French parliamentarians went a bit crazy and became furious with Air France’s decision to accept bids from both Boeing and Airbus for 100 mid-sized widebody jets.

Boeing’s 787 and Airbus’ A350 are in the running and Air France officials have said that it is likely to be a split purchase.

France continues to own a stake in Air France and is also one of two major stakeholders in Airbus.

I find this ironic since Air France has found it very economical to use Boeing’s 777-200/300 aircraft and owns 60 at present.  The 787 fits nicely into their plans since the transition from a 777 to a 787 is short and easily accomplished.  The transition from an A340/330 aircraft to the A350 is sure to be similarly easy. 

Politics in the airline world inside France is always nationalistic but this move is just a bit too overt for our taste.

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Airbus has committed itself to the A320NEO series recently and Boeing continues to decide to not decide on what it will do with the 737.  All the while hinting at a new aircraft development for a 737 replacement to enter into service around 2019/2020.   Except that Boeing has also hinted from time to time that a re-engine might be in order while also saying that customers don’t want a re-engine. 

In addition, Airbus will be releasing its configuration for the A350-1000 aka 777 killer in the next few weeks.  Boeing doesn’t believe it quite meets the mark without a new wing and Airbus has said nothing about a new wing.  Right now, on paper, the 777-300ER still beats the A350-1000.  Unless Airbus releases a configuration that causes people to pause and gasp, Boeing will most likely not feel too threatened by Airbus for the time being.

And that’s why I say watch Airbus to see what Boeing does.   Boeing knows it can probably win against Airbus with a 737 replacement in the time frame it is talking about while managing to keep customers interested in the current 737 through incremental improvements that should keep the two aircraft competitive.  I’ve felt that Boeing wants to know what Airbus’ move is on the A350-1000 so it knows where to commit its resources.  If the configuration and definition for the A350-1000 moves it into competitive territory with the 777, Boeing knows it needs to get to work on improving the 777 (an exceptional moneymaker for Boeing presently) in order to not lose those customers for the next 2 decades. 

Boeing likely believes it can cover the 777-200ER territory with a 787-10 (and perhaps an incremental improvement to the -10 as an ER model later).  This leaves it free to preserve the 777-300 in its current configuration or find improvements to the existing design or even design a new aircraft family to fit above 787-10 and finish alongside the 747-8i. 

But what Boeing doesn’t want to do is commit to launching 2 new airplane programs simultaneously.  Boeing already knows what will likely happen if it does that.   

With all of that into consideration, I think that once we know the firm definition for the A350-1000, Boeing will know how to sequence its next airplane programs.  It will be either a 737RS first with a 777 replacement kicked off 3 to 4 years later or a 777 replacement first with a 737 re-engine done simulataneously and a 737 replacement coming 10 to 12 years after the re-engine. 

I strongly believe that Boeing wants to do the former sequence (737 replacement / 777 replacement) because it puts Airbus into a corner.  With this strategy, Boeing probably has an all new line of aircraft using the latest technology spanning from 150 seats to 450 seats while Airbus has the A320NEO and A350 series but with a gap between the A320NEO and A350 being filled by what will be quite the aging aircraft:  the A330.   In fact, there already is a gap, although minor, between the A320 series and the A330 series.  And make no mistake:  The A330 will begin to die in another 2 years or so as a result of the A350 and 787 developments. 

My prediction?  I think Airbus will announce nothing that threatens Boeing’s competitiveness in the 777 models.  Sometime late in the fall or early in the winter while riding on an uptick with the deliveries of the 787 and 747-8i to customers, Boeing will announce a 737 replacement program with a big airline order.  Sometime around 2017 or 2018, we’ll see Boeing announce a replacement for the 777 sized  above the 787-10 and right up alongside the 747-8i.

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The US Export-Import bank has announced it will begin backing narrow body aircraft purchases with low cost loans for US domestic airlines. This means domestic airlines purchasing Boeing 737 can now access the same low cost loans that foreign airlines have been getting. Why?

Because the equivalent Canadian institution has decided to do the same for the Bombardier C-Series.

This is good news for airlines, particularly in the United States, because I think we’re going to see a storm of low cost loans made by various governments to support the purchase of new aircraft. No doubt the European governments will do the same to support Airbus. The gloves are off.

I don’t know if this is good for the airline industry, however. Newer, more efficient aircraft in the fleets is good but this kind of loan storm, if it happens, could also have the effect of encouraging airlines to stretch their finances to take advantage of this and airlines do not need to be stretching right now.

In addition, these kinds of loans can distort the aircraft marketplace long term. A buying binge can result in a drought later. I’ll take stability over a flurry of purchases any time. Droughts can stymie aircraft development and I would far rather see a new Boeing narrowbody rather than another 1000 Boeing 737s sold. It’s better for everyone all the way around.

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The National Labor Relations Board has found that Boeing was punitive when it placed the second 787 manufacturing line in South Carolina.   The International Association of Machinists and Aerospace Workers union District 751 filed the complaint with the support of its national union. 

It described this move as coerceive and retaliatory against the union after the union struck against Boeing shortly before that decision was made. 

I’ve no doubt that Boeing did make its decision based upon the effects of that strike in part.  Boeing needs stability and that strike put it at odds with its customers who publicly criticized Boeing during the strike.  However, just because Boeing was uncomfortable with having to make guarantees to the union doesn’t mean it was punitive or retaliatory either.  The truth is, Boeing has probably needed another manufacturing center for the last 10 years. Furthermore, there is nothing preventing union organization at the new manufacturing center.

Things work best when they are in balance.  Until recently, there has been a fairly anti-labor bias going on.  That bias seemed to exist primarily through the President Bush Administration.  With the beginning of the President Obama Administration, the bias seemed to shift rapidly to pro-labor, anti-business.  I’m OK with either shift in general but I have to say that I’m beginning to find the most recent shift going just a few steps over the line. 

Like I said, it’s about balance.  My perception is that we are now “rigging the game” in favor of labor.  Boeing should have the ability to be agile enough to build their aircraft competitively and that should include relocating production to another state if they find their present location and labor climate too difficult to deal with.  Likewise, labor should have the power and option to organize at the new locations and laws governing labor in those new locations.

A lot of labor goes into the cost of building an airliner.  When you start potentially changing the balance of power between labor and the company, you potentially turn a company like Boeing into a non-globally competitive entity. 

And that isn’t something you want to do to a company that can literally change your monthly world trade balance from negative to positive by delivering a few extra aircraft.

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One has to hand it to the Airbus PR machine and COO John Leahy.  Those guys could spin a strike as an innovative development for their aircraft line. 

