A few days back, aircraft manufacture Boeing announced that it plans to replace the 737 Max by 2030. Earlier, the company CEO Jim McNerney had said that Boeing won’t “pursue moonshots,” referring to the 787 Dreamliner.
Without mincing words, he had called built-from-scratch programs “apocryphal risk.”
The company is taking keen interest in building an all-new narrow body plane. The new 737 Max has already bagged quite a lot of orders and is likely to be operational three years from now on i.e. 2017.
The question here is what is wrong with the company’s best-seller 737 – a main source of revenue? Let’s see if we could find the answer.
Boeing wants to innovate instead of going under competitive pressures
Boeing’s move could be a result of the rising threat from the rival Airbus as well as new emerging players. Despite incredible success of 737, the third quarter ended with order backlog of 4,033 units, which is more than 72% of the aggregate backlog.
It is feared that building a new plane is essential as its competitors are likely to offer something very similar to the 737 Max. That’s why Boeing wants to come out with a more advanced product bearing a reasonable price tag. Boeing can easily save on cost by coming up with another derivative plane on its existing platform. But, this won’t help to differentiate itself from the competition as the “innovation” is the best way to fight competition.
McNerney said that the new plane would be a bit bigger than the 737. The fuselage is expected to be made of composite material, which would make it light and even more fuel efficient. In the past, Boeing invested billions in development of such technology for the 787 Dreamliner project. Therefore, it is a matter of reusing that effectively to save money and time.
Losing Business to Airbus A320 family
The thought of building an all-new plane to succeed the 737 is not new to Boeing. In fact, it had occurred at the start of this decade. But, Boeing ditched the idea noticing move of Airbus announcing A320neo – a derivative of A320 which received warm reception from airlines of different countries.
After almost eight months of announcement of A320neo, Boeing unveiled the 737 Max. The time gap here has already given an edge to Airbus as these two planes are fiercely contending for orders. Presently, Airbus succeeded to manage 3,000 orders from 60 customers for the A320neo while Boeing was able to bag 2,325 units of order for 737 Max from 48 customers. Airbus here is a clear winner.
Right now, Airbus is posing a threat to Boeing with the latest addition, the A321neoLR, which is a member of the A320neo family. This plane is gaining traction in the short-haul market over the 737 Max 9.
Entry of new players in the arena
Narrow bodies are expected to account for 70% of the deliveries in the next two decades. To tap into this opportunity, China’s plane maker Commercial Aircraft Corp. of China (COMAC) and Russia’s Irkut MS-21, and Canada’s Bombardier CSeries are ready to upset Airbus and Boeing. Russia’s Irkut claims that its jet has lower empty weight, higher fuel efficiency and better aerodynamics than what is available in the market.
Bombardier is also asserting that its aircraft line is 20% more fuel efficient over similar options with lower carbon emission and lesser operating cost.
Boeing is intelligent enough to see vulnerability of its 737 family. Their new move looks a well thought one. But, it requires some strong decision making to go for an all-new plane.
Source: The Motley Fool