Threading the needle: Boeing’s cost challenge for new mid-sized jet
SEATTLE/ PARIS: Boeing Co played for time on its proposed new mid-sized jet at the Farnborough Airshow last week, announcing it would decide next year whether to launch its first all-new plane in a decade and giving itself 912 months to hone its business case.
With 225-265 seats, Boeing’s proposed new mid-sized airplane, or NMA, could fill an opening in the middle of the airplane market between the bread- and- butter single-aisle planes that dominate most fleets and the bigger longrange, twin-aisle jets.
That niche has already been partially filled by rival Airbus’ largest narrow body, the bestselling A321neo. But Boeing insists the NMA would be able to open new routes due to longer range and superior economics, just as its 787 revamped long-haul travel by connecting secondary cities.
Capacity and range are not the only factors Boeing is considering as it makes one of its most significant decisions in years.
To make business sense, the price must be low enough to lure airlines and high enough to leave a return for Boeing, while squeezing through a narrow economic gap in prices between single-aisle and twin-aisle planes. A key question is whether the gap is wide enough to take the plunge.
“That is the challenge of the NMA,” John Plueger, chief executive of Air Lease Corp, told Reuters.
“Building a business case in 2018 for an airplane that won’t start in service until 2025 is not such an easy slam dunk.”
Planemakers do not publish the real prices at which they sell their jets, which include significant discounts, but most analysts say the net price of the new jet would come in at US$ 60 to US$70 million – about US$15 to US$20 million more than a discounted singleaisle jet.
While Boeing’s focus is on cutting costs, company officials have poured cold water on speculation that it could revert to a cheaper metal fuselage rather than weight- saving modern composites.
“They have got to get it right. It is a tough needle to thread,” Plueger said.
Boeing does have a potential wild card.
While the business case is being studied on its own merits, the time frame for a decision – 2019 – coincides with the expected closing of a deal for Boeing to take over Embraer’s commercial operations.
Embraer would give Boeing access to extra engineering resources and R&D capacity at a lower cost.
“It gives us add it iona l opportunities to consider,” Boeing CEO Dennis Muilenburg told Reuters, when asked whether the Embraer acquisition might inject extra clarity into the NMA decision.
Embraer has some “very effective, stream lined” development processes, Muilenburg added.
“When we’re able to complete this deal it would give us another option, another set of resources, additional ideas and that could be helpful to the (NMA) business case,” he said. “It’s another factor that can be considered in the overall business case.”