One of  the latest claims from these fine folks is that the A320NEO is already the best selling commercial aircraft ever.   Not so fast.  While the NEO has racked up some good orders, much of what Airbus is counting as orders are actually just memorandums of understanding.   They are not firm orders in the sense of what Boeing would count as an order.  But it does have some good momentum and that’s great for that product.  It’s getting the kind of updates it really needs and that’s good for anyone operating the A320 series aircraft.

Yes, there is rampant speculation that the NEO could have 600 orders by this summer’s airshow in Paris but let’s see if that develops first before we proclaim world domination.

Mr. Leahy also puts forth the idea that because the NEO has the potential to last until 2030, Boeing will ultimately have to decide to do a 737 re-engine itself.  He also has decided that technology won’t be advanced enough for a new aircraft (Boeing or Airbus) until far past 2020, the date Boeing says it could come up with something to replace the 737.

Coming up with a better, more efficient airliner is a matter of engineering, not developing unknown technologies.  If there is a business case that funds the new aircraft development, then the aircraft can be built.  If anything, Airbus’ decision to do the NEO actually advances Boeing’s business case for doing a new development.  Why?  Because Airbus’ adoption of the CFM LEAP 56 and Pratt & Whitney GTF engines will encourage those companies to mature their products faster, not slower.  The faster those engines mature, the more ready they are for a newly developed 737 replacement.

Mr. Leahy thinks Boeing will re-engine.  I think Boeing will do a new development.  In fact, I think as the case for a new development gets stronger, Boeing may well pull in its date that it could be done by to as early as 2018 or just 7 years from now.  I think John Leahy desperately wants Boeing to keep the 737 because it allows the Airbus to remain competitive.  Most independent observers feel the Airbus A320NEO only manages to deliver trip costs that are equal to Boeing’s current 737, not exceed them.   If Boeing can deliver a 20%+ improvement on trip costs with a new family of aircraft in a timely manner, it clobbers Airbus’ product line right out of the door and Boeing won’t promise what it can’t deliver.

There is one thing about Airbus that really annoys me and, in my opinion, causes trouble in the aviation world and that is its bombastic claims.  I get rather tired of tossing cold water at a company that is actually producing a great, competitive product simply because they cannot be content to be a world player in the aviation world and desire to continually proclaim themselves the World’s Greatest Ever.

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A local friend made a comment to me about Delta Airlines and their mish-mash of a fleet vs Southwest Airlines and their one aircraft type fleet.  His comment was aimed at the success difference between the two.

Well, not so fast.  When you consider airlines 30 years ago and airlines of today, there is one thing that stands out.  Fleet size.  Today’s airlines such as Airtran and JetBlue would be behemoths in the market place in 1980 with 138 and 163 aircraft respectively. 

Let’s take a look at what truly large airlines have in fleet size.  Southwest Airlines, the 800lbs gorilla of LCC carriers, has 547 aircraft of which all are 737s, yes, but which is actually comprised of the 122 passenger -500 and the 137 passenger -300/-700. 

United Airlines and Delta Airlines both have over 700 aircraft and American Airlines presently has about 620 aircraft.  Each of those three carriers have a broad range of aircraft types, seating capacities and range capabilities.

A one type fleet works well for the smaller airlines because, yes, it does allow them to save money on maintenance and it keeps things simple when negotiating with unions about how much one is paid to fly what type for what distance.

But as you grow larger, it really is better to have some flexibility.  Even Southwest acknowledges that the Boeing 717 aircraft they’ll gain from Airtran (number over 80) should help quite a bit in matching the right aircraft to the right route.  They’ve gone farther than that, though, by ordering the 737-800, a larger aircraft than they’ve ever operated before. 

If Southwest expects to continue to grow, they’ll have to move into both larger and smaller markets than they have customarily entered in the first 40 years of their life.  The fleet types aren’t what will make their lives complex when it comes to the cost(s) of maintaining them.  What they will have to contend with is the idea that a pilot of a smaller aircraft should earn less than the pilot of a larger aircraft.  They’ll have to deal with scheduling flight attendant crews of two different sizes and that’s something they’ve never had to do before.  Fortunately, the range in size between the 717 and the 737-800 is not so great that they can’t argue that all their pilots should be paid the same (and I would agree.)  The truth is, while their fleet may be different, the missions aren’t that different in terms of distance, turnaround, etc. 

Delta is succeeding with a broad range of aircraft in ways not seen before.  Yes, they have added complexity but an airline big enough to operate more than 700 aircraft should be complex.  Could they simplify?  Certainly.  Should they?  I’m not so sure.  There can be disadvantages to dealing with one aircraft manufacturer instead of two in terms of the bulk of a fleet. 

Neither Boeing nor Airbus can really supply enough aircraft to Delta on a timeline that would make sense to replace, for instance, Delta’s 563 single aisle aircraft.   It would take 40 aircraft a year to replace that fleet over nearly 15 years.  Those manufacturers have to supply a number of other airlines as well. 

Boeing and Airbus can deliver about 32 to 38 aircraft a year in their 737/A320 families.  A Delta replacement order would conceivably consume more than one month’s production capacity in a calendar year and there are a whole lot more airlines out there of size than just Delta. 

By using both manufacturers, Delta would get more flexibility in deliveries and more reliability as well.  This is true for any airline of size.  In addition, by making each manufacturer compete for those orders, the airline is liable to receive a better price on each aircraft and when you are talking about 500+ aircraft, that could well mean savings reaching into the hundreds of millions of dollars.

The days of ordering “just Boeing” or “just Airbus” may well be over for any airline of significant size.  This may be true even for Southwest in the distant future.  Boeing and Airbus are unlikely to remain in the 100 to 130 seat category and will probably cede that to the next generation manufacturers such as Embraer and Bombardier.  That doesn’t mean an airline, even an LCC doesn’t need those aircraft, it does. 

It’s notable that JetBlue already has a two fleet strategy as well as Airtran and Frontier.  Southwest effectively has a two fleet strategy and probably needs 3 different sizes to work with going forward. 

Flexibility is the key.  Routes change over time.  Some routes yield more and more passengers while others are best demoted to smaller aircraft over time.   Southwest wouldn’t be flying 737s to places like Lubbock, Texas if it didn’t need a one-stop location to continue that flight to a larger city from the Dallas area.  Southwest flights to Lubbock and El Paso on 737s continue on to other cities such as Las Vegas, Phoenix and Los Angeles. 

But when the Wright Amendment goes away, the need to fly those one-stop flights goes away.  I actually look for Southwest to start evaluating aircraft such as the Embraer E170/190 series or Bombardier C900/1000 or CS Series in the next 5 to 8 years. 

You’ll find that the one fleet strategy is effective today only for airlines requiring a fleet to fly between mainline destinations.  Once they enter into smaller markets and larger markets, two or more types are not only required but justified.

