Boeing (NYSE: BA) seems to be slowly coming to terms with demand for a middle of market (MoM) aircraft, catered by the out-of-production 757. In June, Boeing’s commercial airplanes senior VP, global sales & marketing, John Wojick, said in an interview to Times, “A year ago, we weren’t convinced the (MoM) market was large enough to be of that much interest, what we’ve determined over the past year is that it’s larger than we thought.”
The 757 was discontinued a decade back, but the media keeps guessing whether or not Boeing would build the plane’s replacement. Boeing has made it clear that there would not be a 757 replacement, but the company has been in two minds over building a new MoM jet, which lies somewhere between the narrowbody and widebody aircraft, hence the name.
Rival Airbus’ (NASDAQOTH: EADSY) MoM jet A321LR is attracting a lot of interest and winning orders. Airlines are urging Boeing to look into the space and engine makers are gearing up for a possible clean sheet. Pressure is building on Boeing -- will it finally succumb?
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Why are MoM planes in demand?
Answer lies in two words -- seating and range. MoM jets seat 200-250 passengers and fly on transatlantic routes where larger aircraft are uneconomical. They become attractive for shorter routes in highly congested networks or for long international routes where business numbers cannot accommodate larger jets. The last 757 was delivered in 2005 but the jet family is still popular among U.S. airlines.
A recent report from Ascend Consultancy notes there are some 642 routes around the world that can be designated for MoM aircraft. The key target routes, according to Aviation Week, are U.S. East Coast to Central Europe; Europe to the Middle East; North to South America; Europe to West Africa; and Australia to South Asia.
So, why wasn’t Boeing keen?
The 757’s unique technology makes it impossible to reengineer the plane, something Boeing’s done for its other popular models, such as 737 and 777. So, it has to be designed from scratch, entailing single-aisle economics yet larger capacity and more travel comfort for passengers.
To build this innovative aircraft, Boeing would need years of pre-work, not to mention the enormous development expenditure. After the huge cost overruns and teething issues with its last clean sheet plane the 787 Dreamliner, it’s understandable why the company thought it’s better off without aiming for “moonshots".
Is it a clear field for Airbus?
The French plane maker officially launched A321LR (LR stands for long range) in January this year with 30 orders from Air Lease Corporation (ALC). With standard cabin lay-out, A321LR can seat 209 passengers and fly continuously for 4,000 nautical miles (nm). This compares with 757’s 200-228 seating capacity and around 3,900-nm range. Airbus thinks it can sell around 1,000 A321LRs during the plane’s lifetime.
Boeing had pooh-poohed the idea -- commercial airplanes marketing VP Randy Tinseth had told Aviation Week, “The thought of a 1,000-aircraft-size market is frankly a little bit laughable.” But with time, it looks like Airbus got it right.
For starters, American Airlines, United Airlines and Delta Airlines have a combined Boeing 757 fleet of more than 250 aircraft that are more than two decades old and will be retired soon. Then there are carriers such as Air Astana that had to go for Airbus A321neoLRs to replace the 757s for Boeing does not have an alternative. Until Boeing comes up with a new MoM jet, the market is entirely Airbus’.
Is Boeing warming up to the idea?
Boeing doesn’t have much of a choice. Even if its views are different from Airbus’ on the 757 replacement market, there’s no denying the need for an MoM jet in its portfolio, which would fit in somewhere between 737 and 787.
On the matter, chairman Jim McNerney had said in an interview to The Financial Times at the Paris air show, “I know there is a requirement. We are trying to define that with our customers. I am convinced there is an unmet requirement there that we will have to address.” Aircraft leasing companies agree. ALC CEO, Steven Udvar-Hazy, had said in a conference that there would be demand of new jets with seating capacity in the range of 200-250 in the coming 8 to 12 years.
It’s a tricky situation. If Boeing decides to build from scratch, it would be aiming “moonshots” yet again. And if it doesn’t, it loses the market. Boeing investors can only hope that the company comes up with a good game plan.
