Bombardier’s Win May Prod Airbus, Boeing to Upgrade Engines
February 26, 2010, 2:45 AM ESTBy Rachel Layne
Feb. 26 (Bloomberg) -- Bombardier Inc.’s $3.06 billion order for its new CSeries jetliner may add pressure on the only larger planemakers to offer more fuel-efficient engines for their competing models, the Boeing Co. 737 and Airbus SAS A320.
“This is a solid hit for the CSeries,” said Richard Aboulafia, an analyst at Teal Group in Fairfax, Virginia. It “will almost certainly precipitate” a decision by Airbus and Boeing on offering new engines for their single-aisle aircraft.
Airbus, based in Toulouse, France, and Chicago-based Boeing have said they plan to decide this year whether to offer upgraded engines as they defend a combined backlog of about 4,500 of the so-called narrowbody models. An upgrade would buy time for the companies to design all-new aircraft.
The order from Republic Airways Holdings Inc. is Bombardier’s third for its CSeries, which was launched in 2008. The move may have erased doubt for other airlines that want to upgrade their fleets, said analysts including Benoit Poirier of Desjardins Securities. Indianapolis-based Republic agreed to buy the 145-seat version, the CS300, which will carry a Pratt & Whitney geared-fan engine that promises 15 percent more fuel efficiency than current models.
Bombardier gained 7.1 percent to C$5.87 in Toronto Stock Exchange trading, the biggest increase since August, after climbing as much as 9.7 percent following the order’s announcement.
The Montreal-based company’s goal is to tap the 100- to 150-seat segment of the narrowbody market, which represents the lower end of the passenger-capacity range on Boeing and Airbus models, Ben Boehm, vice president of commercial programs, said in an interview. The single-aisle market accounts for about two- thirds of all commercial aircraft.
‘You Have a Choice’
“What we focus on when we talk to customers, potential or otherwise, is to say you have a choice,” Boehm said. “You can take a refresh of something that wasn’t designed for this market segment or you can take a brand new product where the technology, the engines, the aerodynamics, the systems inside were all designed to the 100- to 149-seat market segment.”
Airlines, dealing with soaring fuel costs in the past three years, are demanding better performance from new planes. Also at issue are costs to maintain fleets and whether current models with new engines will stay competitive once new narrowbody designs come to market.
Fuel-efficiency gains come mostly from engines, regardless of whether the aircraft itself is new. Engine-makers, estimating a market as high as $50 billion for power plants that operate more efficiently and less noisily, are touting fuel-economy improvements of as much as 16 percent, depending on the configuration and the maker.
Not a ‘Strong Threat’
With just 90 firm orders for the CSeries in two years, Airbus and Boeing say a decision to offer a new engine isn’t just about efficiency.
“We don’t see a very strong threat from the CSeries,” John Leahy, Airbus’ chief operating officer, said in a telephone interview Feb. 25. “This doesn’t affect our decision on re- engineing in any way.”
Leahy said Airbus didn’t compete for the Republic order and repeated the company’s intention to decide this year on whether to offer new engines. “It’s not an obvious choice, as we think the A320 is doing particularly well in the marketplace right now,” he said.
Boeing Chief Executive Officer Jim McNerney said earlier this month that he’s evaluating customer feedback and Airbus’s plans and will decide this year whether to develop new engines for the 737, the world’s most widely flown plane and an important revenue stream for the company.
Fuel Use, Noise
“Our timetable doesn’t change” after Republic’s order from Bombardier, Bernard Choi, a Boeing spokesman, said yesterday. “We’ll continue to evaluate the engine offerings that are out there.”
A new engine could be introduced in the middle of the decade and would be 12 percent to 15 percent more fuel- efficient, McNerney said at a Feb. 11 Cowen & Co. conference in New York.
Redesigning the A320 and 737 models may cost as little as 10 percent of the $10 billion it typically takes to create a new plane, aircraft executives and analysts have estimated.
‘Most Important Driver’
“We have viewed the challenge from the CSeries as perhaps the most important driver of the interest Airbus and Boeing have been recently exhibiting in re-engineing the A320 and 737,” Joseph Nadol, a JPMorgan Chase & Co. analyst, wrote in a Feb. 25 report to investors.
Nadol said he expects Airbus to announce a decision first, possibly by the time of the Farnborough Air Show in July, followed by Boeing later in the year.
The aircraft makers are also facing narrowbody-market threats other than the CSeries, including the C919 from Commercial Aircraft Corp. of China, and Russia’s planned MC-21 jetliner.
CFM International, a joint venture of General Electric Co. and Safran SA of France, is the sole engine provider for the C919, offering a version of its Leap-X engine. Pratt & Whitney’s geared-fan PurePower engine will be on Russia’s planned aircraft.
CFM, also the sole provider of engines on current Boeing 737s, competes to supply power plants for the Airbus A320 with a partnership called International Aero Engines, led by Rolls- Royce Group Plc and Pratt & Whitney, a unit of United Technologies Corp.
--With assistance from Andrea Rothman in Toulouse, France, Susanna Ray in Seattle and Mary Schlangenstein in Dallas. Editors: James Langford, Kevin Miller
To contact the reporter on this story: Rachel Layne in Boston at rlayne@bloomberg.net.
To contact the editor responsible for this story: Kevin Miller at kmiller@bloomberg.net