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Apparently Boeing is sounding out customers about the much talked about 787-10, a supersized version of the 787-8, for delivery to customers some time around 2016.  Such an aircraft would be roughly comparable to the current 777-200LR in size but a bit hamstrung in range by comparison. 

Airlines are interested.  Some have been interested in this paper aircraft for 4 years and its economics, at least in theory, are very attractive when compared to similar Airbus products in development. 

The aircraft clearly can grow in length and that’s good.  However, with a rough range of about 8000 statute miles, I suspect airlines will be slightly less enthusiastic.  This is an aircraft that will need an LR version capable of 8500+ nautical miles and that, I think, will mean a different wing and bigger, more powerful engines.

It’s certainly possible to fit a bigger wing to that aircraft.  It’s straight forward engineering.  For those of you who grimace, I’ll remind that that is exactly what happened with the 777 when the -200LR and -300ER were developed. 

Engines are purely speculative.  I suspect the GE GEnx engine has a bit of room to grow yet and the Rolls Royce Trent 1000 probably has some room as well.  However, any engine conceived from those two engine families would probably be at its upper limit.  If the weight for such an aircraft could be kept down, that would be fine. 

It’s unlikely that such an aircraft will be formally launched in 2011.  If Boeing goes anywhere with this, it’ll probably be formally offered some time in the first half of 2012.

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The Boeing replacement for the 737 may end up as the most hotly speculated about aircraft in history.   This aircraft was first delivered in 1967 as a 737-100 seating about 100 people.  In fact, it was an exceptionally slow seller for most of the 1970s.  It’s now nearly 45 years old and the largest of the currently family, the 737-900ER, can seat potentially as many people as 200.  The first 737s had a range of about 1600 miles and the current longest range 737 can fly about 3000 miles. 

This aircraft has doubled its size and range over its life in what has been really 3 model ranges over that lifespan:  The original -100/200 aircraft, the -300/400/500 and then the -600/700/800/900.   There are over 6000 of this type delivered with more than 2000 still on order and it possesses possibly one of the best records out there for reliability. 

Replacing this aircraft is no small task and Boeing gets one chance to do it right.

It’s all about efficiency and the low cost per available seat mile that can be obtained.  Airlines want to see a replacement that gives them not just a good gain upon delivery but which also affords them the best advantage over the life of ownership. 

Capacity:  Most likely we’ll see an airliner family that seats from 150 to 210 people.  Airlines are already seeing the value of switching from the -700 model to the -800 model because they can fill the seats without really any additional cost.  (This was the main reason why the -600 never really took off:  airlines could fly the -700 for about the same costs and enjoy more flexibility.)   In addition to a robust passenger range, I expect that we’ll see the lower cargo area designed to accomodate a bit more payload than the present airliner.   While this aircraft will never be an uber freight hauler, the present 737 has always been a bit constrained both in volume and payload weight.  An improvement in that area will be desired.

Fuselage:  Boeing has already expressed doubt that their approach with CFRP for the 787 won’t necessarily scale down to a 737 type replacement.  That’s probably true but that approach is already several years old and don’t rule out some sort of plastic airliner for this development.  New materials are developed every year and the big advantage to this approach for such an airliner is that it helps with maintenance.  There would be reduced corrosion over the life of the aircraft and reduced fatigue as well.  Whether it is a composite barrel or plastic panels on a metal skeleton, it’s liable to be plastic of some sort.  In addition to reduced maintenance, it will also lighten the airframe even a small amount and reduced weight translates into carrying more payload a farther distance.

Range:  The base range for the next replacement will be, at the least, somewhere between 3000 and 3500 nautical miles.  In other words, expect North American transcontinental range at minimum.  Will it be designed to fly a 757 style mission across the Atlantic to Europe?  That’s anybody’s guess but I think probably not.  I don’t see a 5000nm range being designed into this aircraft as it really pushes the weight of the airframe in directions that designers are unlikely to want go in.   The 757 was an anomaly in aircraft design because engines available for that aircraft during its design were uncharacteristically robust.  Generally speaking, engines have to be pushed to meet such requirements.

Engines:  I don’t see a twin tail, open rotor design.  Instead, I see a relatively conventional layout with engines on the wings.  I do, however, expect two engine choices on the next design.  Why?  Because so many will be ordered that two engine manufacturers can enjoy good economies of scale and buyers like choice when it comes to engines.  

I think we’ll see engine thrusts starting somewhere between 20,000lbs to 22,000 lbs and ranging upwards to somewhere around 30,000lbs to 32,000lbs with bypass ratios in excess of 6 .0.  These engines will have big fans and they will drive the aircraft to be higher off the ground.  That’s OK because the typical airline using this aircraft today is nothing like the typical airline who used it originally.  Airports and airlines are better equipped and while loading will require equipment by default, it will still be easy to turn around this aircraft.  I expect we’ll see some cargo hold innovation to speed loading and unloading in this aircraft.

I believe the engine suppliers will be CFM(or, perhaps, just GE) and Pratt & Whitney.  Rolls Royce has never played well in the single aisle market and their basic Trent 3-spool design just appears to be too cumbersome to scale down for this aircrafts needs.  A Rolls engine in that approach would be heavier and less optimal for the typical flights.  In addition, Rolls Royce has done very little innovative work for these kinds of engine requirements. 

Wings:  Boeing has always done a good job of giving its aircraft enough wing for growth.  That won’t be any different here and this is where I think we’ll see some real gains in fuel efficiency.  Wing design has come along way at Boeing and they’ll push their technology quite a bit in this area.  I think we’ll see raked wing tips rather than winglets in the next aircraft.  They’ll likely resemble the 787 more than anything else although without quite the gull-like appearance in flight due to being shorter.   I think they’ll be largely plastic and I think they’ll retain good short airfield performance to keep the LCC airlines happy since they have a habit of flying into smalller, more obscure airports as a rule.

Twin Aisles:  I doubt it.  It’s a concept that has received attention but, at the end of the day, a wider fuselage to accomodate two aisles translates into a wider fuselage.  A wider fuselage translates into more drag and that means more fuel to power it through the air.  What I do expect is an ever so slightly wider fuselage that is likely more “round” a la Airbus. 

What I do think we might see is some sort of innovative approach to making it possible for the airline to load and unload from front and rear doors on a regular basis.  LCC’s like their fast turn-arounds and offering the ability to do this in a more self-contained, efficient manner will only make them happier. 

Passenger cabins:  I expect Boeing will certainly work hard to design an open and pleasant passenger environment that resembles their approaches with the 777/787/747 as well as their new signature Sky Interior.   We might even finally see some suggested seating innovation but no one owns this domain very well.  Boeing works with outside suppliers on behalf of its customers rather than supplying the seating themselves. 

