Boeing Makes Fast Turnaround On 737
To keep one of its biggest customers, Boeing just promised American Airlines a plane it wasn't sure it wanted to build. The plane doesn't even have a name yet.
Boeing, a massive company that typically plans years in advance for airplanes it will build for decades, made a lightning-fast turnaround. A growing number of orders for a competing plane made by Airbus — capped by American's willingness to place a big order — forced Boeing's hand.
Boeing Co. had been weighing whether to bolt a new, more-efficient engine onto its 737, or build an all-new plane. As recently as May, Boeing said it was leaning toward building a new plane. In February, Boeing Chairman and CEO Jim McNerney said, "We're going to do a new airplane. ... It's our judgment that our customers will wait for us."
By Wednesday the wait was over. American Airlines said it would order 460 new planes, including 260 from Airbus. The order is split between current-generation Boeing 737s and Airbus A320s, and versions of both planes that will have a new, more efficient engine expected later this decade.
"After talking with our customers, it became very clear that they wanted more efficiency now," said Jim Albaugh, who runs Boeing Co.'s commercial airplane business.
While Airbus calls its new-engine version the A320neo, for "new engine option," Boeing doesn't have a name yet for its new-engine 737.
Boeing needed to put the new engine on the 737 to defend itself from Airbus as well as new competitors in China and Russia, said Avitas aerospace expert Adam Pilarski.
Plus, Boeing is competitive and hates to lose an order, especially with a high-profile customer like American, the third-largest U.S. airline.
"To them, a loss is a terrible thing, especially with a carrier where they've basically never had a loss," Pilarski said.
The order amounts to roughly one year's worth of production for this size of plane, said Barclays analyst Joseph Campbell. American has basically jumped into the line for those planes ahead of Delta Air Lines Inc., which is also considering a major order to replace planes in its domestic fleet.
Analysts said the order raises the chances that Boeing and Airbus will increase production rates again. The 737 is assembled in Renton, Wash., the A320 in Toulouse, France. Both planes are already in such high demand that their makers are boosting production to 42 per month — Boeing in 2014, Airbus by early next year.
Boeing probably would have made an all-new plane out of the same strong but light carbon-fiber material as its 787. Boeing has been having problems making those as fast as it would like. The first deliveries of the 787 are scheduled for later this year after years of delays. Albaugh said concerns about making as many as 60 carbon-fiber airplanes per month were among the factors in the decision to go with a new engine on the 737, instead.
Boeing said it needs to finish studying the new-engine version and get the approval of its board to offer it. It hopes to begin booking formal orders in the fall. Spokesman Marc Birtel said it's "highly unlikely" it would reverse course and make a new plane instead.
Pilarski predicted earlier this year that Boeing would put a new engine on the 737 rather than make a new plane. He even bet a bottle of wine against someone who should have been in a position to win — Albaugh, the Boeing executive.
Pilarski said he's not much of a wine drinker, and he'll ask Albaugh for a model of an airliner instead.