737 successor Part IV

In early March I wrote the first piece of this story and explained why I think that a "small widebody" seems unlikely as a 737 successor aircraft.
Hearing Boeing CEO McNerney at the conference call on Wednesday kind of confirms that. He said that the next new airplane will probably first address “the heart of the market,” which is 145 to 185 seats, McNerney said. “Which is not to say that we will leave the (7)57 space unaddressed at all.” (quoted from the seattle.pi blog).
So Boeing clearly will not back away from the "Southwest Airlines" market, which is (as of today) the lower end of that bandwidth, but SWA just this year also ordered their first batch of B737-800, representing the upper end of that "heart of the market".
Not leaving the 757 space unaddressed means they also plan to have an aircraft in the family with 200+ seats. But this would lead to a competitive disadvantage on the lower end, if all family members would have the same wing. If the 200+ seater should have a transatlantic range, the wing has to be considerably larger than today's 737NG wing. That would burden the 145 seat family member with a wing that is too large and too heavy. Trim drag would have to be used during cruise to keep the aircraft flying in level flight with the desired speed, as the large wing produces too much lift - alternatively the aircraft could fly slower, burning less fuel, but cutting productivity.
And by the time the new Boeing aircaft arrives, there could be, apart from the CSeries, another narrowbody - optimised for around 150 seats and probably lower range than the ~3000nm CSeries: a new 5 abreast aircraft from Embraer. With around 2200nm as today's EJets, a specific version of the GTF, the LEAP-X or even a new engine from RR, it could be better than the CSeries and the new Boeing aircraft.

Boeing of course could produce two wings - one for the lower end of the market and one for the upper end - in case of the 787 that strategy failed, but for reasons that do not apply in the narrowbody sector.

About the timing McNerney said:  “You’ll hear more from us at the end of the year.”
So, as I wrote in the third part of the story, we will obviously not hear anything spectacular from Boeing at the Paris Air Show - only a "guidance", probably further emphasizing that they lean towards an all new airplane, but not ruling out a reengining at all.

The first three parts of the story are here:
Part I
Part II
Part III


COC and DOC Part III

Today I discovered a very interesting website: The "Airline Data Project" from MIT.
There is a lot of airline data from all major american airlines in that database. From that data you can easily pull DOC and COC's and compare airline to airline, a specific airline though the years or whatever you want to find out.
Let us have a look at two typical carriers:
  • American Airlines as the typical legacy carrier
  • Southwest Airlines as the typical low cost carrier
I looked at two years - the first available (1995) and the one with the highest fuel prices (2008).
In 1995 the price for aircraft fuel was relatively stable at about $0.50 per gallon - unbelievably low for us today.
Im early 2008 the price already was in the region of $2.70, then climbing to almost $4.50 in July before falling rapidly to a low of about $1.00 in December 2008.

Here is the chart for American Airlines in 1995.
The cost for fuel and oil is $429 per block hour - 26% of the total cost.

We get a whole different picture for the year 2008.
Now American Airlines has to pay $2771 per block hour for fuel - a stunning 60% of the total, although the amount of fuel consumed per block hour went down from 957 to 940 gallons. This only slight decline in fuel burn shows why American now accelerated their B737-800 deliveries in the last two years. The MD-80 is fuel thirsty.

And now here is Southwest Airlines. The trend is the same:

In 1995 fuel cost were at 30% of direct operating costs. But the dollar value is about 13% less than the $492 paid by AA, as Southwest just burned 773 gallons per block hour and the total costs per flight hour were 14% lower at SWA.

And here are the SWA numbers for 2008:
 Fuel and oil costs are above 50%, but total costs are less than 60% of the costs of AA. Fuel burn per block hour was down by 9% compared to 1995 at 705 gallons, the rest of the difference is probably explainable by better fuel hedging at SWA.

I think from these charts we can understand the desire from many airlines to get more fuel efficient aircraft as soon as possible.


COC and DOC Part II

Airbus offers a "A320neo Fact Sheet on it's website for download here.
Apart from one obvious typo - the A321 is mentioned as the 2nd variant to become available, but that has changed to the A319 as the 2nd family member recently, there are a few "facts" - or claims- on that sheet that compare cash operating costs compared to today's A320 and the fuel burn of the A320neo with the B737-800W and the CS300. These can be compared to my assumptions made in a recent blog entry called "COC and DOC".