When:  I expect a target for initial entry into service of 2019 to 2020.  Anything past that offers Airbus too much opportunity to steal customers.   It can be done and it is going to require quite a few resources.  That’s OK because this kind of effort should be flawless in meeting both requirements as well as in its execution.  This is potentially an airliner that sells in excess of 10,000 aircraft.  You can’t let Airbus continue to fill needs for customers (especially customers who have blended Boeing fleets a la United and Delta) while you dither around waiting for the perfect opportunity.  Once another guy’s airliner is purchased, it can take from 15 to 25 years to have another opportunity to fill that need. 

It will be a more revolutionary aircraft than evolutionary certainly but expect it to not look entirely different from what it does today.

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Congratulations on the KC-46A win.

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Boeing has received a tremendous amount of criticism for how it managed outsourcing construction of the 787.  Hindsight is 20/20 but that doesn’t change the fact that it would appear that Boeing hadn’t fully considered the implications behind their decisions in this area.

This was about lowering risk and saving money in the development of the aircraft.  After everything is said and done, Boeing will have likely spent as much or more than if it had done this work itself.   In the early 2000’s, Boeing was ( and to some degree still is) under control of former McDonnel Douglas executives rather than Boeing management and McDonnel Douglas had spent the previous 20 years outsourcing work to save money.  How these executives came to be in control of Boeing still defies my imagination given the business track record McDonnel Douglas had enjoyed prior to being swallowed up by Boeing.

There is nothing wrong with outsourcing.  However, given the complexity of the job involved with designing and building an airliner such as the 787, there was a key ingredient left out of the mix:  close and frequent cooperation.  To be fair, Boeing had never done this kind of thing on a global scale and its primary outsourcing (prior to 787 kickoff) was with Japanese firms.  Firms that, today, are still doing their job with precision and care. 

A better approach would have been to insist that these various firms co-locate with Boeing in the Washington area and to insist that these partners work cooperatively with Boeing workers both on the design and initial production phases.   Other companies more closely associated with global production such as Ford and Volkswagen have already learned that it is important to keep partners close by in the manufacturing process.   Ford’s newest assembly plant in Brazil sees a variety of partners actually co-located in the manufacturing facility working literally right alongside Ford employees. 

Outsourcing doesn’t mean inviting your partners to do what they want when they want.

If anything, outsourcing requires these partners not only to be in close communication with Boeing but also with each other.  Each major sub-assembly that is shipped to Boeing is being made by another partner and in all cases they need to fit together and work together with the same levels of quality.   When you work with global partners, they aren’t just far from you.  They are potentially even farther from the other partners producing items that must fit and work properly with each other’s work. 

Did outsourcing go too far?  In terms of execution, yes.  In terms of risk sharing, perhaps not.  The original Boeing 707 prototype, the Dash 80, cost about $16 million to develop and was an exceptional risk for Boeing to take on.  Today, some are projecting the total costs to Boeing for the 787 nearing $16 billion (with a “B”) and collecting together that kind of cash on one’s own is difficult to do no matter what company you are. 

Going forward, outsourcing for Boeing will have to be done a different model.  Not just to reduce execution risk for Boeing but to also ameliorate the effects that one partner’s tardiness or poor quality might have on another partner.  While a few partners have performed poorly, that effect isn’t just on Boeing.  Every partner with Boeing that is performing well is being affected by the slow development and certification process.  They planned to be selling their parts in high quantities by now and instead they are enjoying the high costs of slow and even sporadic production while they wait for Boeing to get the aircraft going.

Those companies are being severely impacted today and they’ll want better performance on the next Boeing project to realize the fruits of their success earlier.

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I was amused last week by a comment originating from Airbus that they believed that Boeing would actually re-engine the 737 rather than proceed with the new build replacement so frequently talked about lately at Boeing.  Amused because while I do think the Airbus decision was right (in that it did offer good gains and it was what they could do between now and the middle of the next decade) but also because the 737 is reaching a level of maturity in efficiency that the Airbus A320 hasn’t come close to yet. 

I always kind of marvel out how just a 1 or 2 percent increase in efficiency can yield such huge savings for airlines.  Not because I don’t understand but because it takes such determination to find these savings.  Engineers at Boeing have been doing this for a long time on the 737.  It wasn’t just adding winglets but lots of tiny things adding up to small percentages of efficiency gains that net big dollars in costs savings.   The driver for this initially was to compete better with the A320 but the truth is that a good aircraft manufacturer always pursues these incremental gains over the product lifespan. 

But as time goes by, there are diminishing returns for the effort (read: work) that has to go into finding these gains.  The latest generation of Boeing aircraft have seen those pursuits for nearly 15 years and they (Boeing) have been relentless in their pusuit.   Finding those gains going forward for the next 10 years is going to cost a lot more for a lot less gain. 

There are always outside new developments.  Just last week we learned that easyJet is painting their aircraft (Airbus A320) with a new paint technology that is much thinner than previous paint techniques.  Provided the paint proves to be durable over an appropriate lifespan, easyJet expects to see efficiency gains of 1 to 2 percent due to less weight an and an aerodyamically smoother surface across the aircraft.  Provided the process isn’t terribly more expensive and it is as durable, this could save countless airlines a great deal of money over the ownership of an airplane.

No matter what each manufacturer does in its product line of significant note such as re-engining or designing new aircraft, the relentless pursuit of small incremental gains in efficiency will always go on and never more so than for the kind of airliners that the A320 and B737 represent.

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Airbus is reaping big orders and a renewed interest in its A330 since Boeing has been unable to deliver the 787 even remotely on time and that is going to hurt Boeing in a few ways.

Delayed by 3 years now and with only some hope of commencing deliveries later this year, Boeing is paying penalty payments for its poor performance and those payments are being walked across the street to Airbus, not Boeing. 

Boeing is being hurt since it hasn’t been able to offer a substitute aircraft to the airlines that the airlines want.  It’s cheaper to build an airplane at cost than it is to pay big dollars in penalty payments that go to the competition. 

What’s worse, Airbus is attracting a long look from traditional Boeing customers who now have little hope of obtaining a 787 any time in the next 5 or 6 years.  That’s great for Airbus but it is a warning to Boeing as well.  A stubborn resistence to the idea that bringing even more control of the 787 supplier network under Boeing’s wings is creating problems that some customers will have to question if they’ll ever be resolved.

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The next round in the subsidy fight between Boeing and Airbus is heating up with each company’s interpretation of WTO findings with respect to Boeing while we await “official translations” of the WTO ruling.  Airbus, of course, says Boeing got tons of subsidides and hurt Airbus by as much as $45 Billion.  Boeing says the ruling is relatively benign and just $2 Billion in subisidies will be noted.

