expected to choose option 3. Even with the NSR pushed out until the middle of the next decade, Airbus has its hands full fixing the A380 and bringing a completely new A350XWB to market by 2012. Not only do they absolutely have to get the A350XWB right, because as soon as it completes its test program they will have to start testing the NSR, but the NSR program must execute flawlessly.

Is Airbus capable of delivering two perfectly executed aircraft programs? We will see.

First Post

This blog will be my musings on a variety of subjects. Topics may include computer platforms, computer networking, commercial aviation, college football, and other subjects.

Why the name "Points East"? Except for one year in California, I have lived most of my life in the southeast United States. The other place I lived was Japan, which is the far east. I also have spent significant time in the middle east. So it keeps coming back to east.

For the last nine years I have worked in the information technology sales and marketing profession. That brings me back to the name, Points East. The name Points East was inspired by a in my simultaneous search for a blog name as well as a logo.

At some point I will create a new template with the Points East logo. The name will then make sense.