First claim: A320neo has 8% better cash operating costs than today's A320.
Fact check: In the recent blog entry I assumed 9.5% better cash operating costs for a fuel price of $3.00/gallon - 7.5% from lower fuel burn and about 2% from lower maintenance costs. With oil prices in the range of $3.20 as of today, cash operating costs are more like 10% better - so Airbus is not overly optimistic with the 8% assumption.

Second claim: A320neo has 16% less fuel burn per seat than the 737-800W.
Fact check: Assuming 15% reduced fuel burn per trip through the sharklets and the new engines and three more seats, the overall improvement in fuel burn per seat is (153/150)*15%= 15.3%.
If Airbus says that the A320neo is 16% better in fuel burn per seat than the B737-800W it implies that the A320 today would be 0.7% better than the B737-800W. I assmued they are on par, but I guess a difference of 0.7% does not really count.

Third claim: A320neo has the same fuel burn (per seat is obviously meant, though not stated) as the CS300.
Fact check: Let's assume 153 seats on the A320neo and 130 seats for the CS300 in a comparable cabin layout and the same seat pitch. This is a difference of 17.7%, so the fuel burn per trip can be 17.7% higher for the A320neo in order to have the same fuel burn per pax.
A report from AirInsight (The Business case for the CSeries) from last year has some fuel burn numbers. Without knowing exactly how accurate these are and also keeping in mind that AirInsight assumed 158 seats from the A320neo, let's have a look at them:
For a 500nm mission, AirInsight gets a fuel burn of
  • 805 gallons for the CS300
  • 910 gallons for the A320neo
The absolute difference is just 13%, so that the fuel burn per seat would be even lower for the A320neo. For a longer misson the relative difference should get a little bit larger though.

But a larger aircraft should burn less per pax anyway -so although the claim is OK as a fact, it only shows that the smaller CS300 is a step ahead - and the A319neo cannot compete on a per seat basis as it is comparable in seat capacity but a lot heavier.

Bottom line: Airbus is not making any false statements here -  but the facts presented are no new and eye-watering arguments...


Bernstein Research on GTF and LEAP-X

AirInsight has a post today about Bernstein Research thinks about the GTF. As I do not want to "cannibalize" AirInsight please read this post before continuing here...
So what can we take from this? The most important point for me:
CMC turbine blades availability slipped from 2018 to 2020!!! This means:

  • That moving the EIS of the chinese C919 forward from 2018 to 2016 was a bad decision for CFM, as CFM was forced to speed up their development plan. But some technologies obviously need and take their time and can't be accelerated too much.
  • That the 2016 LEAP-X engine for the C919 and the A320neo needs more turbine cooling than originally was planned with CMC turbine blades. As cooling air for the HPT blades is rather "expensive" (it is taken from one of the rear compressor stages), more cooling air means higher SFC.
  • That the LEAP-X is not competitive with the GTF in terms of fuel burn (at least) until 2020.
  • That a version of the LEAP-X for a potential B737RE would not yield an improvement good enough to keep pace with a GTF powered A320neo (at least in terms of fuel burn).
  • That the LEAP-X with CMC blades would be ready "just in time" for a new Boeing aircraft in 2020. But 9 years ahead, who would count on that today?
If Bernstein Research is right about the CMC turbine blades, CFM has a big problem. To position the engine as the lower risk engine is "BS", as it is a new centerline engine as the GTF is - but the GTF neo-engine will benefit from the engines for the CSeries and the MRJ. LEAP-X is also running considerably hotter and this is always risky. So I do not see airlines will give them credit for lower risk.
As I wrote earlier, the litmus test for CFM will be a potential order for the A320neo from AirFrance-KLM, the decision from Virgin America and the anticipated order from AirAsia.