As is usually the case, I expect that neither is exactly right.

However, in my opinion, it will be very difficult for the WTO to find that Boeing has been as competitively advanced by subsidies as Airbus.  At the end of the day, Boeing is a commercial enterprise with real shareholders operating in a country that expects it to commercially succeed.  Airbus?  Well, they would be the opposite of that. 

Like it or not, the world at least accepts and tacitly endorses companies that are competing and being responsible to shareholders to return a profit on investment.  That effort might be helped by subsidies but it’s still a commercially competitive enterprise.  Airbus is competitive but at the cost of inefficiencies as a result of it being a jobs program and a military/aerospace program for France and Germany.  If you removed subisidies from both airlines’ schemes, Boeing still has more than adequate opportunities to succeed whereas Airbus doesn’t. 

Even the Boeing ruling hurts Airbus with its timing.  This expected ruling once again, highlights even more egregious behaviours on Airbus’ part and that is concentrated into arguments against its parent company, EADS, in the KC-X tanker competition.  It’s a right line that EADS has to walk because, politically, they can’t afford to be seen as a fully subsidized effort to win business from the US government that inherently does take away both jobs as well as economic development from these shores.  On the other hand, EADS need to be a player in this kind of competition at some point or its political masters will find less and less incentive to advance its causes. 

The DoD continually refuses to make allowances for subsidies.  In fact, it almost gleefully rubs its hands over the idea that EADS might “buy” its way into the program which does yield savings for the DoD but also comes at a huge political cost on both sides of the aisle.  At the same time, no politician can quite afford to be seen making Boeing a sole source for this either. 

It’s a mess with no great solution.  One solution promoted is a split buy.  Politically, this makes sense.  Operationally, the only good choice is the Boeing in that it allows the military to project force in the way only the US Air Force can manage to do. 

I think this latest round makes the KC-X tanker competition even more toxic and I fully expect further delays in its award while DoD masters wait for things to settle enough to determine the political winds.

Note:  This writer works for a major US aerospace company that is a full partner on both programs.

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Boeing’s CEO, James McNerney, reiterated Boeing’s view that re-engining the 737 even in light of Airbus’ A320NEO announcement is not the pathway to success for Boeing.  They continue to believe that if a new 737 replacement is forthcoming in the 2019/2020  timeframe, customers will wait.  I agree.

However, if customers are asked to wait until 2025, I’m not so sure.  There is only so much more additional performance that Boeing can get from either the airframe or the engine on the 737.  Let’s not forget that, in many respects, the current 737 lineup continued to perform well against the A320 in part because of the development of the winglets and the evolving refinement of the CFM engine.  Additional gains are going to be increasingly difficult to find.

Also of concern is McNerney’s announcement that research and development will be going down over the next couple of years and that they intend to cut back on some of their engineering resources which are extraordinarily high (say McNerney) at present while retaining their core capability.   While I understand the cravings for normalcy, this worries me. 

To really get a 737 replacement out in the 2019/2020 timeframe, it’s time to get started now.  You have effectively just 8 years to redesign another technically innovative aircraft that will compete for 20 years or more.  Schedule is more critical in accomplishing this than budget is.  It takes time to design innovative technology and implement it into a product that must be 99% reliable “out of the box”.   Boeing’s schedule for doing so is, in some respects, already eroding.

I think there is more time to consider options for the 777 line than there is for the 737 replacement.  Enough airlines and, in particular, 737 customers have signaled the very strong desire for a better airplane. To act as if you have all the time in the world or even little competition for these people is a bad idea.  Even Southwest acknowledges that they can handle transitioning to a new type and they don’t mean just transitioning to a new Boeing. 

There are 3 SuperLegacy airlines who’ll be shopping in the next 1 to 2 years for fleet replacement and 2 LCC carriers who need to find new efficiency gains in their fleet (Southwest and Ryanair) who could literally place enough orders to pay for the 737 replacement.   Having something that will significantly beat the A320NEO in the stated time frame that also provides for future efficiency and a product line capable of lasting 20 years is almost a necessity rather than something to study for another 2 years.

The 737 replacement won’t be an evolution of the 737.  It will be much more a revolution for single aisle aircraft much as the 787 is for medium capacity, twin aisle aircraft.   Furthermore, I think you would want to have that program on firm footing and about to produce new aircraft as you begin to enter into engaging on a 777 evolution or replacement later in the decade.

So what’s the hold up?

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It has been reported loudly that Delta is poised to issue an RFP (request for proposal) for as many as 200 jets and this is an order no manufacturer wants to lose.   The rumour comes just days after a record breaking Airbus order from IndiGo of India.

At this point, it’s still rumour but this one strikes me as pretty much dead on.   Delta has a huge fleet (720 aircraft with about 40 orders in place which include the deferred NWA order for the 787) and quite a few of those aircraft need to be replaced now or in the immediate future. 

Delta has the Northwest fleet comprised of the very old DC-9-5o, MD-88, MD-90, 757, 747 and some older Airbus equipment.  The Boeing fleet from Delta’s legacy side isn’t quite as old but there are some 757s and 767s in need of replacement as well.  Considering the widely varying fleet, it would come as no surprise that an replacement order is due.

Oil prices and future fuel prices will also drive the need for this order sooner than later if Delta’s goal of a consistent operating profit is to be realized. 

Pundits think this is Boeing’s to lose and I disagree.  Richard Anderson, CEO of Delta, has much more history with Northwest and he is no Airbus hater.  This will be an extremely heated competition and I will say that if Boeing were to lose this order or a significant portion of it, that will sting Boeing and its product line for years to come.

The prime driver for selection is going to be based on a number of items.  First and foremost, trip costs for aircraft to serve a particular grouping of routes.  We’ll see orders for single aisle aircraft to serve what I would call non-transcontinental routes.  In today’s world, that would be the Airbus A319 and Boeing 737-700.   Having trans-continental capability in the aircraft would be a plus but these aircraft are going to serve the focus cities of the airline with routes stretching out from the cities but not across the country.   The mission that the MD-88s, MD-90s, Airbus A319s and Boeing 737-700/800s are serving today.

The A319s are brand new and so are the Boeing 737-700s/800s.  This is going to be about replacing the McDonnell Douglas fleet.

Then there is a need for the larger trans-continental capable aircraft that remain single aisle serving longer trunk routes that won’t justify a widebody.  Currently, the Airbus A320 and Boeing 757 are serving those routes.  The A320’s arrived in early 1990’s and the 757s date from the early 1980s to the late 1980s.  The options for replacement here are the Airbus A320/321 and the Boeing 737-800 and 737-900ER.    Neither aircraft actually “replaces” a 757 which has great range and great payload.  I don’t think the A320s are going anywhere yet so this will probably involve a 757 replacement and they (Delta) may or may not want it to harmonize with their existing A320s.

