At the beginning of December, Airbus ended months of speculation with the announcement that it had decided to equip its A320 family with new engines. In five years, the first of the new A320neo (new engine option) aircraft will be delivered to customers, promising fuel savings of up to 15% as well as significantly reduced CO2 and NOX emissions. In addition, the new engines can extend the range of the aircraft by up to 500 nautical miles. At this point the aircraft maker intends to offer neo versions of its A319, A320 and A321 types. The A320neo is due to make its debut in the first quarter of 2016, followed by the A321 and then the A319. Given the extensive certification work, Airbus expects all types to be available in 2017. At this point there are no plans to offer a neo version of the A318, but this will be reviewed down the road, says Alan Pardoe, head of product marketing communications at Airbus. “It is a popular plane,” he adds.
Either CFM International’s LEAP-X or Pratt & Whitney’s PurePower PW1100G engines will power the A320neo. Besides the more efficient engines, the aircraft will be fitted with ‘Sharklets’, large wing-tip devices that generate fuel efficiency gains of 3.5%. They are scheduled to come on stream in the fourth quarter of 2012. According to Pardoe, Sharklets will be an integral part of the A320neo and contribute to overall net fuel savings of 15%.
Fuel savings
These savings come at a cost, however. Customers who opt for the neo instead of the standard A320 will have to pay $6.2 million more. Once the price differential and the training costs for bringing pilots up to speed with the A320neo are factored in, the fuel savings should be in single digits, around the 8%–9% mark, reckons Usman Ahmed, aviation analyst at IBA Group.
For airlines, this is still substantial. Virgin America, which has ordered 30 A320neos, calculated that fuel savings come to $1.1 million per aircraft a year – at an oil price of $80 a barrel. Recent oil price developments and the prospect of prices remaining above the $100 mark make the new engine scenario all the more appealing.
According to Pardoe, pilot training is expected to require, at most, one day of computer-based training.
On top of the fuel savings, the A320neo promises 3,600 tonnes of CO2 savings annually and a double-digit reduction in NOX emissions. With an emissions trading scheme looming in Europe, this is of benefit to carriers, remarks Pardoe, adding that the quieter engines help them to avoid curfews and extend their operating hours.
He calls the A320neo “the right product at the right time”, a reference to the debate about whether to go for new engines or embrace a fundamentally new design altogether. For its part, Airbus management reckons that the additional savings associated with a new design, while attractive, are not worth the additional cost. By its own estimate, this would be about 10 times as expensive as the new engine option. Airbus puts the development cost for the A320neo at “slightly above €1 billion”.
Surprise move?
For all its merits, the decision to proceed took some observers by surprise. Calgary-based aviation analyst, Rick Erickson, points out that between them Airbus and Boeing have well over 6,000 orders for their current narrowbody models in the pipeline – a “major disincentive to inventing a new mousetrap”.
Resources are another major factor. Airbus has been stretched with its development of the A350 and the issues with the A380, plus the 400M, while Boeing is over three years behind schedule with the B787 and well over one year in arrears with the B747-8, remarks George Hamlin, principal of Washington-based aviation consultants ACA Associates. The contract to develop a new tanker for the US Air Force will also eat up resources.
Airbus had been weighing up its options for about 18 months, and most of that decision-making process was spent on the assessment of the necessary resources, Pardoe says.
Boeing’s response
Boeing has yet to declare itself on the narrowbody front, but the US maker has indicated repeatedly that it is leaning towards a new design. By its own estimates, that would push the entry for a re-designed B737, the B737NG+, to about 2019 or 2020. Fitting the B737 with new engines would enable Boeing to have an aircraft ready by 2016. The company estimates that a re-engined B737 would offer fuel savings of about 10%, while a new design would double the fuel savings.