AirFrance interested in A320NEO - litmus test for LEAP-X

Reuters and others today report that AirFrance is interested in the A320NEO. As AirFrance is one of the largest Airbus customers (I think actually in second place right beghind Lufthansa), this is not a big story - but before Airbus actually launched the A320NEO, AirFrance ofiicials said that a pure reengining would not be good enough. So their mind must have changed.
What is more important is, that once AirFrance will eventually order the A320NEO, sooner or later they have to commit to one engine or another. And as AirFrance is up to now the most natural and loyal CFM customer you can imagine - CFM is 50% owned by the Safran and CFM did a version of the CFM56-5B customised for the A318 only on AirFrance's request - it would be a disaster for CFM if AirFrance would decide in favour of the GTF and clearly a sign that there is something "wrong" in the development of the LEAP-X.
An interesting thing to watch...


Scott Hamilton wondered about changing messages from Boeing regarding operating cost comparison between the 737-800NG and the A320/A320neo.
Indeed the numbers Boeing told to the public were a little bit confusing. But when you look carefully what they really talked about, the picture gets clearer:
Let's begin with the situation we have today: Boeing says the 737-800NG is 8% better than the A320. This is probably a fairly accurate statement when you talk about COC per seat. COC or "cash operating costs" are the costs the airline pays for flying the aircraft from point A to B: fuel costs, maintenance costs for aircraft and engine, crew costs, landing fees, navigation charges. But as the 737-800NG has, in a typical layout, 162 seats compared to 150 seats in the A320, and the difference is - coincidentally or not - exactly 8%, the COC per trip should be right on-par between the two aircraft. That can be explained by the fact that the A320 is a little bit heavier than the B737-800NG, but the engines of the A320 have a better SFC, so that fuel burn should end up in the same range. Maintenance costs for the CFM56-7B and -5B should be not very much different also, maintenance costs between the two aircraft should also not be a decisive factor.
So for now let's assume:

 B737-800NG     A320
seats    162      150
COC per trip    100%     100%
COC per seat    100%     108%

Now the "neo" comes into play. But before the "neo", Airbus will gain 3 seats in the A320 through a new galley design, as we saw at the media briefing day last week.
The "neo" engine are advertised to save 15% fuel, at least when combined with the sharklets, which will be introduced before.
Also, these engines are advertised to have 20% lower maintenance costs.
Now: how much is that worth? First, we have to establish a certain mission we want to look at, as for a long flight fuel costs represent a larger pie of the (cost) cake than for a short flight. For our study let's assume a 500nm mission.

Even now, the question how much 15% lower fuel burn and 20% lower engine maintenance costs are worth in COC largely depends on the cost of fuel:
  • At $1.50 per gallon you can assume that the fuel costs are one third of the COC. Engine maintenance costs would be in the 10% range.
  • At $3.00 per gallon fuel costs are about 50% of COC and engine maintenance costs are more in the 6-7% range.
Right now we are at $3.20 per gallon, so let's assume the $3.00 per gallon numbers. Then the new engines save 7.5% per the lower fuelburn (50%*15%) and 2% per the lower maintenance costs (10%*20%).

Now we have:
 B737-800NG  A320neo
seats      162     153
COC per trip     100%    90,5%
COC per seat     100%    95,8%

Boeing stated that the 737-800NG would have a 2-3% cost deficit compared to the A320neo. But that was before Airbus came out with the three extra seats. If you compare COC per seat on a 150 seat basis for the A320neo, the value is 97.7% - the Boeing statement can therefore be seen as accurate.

Scott Hamilton now thought that Boeing's message shifted when they said that the B737-800NG would still be better by 2% than the A320neo - but read carefully: now they are talking not about COC, but DOC, which include capital costs.
I have doubts that it makes sense here to compare DOC, as that implies that Boeing knows the pricing policy of Airbus or can foresee future leasing rates. In reality, it is very hard to estimate DOC's, as leasing rates vary, interest rates vary and so do depreciation rules in different countries.

If Boeing says that the DOC's for the 737-800NG are 2% better than for the A320neo and COC's are (say for simplicity) 2% worse, that implies that in their calculation COC's are 60% of DOC's and so capital costs are 40% of DOC's. That seems to be a little bit on the high side I think, at least in times of $3.00 per gallon, where COC's are higher than at $1.50 per gallon and historically low interest rates, which would lower capital costs. So the 2% cost advantage for the 737-800NG compared to the A320NEO might be, say "overoptimistic".

So, Boeing does not necessarily change messages - but:
  • they change the topic of what they are talking about
  • they are making assumptions which are at least not very transparent
In the end, the market will decide and show us the "truth".


