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I’m Skeptical of Boeing’s New Jet Plan. Here’s Why. | The Motley Fool

Boeing (NYSE:BA) is ramping up planning for a new jet that would bridge the yawning gap between its 737 MAX and 787 Dreamliner models, after scrapping an earlier midsize aircraft concept last year. Engine maker Rolls-Royce recently confirmed that it is talking to Boeing about providing engines for a potential new aircraft project.

On the one hand, it’s heartening to see that Boeing is ready to buckle down and invest in all-new jet designs, after its attempt to update the 737 quickly and cheaply (in the form of the 737 MAX) backfired spectacularly. On the other hand, starting to design a new “middle of the market” jet now seems unlikely to work out well for Boeing. Let’s take a look.

Bridging the gap

Boeing is planning for its next jet to replace the 757 and 767 models that it introduced four decades ago. The new aircraft would fill a gaping hole in Boeing’s current product portfolio between the largest 737 MAX model (the 737 MAX 10) and the smallest Dreamliner model (the 787-8).

Image source: Boeing.

At first glance, the gap between the 737 MAX 10 and the 787-8 might not seem very large. Boeing describes the 737 MAX 10 as fitting 188 to 204 seats in a two-class configuration, compared to 248 seats in a two-class configuration for the 787-8. However, this comparison is misleading.

First, the 737 MAX 10 has a range of just 3,300 nautical miles. In real-world terms, that isn’t sufficient to serve many markets typically flown by 757s and 767s. By contrast, the 787-8 has more than 7,300 nautical miles of range.

Second, Boeing assumes that airlines will use a roomier two-class configuration on the 787-8 — which is designed for longer routes — than on the 737 MAX 10. The maximum capacity of the 787-8 in a single-class configuration is 359 seats: a whopping 56% more than the 737 MAX 10’s maximum single-class capacity of 230 seats.

In short, a new Boeing midsize aircraft would sit in between the 737 MAX 10 and the 787-8 in terms of seating capacity and range (and, presumably, price). It would compete primarily with Airbus(OTC:EADSY) A321XLR, which is only slightly larger than the 737 MAX 10 but has a range of 4,700 nautical miles: enough to serve many transatlantic, U.S.-Brazil, Europe-India, and Asia-Australia routes (just to give a few examples).

A rendering of an Airbus A321XLR in flight

Image source: Airbus.

Too late and too expensive

In theory, a purpose-built jet that was bigger than the Airbus A321XLR and had more range would be superior for replacing 767s and capturing growth opportunities on mid-range routes. There are two big problems, though: any jet Boeing designs now will arrive too late and will be too expensive to sell well.

Indeed, a new Boeing jet would probably enter service in 2028 or 2029 at best. Most of the 757s and 767s flying for passenger airlines were delivered before 2002 and will be overdue for replacement by then. As a result, American Airlines and United Airlines — historically two of the biggest operators of 757s and 767s — have each ordered 50 Airbus A321XLRs.

They aren’t the only ones. All told, Airbus has racked up hundreds of orders for the A321XLR. Other customers include IAG (parent of Aer Lingus and Iberia), Qantas, and a slew of low-cost carriers. In short, many airlines have already committed to the A321XLR for mid-range routes because Boeing wasn’t offering an alternative. And Airbus will likely continue to pick up orders by default, simply because Boeing’s competitor won’t be ready soon.

A rendering of an Airbus A321XLR in the American Airlines livery

Image source: Airbus.

Boeing will also struggle to price a clean-sheet airplane competitively. The A321XLR was a relatively straightforward derivative of the A321neo and builds on an established production system. By contrast, Boeing would be developing its alternative and building a new production system from scratch: both expensive undertakings (notwithstanding Boeing’s rhetoric about new ways of engineering and manufacturing aircraft). Even if Boeing creates a technically superior jet, Airbus could win a lot of orders by undercutting it on price.

A tough uphill climb

The 757 and 767 replacement market isn’t very big at this point: certainly not big enough to support a clean-sheet aircraft design. On top of that, Airbus’ A321XLR has already captured a substantial chunk of the 757 and 767 replacement business.

To be sure, small mid-range aircraft could become much more common over the next decade or two. However, the A321XLR is positioned to win the bulk of this business, too, because it will be ready in 2023, it shares commonality with the massively popular A320 family, and it will be cheaper than any clean-sheet Boeing competitor.

Launching a new aircraft program to fill the gap between the 737 MAX 10 and 787-8 might seem promising in the abstract. However, between the A321XLR’s huge head start and low cost profile, I’m skeptical that such a program would be profitable for Boeing.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.



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