Engine Drama On A320neo Might Help The Boeing 737MAX

| About: The Boeing (BA)

Summary

Engine issues on the A320neo will not create waves.

Issues on PW engines might give the impression the turbofan is not ready for service entry.

Two month delay in A320neo deliveries allows Boeing to narrow the gap (timewise).

A few days ago I wrote an article covering the engine problems on the Airbus (OTCPK:EADSF) A320neo, after a rather smooth process towards service entry. In this article I will have a look at what this might imply for the Boeing (NYSE:BA) 737MAX.

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Image courtesy of The Boeing Company

Orders

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Figure 1: Order division 737MAX and A320neo (Source:www.AeroAnalysis.net)

The Boeing 737MAX was launched almost 300 days after the Airbus A320neo, which gave the A320neo a head start. In the years after, the A320neo continued outselling the Boeing 737MAX. It is likely that (a combination of) higher discounts, engine options, a more modern concept and a better aircraft to operate the MoM segment are key to the Airbus A320neo outselling the Boeing 737MAX. Currently the split between the A320neo and 737MAX is roughly 60-40.

Engine Options

One of the big advantages of the A320neo is the possibility to select a turbofan. A customer can either choose for CFM's LEAP engine or Pratt & Whitney's (NYSE:UTX) PW 1100G engine. For operators that already operate for instance CFM engines or PW engines this can play a role in engine selection. The Boeing 737MAX only comes with the CFM LEAP turbofans under its wings, giving the airline no freedom to select an engine. This gives the A320neo a slight advantage.

Next to that Pratt & Whitney and CFM are likely to constantly compete, this should either result in attractive contracts for A320neo operators or accelerated improvement in the engine's fuel efficiency, both of which will benefit the operator. Due to the absence of an engine option on the 737MAX, MAX operators will not benefit from this advantage other than that over time improvements from the CFM LEAP-1A (for the Airbus A320neo) could be carried over to the CFM LEAP-1B (for the Boeing 737MAX).

Engine issues give Boeing a stick to beat with

I view the possibility to select an engine as a huge advantage for the Airbus A320neo. However, in the months prior to service entry the PW engines have been coping with setbacks. In the months prior to the first delivery, damage to the PW engines occurred during test flights in hot-weather conditions, engineering problems on the A321neo power plants were detected, software bugs surfaced and thermal deformation was found in the PW engines. All of these issues occurred on the PW geared turbofans, which might feed the thought that the engine is not yet ready for reliable commercial operation.

While I do not expect that this will create waves, I do think that this will make selling the Boeing 737MAX a bit easier for Boeing. Boeing could point customers to the fact that they focus on getting the 737MAX on the market with 1 reliable engine, rather than having 2 engines out of which one is having teething problems. On the other hand, it can also say that the problems that Airbus is facing now would already have been dealt with before service entry if it was a Boeing aircraft.

Another route Boeing could take is by questioning the geared turbofan technology, using the current issues as a reason for not using geared turbofans on the 737MAX. This would be similar to what Airbus did when it stated it saw the problems with lithium batteries coming and therefore opted out of using it for its Airbus A350.

Conclusion

While I do not expect the current engine issues on the Airbus A320neo to create waves, the issues do give Boeing an easier task in marketing the aircraft to customers. With a 60-40 order split in favor of the Airbus A320neo, the current issues could narrow that lead a bit since most narrow body operators still have to decide what next generation narrow body aircraft to order for their fleets.

Disclosure: I am/we are long BA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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