Aerospace executives know all too well of the difficulties and complexity of developing brand new planes. Investors have learned that aerospace management is often too optimistic in setting entry-into-service dates. Readers have to look no further than the troubles and serial delays of Boeing's (BA) 787 Dreamliner and Airbus' (EADSY.PK) A380 to get the gist of what I'm talking about. But have airline customers wised up, too? And, if so, will the perception of pursuing a brand new build to replace its 737 in 2019-2020 actually hurt Boeing and ultimately provide an advantage to Airbus' A320neo in the 150 to 200 seat category?
"When you talk about something that’s 10 years from now, that’s not a solution, that’s an idea ... Who among us is to say it won’t be 15 years from now? In the meantime, we’re going to spend $40 billion on fuel."
"We want something better than we’ve got ... Pratt & Whitney has an engine that’s more fuel efficient. GE (General Electric) has an engine that’s not far behind. What’s the plan? You’ve got an answer from Airbus, you’ve got an answer from Bombardier. And we need a means to reduce our fuel bill and our carbon emissions."
These are some pretty serious quotes, especially in the context of Airbus' claims that it may announce an order this month for its A320neo from a customer that currently is flying the 737. As of December, Southwest had a fleet of 548 Boeing 737 jets. It would be a pretty serious blow for Boeing in the narrowbody market, if -- dare I say -- this new order for the A320neo is from Southwest. Given the large number of airline customers operating the 737, the likelihood of this is minute, but don't count out Airbus and new entrant to the narrowbody market, Bombardier (BDRBF.PK), from perhaps making inroads at this low-cost carrier. As Kelly indicated, he wants replacements now -- Bombardier's CSeries is due to enter into service in 2013, Airbus' A320neo is expected to be delivered in October 2015, while Boeing's potential re-engining won't be available until 2016 (and a new build not until 2019-2020). Bombardier's CSeries is likely the most fuel-efficient plane in the 100-149 seat category, while the A320neo is likely best in the 150-200 seat configuration (pending a decision by Boeing).
Interestingly, Bombardier has announced a few orders (Sweden's Braathan Aviation) since we outlined The Future of the Narrowbody Market. And Embraer (ERJ) remains on the sidelines until it learns more about what Boeing's decision will be in this single-aisle segment. This is shaping up to be a very exciting time for aerospace investors, particularly in advance of the Paris Air Show later this month. Our long-term expectations for share in the narrowbody market are provided below, indicating a meaningful shift from the current duopoly consisting of Boeing and Airbus. The details behind these forecasts can be viewed here.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.