Then there are the 767s.  Some are getting old and some are quite new still.  Delta needs an aircraft stretching between what a 757-300 offers and an A330-300 offers.  The 787 fits this and the fact that Delta has deferred its legacy NWA order for these makes me think that these aircraft won’t be candidates for replacement.

The 747s are pretty old and frankly I don’t think these we very well cared for either.  They need to be replaced and I do think we’ll see orders to do this on these aircraft.  None really serve routes that demand 4 engines so I think we’ll see a replacement oriented around 2 engines.

I think it’s anyone’s guess on the single aisle orders.  Airbus will fight like crazy to win this order with their A320NEO options and Boeing may well have to announce a 737 replacement at a great price to win it back.   Boeing should actually have great incentive to get going on the 737 replacement if Delta is truly interested.  With Delta, Southwest and, potentially, Ryanair all wanting a better 737, there is an exceptionally strong business case to get going on this.

If Boeing doesn’t offer a better 737 in this, I think the order goes to Airbus.

As for the 757/767 replacements . . . well, I’d give the edge to Boeing.  I think the 787 *is* a good answer for these aircraft.  They offer the right amount of extra capacity for growth, long haul capability, extremely high efficiency and flexibility.  I do think it possible that an order might be mixed between the A330 and 787 unless Boeing gets off its duff and gets that 787-9 into production.  The 787-9 is the A330 killer.

Since I don’t think the A330s are going anywhere, I don’t see much opp0rtunity for Airbus’ A350 in this mix.  It’s deliveries are too far off and the A330s just don’t need to be replaced for a long time.

I think Delta’s large widebody strategy is likely going to be a mix of 777-200s and the 777-300ER to replace the 747s.  They already have a fleet of 777-200LR with GE engines so I think they’ll order 777-300ERs with GE engines to replace those 747s.  It will do everything the 747 will do only more efficiently.  I do *not* think the 747-8i will enter into this order.  Delta doesn’t need the capacity and the 777-300ER will serve all the routes the 747 is currently serving with no problem.  The A350-1000 is far too far off and its ability to perform is simply way too unknown for this to be serious contender at Delta.

I do not think that Bombardier or Embraer will enter into this order at all.  They just don’t have a product that meets the needs of an airline like Delta very well at all.

Don’t expect an order announcement for about a year.  Delta will let the manufacturers fight it out with best and final offers for quite some time and it will take time itself to do a detailed analysis.   But I can’t wait to hear their decision.

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I have wondered for some time now why the Sukhoi Superjet 100 hasn’t gotten more attention both in the media as well as from western airlines.  This really isn’t your father’s Soviet airliner.  It isn’t your father’s regional jet either.  This is a regional jet that has gone through design and development and through test with some delays but without too much drama and it’s soon going to fly with an airline.  Aeroflot gets to be the first.

Maybe there is stigma from being a Russian design and maybe there is stigma from being an airliner going into service with a Russian airline first.  There shouldn’t be.  Aeroflot wants just as much efficiency as any other airline in the world. 

At first glance, this airliner might be a touch small for the markets it is entering.  I’m not sure that’s the case.  So far, the Superjet is on target to be about 6% more efficient than the equivalent Embraer and that is no small achievement given that the Embraer E170/190 airliner is pretty new itself.  The Sukhoi actually hits a bit of a sweet spot for US airlines in that it can serve as a regional jet (not a regional jet doing mainline long thin routes) and do it with competitive efficiency. 

One area that this program has suffered problems is in the engine.  The PowerJet SaM146 is a partnership between SNECMA and Saturn NPO.  Most of the engine comes from SNECMA who has ample experience in building a well designed engine.  However, production problems at the Saturn NPO plant have slowed deliveries.  This is not anything that hasn’t been experienced by virtually all engine programs.  The real measure is in whether or not they get the problems ironed out and start producing engines that are satisfactorily reliable and in sufficient quantities to meet production demand.

At the least, I think airlines should be taking a strong look at this aircraft.  There are a few detractions or unknowns with this airliner.  If you’re going to bring an airline type into your fleet, its efficiency is certain a big factor and so is size but there are other components not talked about enough.  An airline wants to know that the manufacturer can support the aircraft with maintenance and parts and it wants to know that it can do it where the airline is using that aircraft.  I haven’t been able to find out much about what Sukhoi and its partners are willing to provide in this area but it certainly shouldn’t be too difficult to meet those needs on the European continent initially.  With Boeing as a consultant on this project, I wonder if Boeing couldn’t be engaged to support the aircraft in the western hemisphere.

Another component is reliability.  So far, we know this jet has done pretty well in testing and it was designed to meet all western standards for certification.  That does mean both Europe and the United States.  But how that aircraft actually performs when in use by an airline day in and day out is still unknown.  If it turns out to have a poor dispatch reliability rate, no one in the west will be interested.  Sukhoi and its partners get one, perhaps two, chances to prove this airliner’s ability to perform day in and day out. 

To persist in the idea that a Russian designed airliner would be inherently wrong to choose is bad.  The Russians have been designing and building strong, reliable jet aircraft for nearly as long as the west.  They have excellent engineers and aeronautical skills.  They do already know how to build a big jet and they are, after all, the only other country with a space program as long and as technically successful as the United States.  In short, they do have a great body of aerospace knowledge and skills.  It’s an aircraft to watch over the next 2 to 3 years.

It’s an airliner that can actually deliver on its promises and be of real use to a variety of airlines.  This stands in stark contrast to those airliners being designed presently in China, the COMAC 919 and ACAC ARJ21.

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There have been some truly disappointing revelations about the 787 and its development over the past 2 months.  We have learned that more than 300 aircraft were priced at or below $76 million excluding engines.  A startingly low price for this class of aircraft no matter what it is made of.  We’ve seen just how bad the vendor management has been for this global product and it is highlighted by Boeing buying these facilities to run them themselves to achieve better production rates and quality control.  Finally, we’ve learned that many of the technological approaches involved in this aircraft are going to require a longer period to mature than was originally expected as well.

Richard Aboulafia has referred to this program as a disastrously executed, brilliant vision and that strikes me as real truth at this point in the program.  He also speculates that the 787-8 may well be the “interim” aircraft while the -9 actually ends up meeting the performance needs of airlines in the long run.  That, too, strikes me as real truth.