No new Boeing airplane in sight...?

Scott Hamilton has it here: chances that we will seen and hear an announcement from Boeing for a new airplane, call it 737RS, call it 797, are getting slim. Buckingham Research now says that they do not expect an announcement from Boeing for a new airplane at the Paris Air Show. An approval to offer would not come before the end of 2012/ early 2013.
As I argued earlier, there is no real technical case for a new aircraft in the 2020 timeframe. And if there is no technical case, there is no business case. No business man will spend $10-15 billion without getting a decent return, if he can get the same return by spending $1-1.5 billion, as Airbus does it.
I don't want to say that Boeing now will do the 737RE - but in my eyes it would do much more sense. And this is one if the rare occasions I agree with Richard Aboulafia, who just today at the Aero Club in Wichita said that Boeing should quickly go forward with the reengining.
If they do not move quickly, there is a real danger that long-time Boeing customers are moving to Airbus.

A problem with reengining for Boeing could be the emerging signs that the CFM LEAP-X could be a little bit behind schedule. At least there is no customer for the LEAP-X on the A320NEO yet. As EIS for the NEO is 4.5 years away, some airlines (as well as ILFC) seem to be confident enough to order the GTF, but not the LEAP-X. They could also wait another year or even two and decide then about the engine - means ordering one engine now that they are sure that the other is not ready in time? Leahy last week said that the LEAP-X would be available by about 9 months, but no more than 12 months after the GTF. As EIS of the NEO was moved forward by 6 months at the same time, that means that the LEAP-X would have been 3-6 months later than the GTF per original schedule. Three to six months should not really be the deciding factor when ordering an aircraft that is used for twenty years and longer. So there could be something more behind all that...


The absent LEAP-X customers

It is very early to say anything about the long-term share of the Geared Turbo Fan and the LEAP-X on the A320neo. On the other hand it is notable that there are now three announced engine choices for the A320neo and none of them is in favour of the LEAP-X.
  • ILFC opted for the GTF for at least 60 of their 100 aircraft (MoU with Airbus yet to be firmed up). They have an option for the GTF for the remaining 40 aircraft, but are in talks with CFM about the LEAP-X. Apparently ILFC is not yet convinced to order the LEAP-X.
  • Indigo: this can be deemed as an easy win for P&W, although also CFM fought hard for this large deal. Indigo currently uses the V2500 on their "classic" A320.
  • Lufthansa: as I wrote in another blog entry, the most important win for P&W so far. They initially ordered the V2500 for their A320, but when RR had problems with the High Pressure Compressor, they had to switch to the CFM56. By the time the A321 was launched, the V2500 then became Lufthansa's choice again - but for the A319 Lufthansa favoured the CFM56. I see two reasons for their split: one is to get a maintenance license for both engines, as Lufthansa Technik is a major player also in the engine maintenance business and saw business opportunities with third parties. Another reason is that the A321 typically flies on longer routes than the A320 and A319, where the better engine SFC of the V2500 plays a bigger role. On the other hand, the CFM56 could have an edge if you fly shorter routes and more sectors a day, as the CFM56 with it's single stage turbine has lower maintenance costs than the V2500. Now Lufthansa ordered the GTF for both the A320neo and the A321neo - a significant move in my eyes!
Now - who is the most probable LEAP-X customer, once ordering the A320neo? GECAS of course! There is no order for the A320neo from GECAS so far - this is no judgement so far, but if Airbus collects some more and potentially large orders by the time of the Paris Air Show in June and GECAS does not come on board, I have a sense that there could be a problem with the LEAP-X - as GECAS should be the customer who has the best insight into the engine.

Pratt did it again - with Lufthansa!

Pratt did it again! Third engine announcement, third win - a good run! And I would say, the third is the most important one, as I explained in earlier blog entry. The engine choice from Lufthansa for the PW1133G will probably be a signal for many other airlines, which do not have such a large and well-experienced technical department as Lufthansa. So we can expect that the Geared Turbo Fan will keep the lead position against the LEAP-X for the next months - and as we can expect a few more orders for the A320neo until the Paris Air Show in June, this could translate in many orders for the GTF as well.