Chances of a 737 Re-engining Growing Slimmer

 - May 16, 2011, 8:21 AM

The case for a “re-engined” Boeing 737 appears as weak as, if not weaker than at any time since the Chicago-based aerospace giant began exploring the prospect long before Airbus launched the A320neo, judging by the comments of Boeing CEO Jim McNerney at Thursday’s Cowen Aerospace & Defense Conference in New York.

“I think, with the Neo, what we’ve seen so far is Airbus focus on [its] current customer base, which has shown some vulnerability to the [Bombardier] C Series,” said McNerney. “Now that doesn’t mean that, as they get deeper into development, they’re not going to approach our customer base…The Neo, on paper, closes the value gap that we have enjoyed…and I think part of the rationale of the Neo is to close that gap.

“We’re going to do a new airplane,” McNerney insisted. “We’re not done evaluating this whole situation yet, but our current bias is to not re-engine, [but] to move to an all-new airplane at the end of the decade or the beginning of the next decade. It’s our judgment that our customers will wait for us rather than move to an airplane that will obsolete itself when [Airbus introduces] a new airplane.”

McNerney added that he feels “pretty comfortable” that Boeing can defend its 737 customer base, “both because [Airbus is] not going ahead of us–they’re catching up to us–and because we’re going to be doing a new airplane that will go beyond the capability of what the Neo can do.”

McNerney admitted, however, that the A320neo has created some extra urgency to move forward with customer talks regarding the composition of a narrowbody replacement from Boeing, something he said he hopes to conclude within the next year and a half. “We’re going to be talking to our customers concretely over the next year or two, very concretely,” he said, a bit earlier than might otherwise happen absent the A320neo. “And I think there’s obviously some risk to that,” added McNerney, who nevertheless stressed the fact that “standardization” inherent in the narrowbody airplane and the less ambitious nature of developing a smaller engine as opposed to a powerplant for the 777, for example, mitigates that risk. “We think our customers are going to wait for this airplane, in part because they’re going to know what it’s going to look like over the next 18 months.”

Meanwhile, Boeing has felt “pressure” to increase production on its existing 737 to possibly more than 38 per month–further reason, perhaps, for Boeing’s hesitancy to proceed with a re-engining. Now building 31.5 per month, the company plans to hike rates to 35 per month by early next year, then again to 38 by the second quarter of 2013.

“The constraint is in the supply chain,” McNerney said. “But I think that the supply chain sees this as a huge opportunity…I’d like to get our backlog down a little bit. It’s too high. Customers can’t get these planes. I get more calls on Seven Threes than any other airplane.”