What hasn’t been considered yet is where the ultimate solutions found for the 787 influence future production.  I continue to believe that Boeing hasn’t laid a complete egg with this aircraft.  I think it will prove to be, in many respects, a legendary airplane over time.  I think it will have a long production run and favorable reviews through its lifetime. 

Once these solutions are found and that oh so necessary experience is, well, experienced, it will have a positive influence on future aircraft development.  Boeing may no longer be poised to earn scads of profit on the 787 but it is well positioned to use its body of knowledge to earn scads of profit on other aircraft it needs to build.  They will have gone through all the pain necessary to know how to apply these new technologies to a 737 replacement or a 777 replacement/enhancement and that will serve them well in the future provided they don’t let lose all those people involved in this program.

The 737 replacement may not use these exact approaches such as CFRP or an all electric architecture but it will use some variation on a theme for that technology and they’ll know how to do it better.  They’ll be past the hump, so to speak.  This speaks well for Boeing in the latter half of the next decade.  Right now, they’re hurting.

But also consider that Airbus hasn’t pushed the envelope nearly so much and they have a great deal of learning to go through still.  And as tough a road as Airbus has in front of them with existing programs, that forecasts still more pain in the future.

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Next up:  World Alliances

There is never that much revolutionary change in alliances.  Last year, there was a fight over JAL between Oneworld and SkyTeam and Oneworld won but they really were destined to.  It made sense for JAL.  The alliances worked a bit to get better access to areas they were deficient in and to a large degree, they were successful.  I don’t expect much change, if any at all, this year.

The Middle East:

Emirates did what Emirates does:  it ordered more aircraft.  I did what I do:  failed to see how they’ll use all those A380s and 777s.  The financial scene in the Middle East and, in particular, the UAE continues to be weakish and while I suspect it will recover somewhat this year, I think the area no longer carries that gleam it once did.  I don’t see any failures in the near future but I don’t see any airlines really blooming either.  Success there is, as is true for most businesses there, fairly dependent upon oil prices.

India:

Nothing astonishing happened there but it was already pretty mucked up.  It remains mucked up and will likely stay mucked up this year.

The Far East:

China did kind of force their airlines into agreeing to buy Chinese aircraft as I predicted.  In fact, Chinese aviation is suddenly acting very Chinese in that it is being required to toe a more obedient line.  Face is everything there and I don’t like it when airline businesses are operating on the basis of “face” rather than good decisions.  It’s notable that in the launch orders for the COMAC C919 aircraft, each airline took up just 5 aircraft orders each.  They don’t want that airliner any more than anyone else.

JAL has done OK for the year.  They’ve made progress with their finances and they did make some hard choices.   They did have to file for bankruptcy protection and no one should have been surprised about that.  The new CEO, Kazuo Inamori, and President, Masaru Onishi, are succeeding and making hard choices.  Frankly, more so than is characteristic of a Japanese company and they deserve credit and support.  This airline isn’t fixed yet but it is on its way.

Oceania:

QANTAS got hit pretty bad by the Rolls Royce failure on its A380.  United Airlines is still on the US-Australia routes but badly needs to upgrade its product and it doesn’t appear positioned very well to do so.  Perhaps Jeff Smisek & Company will address that better this year.  Delta and V Australia didn’t get to form an alliance and they’re trying again.  Someone has to give in this area and it will be either in the form of a codeshare alliance between Delta and V Australia or in the form of an airline withdrawing from the market (United or V Australia).

South America:

LAN, in fact, did continue to succeed in South America.  So much so, they bought TAM to create LATAM and then bought AIRES (a Colombian airline)covering both the east and west coasts of South America.  LAN is, in my opinion, now a SuperLegacy of South America and that’s a bit dangerous for them.  South American governments are more protective of their countries airlines that is the custom in other parts of the world.  

Curiously, LATAM is now operating airlines in two different alliances:  Oneworld and Star Alliance.  While there is speculation that they’ll continue this with LAN brands in Oneworld and TAM brands in Star, I think they’ll have to pick one and this may well mean a big battle among all three alliances.   This is an area where SkyTeam could do well for itself by gearing up for battle now.

Aerolineas Argentinas:  Well, what can I say?   Well, I’ll say exactly the same I did last year. 

This disaster is much like the country itself.  It won’t go away but it won’t perform either.  No outside airline will consider taking it over after what happened with Grupo Marsans’ ownership.   They lack an appropriate fleet for their flying, a strategic plan for stabilizing their revenues and no clear plan for future growth.  But the Argentinian government also won’t let them go away.  It is a matter of national pride.

LAN Argentina is growing in Argentina but somehow I remain skeptical that it will be allowed to succeed too well.  Why?  For one reason, the government of Argentina owns Aerolineas Argentinas and it has a vested interest in that airline earning money.  For another reason, LAN Argentina is owned by the LAN Group of Chile.  Look up how Chileans and Argentinians feel about each other.

Colombia / Central America: 

Avianca TACA is doing fine and I look forward to seeing how they’ll compete against LAN. 

Venezuela:  Bah!

Europe:

British Airways accomplished a few things.  They got into a royal battle with their flight crew that remains unresolved today in part by being petty.  Their flight crew union, Unite, furthered that argument by being petty.  BA did get their merger with Iberia accomplished and after many, many years they have their anti-trust agreement for trans-Atlantic flights between its European Oneworld partners.

Look for the BA/IB union to do OK in its first year and they may even start looking for another partner as soon as possible.  The anti-trust agreement between Oneworld partners should also add to the bottom line.  However, it’s time to settle this fight with Unite and it’s time for Unite to get real.

Lufthansa is moving along and did do something with their BMI purchase.  I don’t think it did them any good when its CEO, Wolfgang Mayrhuber, started complaining about its ability to compete with the likes of Emirates.  Whether or not he had a real point (and he probably did), it also did signal just how hard a job they’re having with the task of competing with the Middle Eastern airlines.

They also still have their A340s and their plans to add the 747-8i.  They got their first A380 and all I see is fat, fuel consuming airplanes.  This is going to be a problem for them if oil prices rise much more and when you consider that much of their competition is flying fuel efficient A330s and 777s, it makes you wonder about their long term strategy.

KLM/Air France:  More of the same.  I think this airline will need to make an order for new widebody aircraft soon.  Because it remains, essentially, a French airline, I see a large order for A350s and a small order for 777s.  I do not see the 787 in Air France’s future.

Airlines will earn profits and even earn great profits throughout the world.  Many will be “record breaking” but as much from inflation as a recovery.  Those profits will soon start to burn a hole in someone pocket and that is when I think we see capacity growth.  I think that capacity growth will start with the Middle East airlines pursuing more revenue lucrative traffic from Europe and North America.  But we’ll see it happen in the United States, too. 

