New Airbus Jet Spells Trouble For Boeing

|
About: The Boeing Company (BA), EADSF, Includes: ERJ, RTN, UTX
by: Dhierin Bechai
Summary

Airbus expected to launch the Airbus A321XLR.

No NMA Authority To Offer expected due to Boeing 737 MAX crisis.

Airbus A220 MTOW increased.

From the 17th of June until the 23rd of June, the 2019 Paris Airshow will be hosted, consisting of four trading days and three days open to the general public. The trading days are highly interesting as it gives an idea of what orders or plans jet makers such as Boeing (BA) and Airbus (OTCPK:EADSF) have in the pipeline. For that reason, I have been covering the trade days of the air show for the past years. The Paris Air Show is one out of three (the Dubai Airshow and Farnborough International Airshow) that I cover exclusively for readers on Seeking Alpha. Each day, you will get an overview of the orders and thoughts on the trading day.

Boeing 797

In the coming days, we will look at what orders news or aircraft launches we can expect (or not). In a previous piece, we already had a look at how many order announcements actually turned into a firm order since the previous edition of the show.

In this piece, we will have a look at what company news and aircraft launches we can expect during the show… or not. Separately, a list of possible order announcements will be published prior to the start of the show that we will provide daily coverage on, and we will conclude with a summarizing piece. So, by the first week of July, when we have all numbers wrapped up and verified, you will have an extremely detailed coverage.

Boeing 797

If you would have asked me two years ago when Boeing would be launching its Boeing 797 or New Mid-size Aircraft, I would have said “during the Paris Airshow 2019.” However, in late 2017, we already were keeping in mind that the technological advancement would not support a full program launch during the 2019 Paris Airshow. Instead, we were expecting an authority to offer.

During the discussion of Boeing’s annual report in January 2019, CFO Greg Smith said the following:

So this year's decision is what we call authority to offer, that’s based on a business case and our ability to go and have detailed discussions with customers that will be something that will be publicly announced once we make our decision around that.

So, Boeing was planning on an authority to offer this year and a full launch next year. The recent problems with the Boeing 737 MAX might have messed up that schedule, and I would be (positively) surprised if Boeing uses the Paris Airshow 2019 to announce authority to offer (ATO) the aircraft to customers. One thing that should be kept in mind is that the longer Boeing waits with the launch or authority to offer the aircraft allowing for more detailed customer discussions, the less likely it will be that the aircraft will actually be launched as the window for a 2025 entry-into-service already is a risky one and will start closing soon. If you look at Boeing’s current crisis, you’d say that there's no way that an authorization to offer the aircraft will be announced during the air show, but Boeing is at the risk of falling behind if it doesn't make a decision soon.

Airbus A321XLR

Airbus A321neo

While a Boeing NMA authority to offer is being squeezed by the Boeing 737 MAX crisis on one end and a challenging business case on the other end, Airbus seems to be moving full speed on their Airbus A321XLR, which is not a direct competitor to what Boeing wants to bring to the market but certainly does take some wind out of the sails for the Boeing 797.

Airbus might use this moment of chaos at Boeing to launch its aircraft and attract customers that were previously interested in the Boeing 797. The Airbus A321XLR with an increased maximum takeoff weight should make the A321 a vastly more capable aircraft, which allows single aisles to connect cities deeper in the US and Europe instead of coast-to-coast flying. The A321XLR is a promising aircraft built on an extremely attractive base aircraft that has already proven itself to be valuable to airlines with (what should be) a less complex development timeline, allowing for an earlier service entry than Boeing can achieve.

Airbus A220

Jetblue A220

The Airbus A220 is not a new aircraft, but Airbus has recently increased the maximum takeoff weight (MTOW) of the aircraft by 2.3 metric tons available by 2020. AeroAnalysis estimates that this would give the Airbus A220-100 roughly one hour of additional flying time. For the bigger A220-300, the higher takeoff weight doesn’t translate into a significant gain in range. I think that with the MTOW Airbus is targeting the use of higher-density configurations while keeping the same range capability or having a higher-than-normal cabin weight without compromising on range.

I’d think that Airbus would be very eager to announce a customer selecting this higher MTOW variant. It’s not a new aircraft, but the higher MTOW enhances the business case for dense seating configurations for the Airbus A220.

Boeing 787-10

Boeing 787-10

Source: ainonline

Recently, Air New Zealand announced that it had selected the Boeing 787-10 as the replacement for its Boeing 777-200ER fleet. I previously noted that Boeing might have increased the MTOW possibly in combination with weight savings and that such an MTOW increase could be launched with new orders at the Paris Airshow. However, we understood from a Puget Sound Business Journal report that the deal still needs to be approved. So, possibly, an MTOW increase is not what Boeing would like to present and pitch at the Paris Airshow but keep it for the Dubai Airshow in November this year, where it could possibly still try to sell the aircraft to Emirates.

Company news

Embraer E2

Source: Embraer

We expect that Boeing will devote much of its time to rebuild its image and that of the Boeing 737 MAX. While Boeing’s share prices are holding up pretty well, the company is in a deep crisis which I think is sparked by extremely weak oversight. However, we also think that Boeing will want to say a few words on their joint venture with Embraer (ERJ), which will be known as Boeing Brasil once clearing all regulatory requirements. Previously, it was expected that Boeing could align the name of the Embraer jets with its own product portfolio, but given the difficulties Boeing is facing now, I do not think that would be a step in the right direction.

United Technlogies

Source: Axios

I think there will also be attention for the Raytheon (RTN) and United Technologies (UTX) merger. In December 2018, I collaborated with Seeking Alpha on a piece looking at the industry in 2019. Back then, I wasn’t expecting anything major in terms of M&A. The Raytheon-United Technologies merger certainly is major. Interesting to note is that Raytheon and United Technologies have been among my top aerospace picks for 2019, and so far, both rose 16% compared to 12% for the Dow Jones.

MRJ Space Jet

Source: MRJ

One company that also will want to be in the spotlight is Mitsubishi Heavy Industries (OTCPK:MHVYF). The manufacturer of the Mitsubishi Regional Jet has some announcements for the Paris Airshow. It’s not known what these announcements are, but the rumors are that the MRJ will be renamed to Space Jet with some changes to be made to the specifications. Additionally, The Air Current reported that Mitsubishi is looking to acquire the CRJ program. That’s an interesting and important development, and if there's no announcement on that front, the press certainly will have questions about that tie-up.

Conclusion

During this year’s air show, I’d be excited to see a Boeing 797 launch, but apart from questions being asked, I do not expect any major announcement such as an authority to offer. Also, a high gross weight variant of the Boeing 787, if Boeing even has been working on it, is not something I expect to be launched during this year’s show. From Airbus, I'm expecting that they will be making quite a big deal of their Airbus A321XLR and the MTOW increase to the Airbus A220. Not having the Airbus A321XLR launch during the show would be rather disappointing. I believe that the Airbus A220 increased MTOW and Airbus A321XLR both have strong appeal to airlines, and Airbus could use the air show as a stage to demonstrate this.

Apart from that, I'm not expecting anything major from the two big jet makers. Boeing is in significant distress at the moment, so it's hard to predict what the air show will look like for them. One area that has grown more interesting is the regional jet market, where Mitsubishi Heavy Industries seems to be trying to take control of the sub-100 seat market.

What aircraft do you expect to be launched (or not) during the Paris Airshow 2019? Let me know in the comment section.

Disclosure: I am/we are long BA, EADSF. 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.