Live

Watch CBSN Live

Boeing's Response to the Airbus A320 Revamp Is Simple: Nothing

I previously wrote about the new program from Airbus to put new, more fuel-efficient engines on the A320 aircraft (now called the A320neo). The rationale makes sense for Airbus, but now it's Boeing's (BA) turn. How will the company respond? I don't think we're going to see anything anytime soon.

Aircraft guru Richard Aboulafia put down his thoughts on why the A320neo makes sense for Airbus and some of those reasons are directly because Boeing won't respond.

One of the issues for Boeing is that it takes more work to put new engines on the 737 than on the A320. The 737 is lower to the ground than the A320, and the new engines have a larger diameter. So while both manufacturers would have to do work, the Boeing guys would have more work to do to jack the airplane up. That will cost more while reducing commonality with the current fleet. As we know from last week, reduced commonality means higher costs for the airlines as well.

The other issue is resources. At this moment, Airbus is ramping up its team on the A350 development, but it certainly has to have some slack to be diverted to this project, especially since the A380 is no longer sucking up much time or money. Boeing, meanwhile, has all hands on deck for the perennially-delayed 787. Until all the problems on that aircraft are worked out, I can't imagine Boeing is going to be willing to take its eye off the ball.

Besides, the 737 is a very good airplane right now, and it is still selling well, so Boeing has less motivation to change. In addition, the risk of losing big orders from its best customers isn't as high as it is for Airbus. As noted by Aboulafia, Boeing-loyalists Delta (DAL) and Continental have taken over the Airbus-loyalists at United (UAL) and Northwest. And does anyone really think Southwest (LUV) is going to start ordering the A320neo? I think not. Same goes for Ryanair, another huge Boeing narrowbody operator. I think that airline has angered Airbus so much that it's unlikely to even have an opportunity.

So instead of jumping into the fray with a re-engined 737, Boeing can just wait a few years. It can get the 787 behind it, wait for the newer engine technologies to fully develop, and then design an entirely new replacement for the 737. While the neo does give Airbus an advantage over Boeing, a brand new 737 replacement would probably put Airbus at a severe disadvantage.

At that point, it puts Airbus in a awkward place. Will a 737 replacement outperform the neo enough to warrant a new aircraft from Airbus? If so, then it won't get the full life of 4,000 orders for the neo that it predicts today. If not, then it might just have to be happy with Boeing having a slightly better airplane. Boeing will be happy with that as well.

So for Boeing, the best plan right now is to sit and wait. If it becomes a real problem, its best customers will be sure to start making demands and then Boeing can respond. But for now, it's smart to just keep the status quo.

Related:

[Photo via Airbus]
View CBS News In