Boeing has also indicated that it is looking at the possibility of a twin-aisle design. Pardoe has misgivings about this direction, recalling earlier attempts that failed to bear fruit. “Twin-aisle is not something that has our customers pounding on the door; it’s something that looks like a luxury,” he comments, adding “we already offer a wide aisle to speed up boarding and deplaning times”.
Observers reckon that Boeing will make a move by the summer. According to Morgan Stanley, Airbus’ commitment to proceed with the A320neo is putting the pressure on its US rival to come to a decision on its narrowbody contender. Senior Boeing executives stated in February that they aim to have a decision by mid year.
Other manufacturers
Arguably there is additional pressure from two other contenders on the horizon – Comac’s C919 and Bombardier’s C–series. The latter has found favour with Republic Airways Holdings, parent of Frontier Airlines, and several regional carriers. It is the launch customer for the larger CS300, a 138-seat plane that is due to enter service in the second quarter of 2015. The smaller CS100 is scheduled to come on stream one year earlier.
The C series competes at the smaller end of the narrowbody spectrum covered by Boeing and Airbus, notably against the A319 and the 737-700. To date, Bombardier has 90 firm orders for its C–series and options for another 90. Its customer list includes strong brands such as Republic and Lufthansa, ACA’s Hamlin observes.
The C919, which is designed to accommodate 169–190 passengers, is scheduled for market entry in 2016. In terms of size and range, it competes squarely with the larger versions of the A320 and 737 families, IBA Group’s Ahmed remarks.
So far the C919 has garnered 100 orders from four Chinese airlines, including the country’s top three carriers, and from GE Commercial Aviation Services, whose parent is providing engines for the aircraft. Still, there are doubts about the fledgling Chinese plane maker and its debut product.
“I see the C919 more as a proof of concept that they can design and manufacture a plane in that class. The second step will be to develop a plane that can compete,” comments Hamlin. Ahmed and Erickson view the aircraft as a niche product that will attract orders from operators looking for attractive deals.
“There is no game changer out there,” remarks Erickson, an assessment that extends to the A320neo. “The neo is not changing the landscape. It’s a gradual improvement,” he adds.
It is rapidly gaining traction in the market, though, with slightly over 300 orders and commitments by mid March. A whopping order for 150 alone came from IndiGo, while ILFC signed up for 100 and Virgin America for 30. In mid March Lufthansa weighed in with an order for 25 A320neo and five A321neo aircraft.
Traditional Boeing customers are also expressing interest – in the A320neo as well as in Bombardier’s C–series. Southwest and Delta, which is looking to place an order for 200 planes, have recently commented favourably on both types, adding to the pressure on Boeing to come to a decision.
Oil prices drive need for efficiency
Jitters about high oil prices could well spur airlines to move ahead with their fleet renewal decisions in favour of more fuel-efficient planes, while the reduced emissions have been welcomed by the likes of Virgin America.
Lessors and financiers, on the other hand, are less concerned about green credentials than residual aircraft values, Ahmed remarks. Prior to Airbus’ decision, there were some misgivings in that camp that the values of their planes could be hit, he notes.
Pardoe sees no problem there, arguing that it will be years before the neo fleet will have an impact on residual aircraft values. When Boeing switched to the 737NG, this took several years to play out, he says. The neo should have less of an impact, as the B737 had issues in terms of performance and range, which the NG addressed, he thinks.
AirAsia responded to the launch of the A320neo by switching its order schedule. It deferred delivery of 10 A320s until 2015. “A key commercial reason for the deferral of the 2012 aircraft is to afford the company some flexibility to switch from its current order of the classic A320 to a new generation A320 aircraft which is more fuel efficient when such aircraft come into production in the near future,” the airline declared in a statement.
Pardoe is loath to predict the future split between orders for the A320neo and the classic version. “A lot depends on the price of fuel,” he says.
However, overall Airbus is quite bullish on the A320neo. Over the next 15 years the manufacturer has identified a market potential of 4,000 aircraft.
This article features in Routes News 2011 Issue 3
