Boeing ‘Leadership’ – “We’ll wait 6-10 months and see what Airbus does”

A320neob Are they or aren't they?  That is, will Boeing modify/re-engine its 737, or will it design a completely new plane?  Airbus decided what to do last year, and made it official on 1 December 2010 – they are re-engining their A320 series, to be known as the A320neo (new engine option), with the first A320neo planes expected to enter into service in 2016.  An artist's impression of an A320neo is featured here.

I wrote a detailed analysis of the high stakes game being played between Airbus and Boeing for a new single aisle jet to replace their A320/737 planes at the time of the Airbus announcement.  That commentary remains as valid today as it was when written in December.

Meanwhile, the big question is – what will Boeing do to respond to the Airbus decision?  In mid January – six weeks after Airbus confirmed what it had been increasingly hinting at – Boeing said it would study the matter for six months or so before making a decision.

Subsequently, Boeing's CEO made vague statements that sort of implied the company would choose to design a complete new replacement plane, but a careful parsing of what he exactly said indicated that no decision had yet been made, and other Boeing officials have clarified that indeed, what their CEO said meant nothing at all (that would be a dangerous-for-career-prospects clarification to make, don't you think?).

And now, in an interesting article, Nicole Piasecki, Boeing's commercial airplanes vice president for strategy and business development is quoted as saying, in mid February :

We know that [ie what their customers] need to know, need to have clarity around where we are going.  We want to see how the NEO is going to do in the marketplace.  We want to see how the engine companies and airlines respond.  We’ll know a lot more in six or 10 months.

For sure, there is a valid case that can be made for not being the first out the gate with a new product, and instead to learn from the experiences of a new product before committing one's own company to a course of action, and for sure, with the enormously high costs of development and vital importance to Boeing of its 737 successor to its total product line, this is something Boeing must get right.

But is Boeing now ceding marketplace leadership to Airbus?  What has happened to Boeing's formerly proud culture of technological leadership and innovation?  Did they outsource that (to Airbus) the same way they have outsourced so much else of what used to be their core competencies?

Speeding up Current 737 Production

One other interesting analysis, and a point not considered in the article, is Boeing increasing the rate at which it makes 737s.  In May 2010 Boeing announced plans to increase its 737 production rate, from the then current 31.5 a month up to 34 a month, and then in June 2010 said it would go to 35 a month, to take effect from early 2012.

In September 2010 Boeing said it would increase production rates still more, up to 38 a month, to take effect from the second quarter of 2013, after earlier speculating it might increase production up to as high a rate as 40 a month.

Boeing currently has an order backlog for just over 2100 of its 737 planes.  At 38/month, that represents 4.5 years of production (compared to 5.5 years at 31.5 planes/month).

One of the reasons that Boeing is speeding up its 737 production is thought to be so the company can show greater earnings from the profitable 737 deliveries, particularly in the next year or two where its 787 deliveries are not likely to be very profitable and not at the rates earlier projected.

But could there be another reason as well for this increase in production?  A desire to quickly make and sell as many 737s as possible prior to the announcement and subsequent release of a successor plane that will obsolete the 737?

737 Sales Drop

In 2010 Boeing sold a net of 486 737 planes; an average of 9.4 planes every week.

So far in 2011, and we're already into the eighth week of the year, Boeing has sold a net one only 737, and in total has sold nine planes of all models.  Through the end of January alone, Airbus had sold 12 A320 series planes and in total 20 planes.

As I predicted in an earlier article about Boeing's big problems, delays in deciding what to do will hurt Boeing massively in the sales of its core airplane, and as these results to date confirm, Boeing is indeed, actually and demonstrably being impacted.

And all Boeing can say and apparently do is that it will wait and see what happens with the Airbus A320neo?

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  1. Pingback: The Current Airbus vs Boeing Slow-Motion Battle - The Travel Insider

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