I would dearly like to see the 787 enter into service with someone and I think we will see it do so.  But Boeing has got to get a rein on itself.  The failures in the 787 program are as much about poor management as they are about stretching technology.  There is too much accountancy going on there and not enough visionary leading.  It’s time for them to start winning and they could do so by winning the KC-X tanker program once and for all.  But it is also time to start talking about what’s next. 

The demands of the 787 program *will* decrease as will the demands from the 747-8 program.  Will it be talk of a 737 replacement or an improvement to the 777?  I think the airlines would like to talk about the 737 replacement and that seems sensible.  Rather than play cautiously, reach again, I say.  Push engine manufacturers to come up with something to raise the game and push technologies again.   It’s also time to talk about the 787-10 and I think there are more than a few airlines who would like to be a part of those discussions.

Airbus is going to muddle along denying any real problems with the A350 until the end of this year.  Then we’ll hear about something delaying the entry into service date by a considerable amount.  John Leahy will insult Boeing and claim the A350 will put the 787 to death but it won’t.   Airbus might well buy the KC-X tanker program but I question the wisdom of this in light of their ongoing A380/A400/A350 problems as well as their announcement development of a new engine option for the A320 series.  When do they earn money the proper business way?

It would be nice to see Embraer make a move into the 130 seat market and I think those guys could do it very well.  Bombardier gets bashed by everyone but I still think they have something with their CS series and I think it will be taken up by another airline soon.

I think we’re going to see another round of fees.  Just as soon as airlines can identify what other parts of their service they can de-couple from the basic flight.  I think we’re going to see airlines put a price on early boarding and we’ll probably see fuel surcharges amounting to tens of dollars.

But let’s hope we see an interesting and prosperous year in the airline industry.

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There have been a few recent and prominent incidents involving the Russian airliner Tu-154 that have resulted in a number of people and agencies calling for it to be grounded.  The most prominent was the loss of the Polish President last year in a severe accident and the most recent was a Tu-154 that had an engine explode and cause a massive fire when taxiing for take-off to Moscow in Surgut.

A lot of criticism is levied at the Tu-154 (and it’s cousin, the Tu-134) is probably mis-placed.  If you look at the statistics involving the Tu-154 and its closest Western relative, the Boeing 727, the Tu-154 has a pretty comparable record.  In fact, most incidents in the last 5 years were related to human error, not an aircraft failure of some sort. 

The loss of the Polish President was due to a pilot risking a landing that his aircraft wasn’t capable of making safely.  Other hull losses were results of terrorism or mistakes involving governments firing missiles (Ukraine) during exercises.   Another hull loss was due to air traffic control mistakes in Switzerland involving the Tu-154 and another cargo aircraft. 

There were 1015 Tu-154s and 852 Tu-134s built and those two variants are roughly equivalent to the 1800+ Boeing 727s built over roughly the same duration.   Between the Tu-154 and Tu-134, there are roughly 94 serious incidents resulting in approximately 64 hull losses.  The Boeing 727 has a record of 325 “incidents’ (serious and not serious) with hull losses totaling approximately 110 airframes.   One would be tempted to say the 727 has a worse record but it should be recognized that 727s typically have flown more cycles than the Russian airliners over the same duration.

Is the Tu-154 dangerous?  No more so than other Western airliners of a similar generation.  What’s dangerous is airline pilot training and air traffic control facilities and maintenance facilities in Russia and other former Soviet Bloc and middle/central Asian countries.  Those places don’t always have the best standards for training pilots or the best equipment for weather restricted landings or the best maintenance workers with the best training at the best maintenance facilities.

It’s notable that, over the years, there have been some very boneheaded moves made in the 727 that resulted in very bad accidents.   Early in the life of that aircraft, its very safety was questioned when a few pilots literally flew them into the ground when landing because of its high sink rate on approach.  Training and procedures were changed and that aircraft went on to a very successful life. 

Would I hesitate to take a trip on a Tu-154?  Only if the airline was poor or had a poor safety record.  The basic airframe is perfectly safe and the most modern Tu-154M models are up to any Western standard.  The “B” models are old but they aren’t necessarily unsafe by definition either.  It’s all about the users.

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Southwest has indicated its readiness to investigate different fleet types in the future to meet its needs and the driver for this is fuel costs.  Their famous adherence to the 737 was more appropriate even 20 years ago but in this age, they have a large enough fleet and a large enough network to justify multiple types. 

Sticking to one fleet type has its benefits but those benefits don’t grow large when the fleet size expands past a certain point.  There is all kinds of debate on how many aircraft you have to have to make it efficient but I would say that for Southwest, a minimum of 60 to 80 aircraft is probably a sweet spot right now.  Big enough to make maintenance and handling optimum and big enough to offer flexibility through the network.

Does this mean SWA is going to add more fleet types?  No, not necessarily.  It means that it is time for them to put together a different fleet plan for the future.  If there is one thing I’m certain of, it is that SWA will have 737s for a long, long time.  The real question is . . . what kind of 737s?

In addition, SWA still does quite a bit of regional flying on mainline equipment that was efficient with 737s 20 years ago but isn’t nearly so today.  One great example of that is the flights from Dallas to places such as Lubbock and Midland and even Little Rock.  It might be beneficial for Southwest to identify a new fleet type that is smaller (in the 100 seat range) for maintaining frequency to those destinations but also offering better fuel economy and cost of ownership.   And they’ve got choices.

One thing is sure, however:  Should SWA pursue a smaller aircraft to standardize on, it won’t be a Boeing or Airbus.  They’ve got the 717 coming into the fleet via their Airtran merger and they’ll likely play with that aircraft for several years.  However, a 717/737-500 replacement won’t be a Boeing/Airbus aircraft.  It will be one of the semi-mainline regional jets being offered by the likes of Embraer and Bombardier most likely.  And it will be an aircraft that can be punished with high utilization rates.  On the surface, the Embraer E-190 series looks like the best bet to me.

I think their larger, single aisle aircraft will continue to be Boeings and I think that, for the near future, those will be 737s.  It is an almost foregone conclusion that they’ll also be pressuring Boeing for a new 737 replacement more and more over the next 2 years.  That replacement aircraft is liable to start with roughly the size of a 737-800 and have several larger types above it.  Southwest will likely choose to purchase several of the sub-types to meet their needs on various different routes that have wildly different constraints. 

This is about fuel efficiency and keeping down the trip costs.  Southwest has never had amazing load factors but the kind of load factors they’re experiencing today are historically high and they are unlikely to fall much in the future.  They need a larger aircraft than the 737-700 in the future. 

In the near future, they’ve got enough differences to work with.  This kind of talk is about pushing manufacturers to start considering what to offer airlines such as SWA in the longer term.

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