In a press release Tuesday morning, Boeing Co. (NYSE: BA) announced a firm order for 50 737 MAX 10 passenger jets from Indonesian carrier Lion Air. Valued at $6.24 billion at list prices, the order has been listed on Boeing’s order book as coming from an unidentified customer.
While the announcement is unlikely to have much effect on Boeing’s top line, another story just might. In an exclusive report this morning, Reuters reported that sources have told it that Boeing rival Airbus has canceled studies that were aimed at upgrading the A320neo and A321neo to compete with an expected Boeing “New Mid-market Airplane” (NMA) that industry insiders often refer to as the 797.
The European aircraft maker’s decision is reportedly due to the company’s difficulties in ramping production on its best-selling single-aisle A320s and A321s. By the middle of next year, Airbus is targeting A320neo production of 60 new airplanes a month. Reaching that rate will be a strain on Airbus’s suppliers, especially engine makers like General Electric and Pratt & Whitney.
Suppliers will be on the hook for major investments to meet the Airbus production rates — and Boeing isn’t sitting still either. Boeing expects production to reach 57 737s a month sometime next year as well. A longer range target of 70 planes per month from both aircraft makers is even on the radar for the middle of the next decade.
Enter Boeing’s NMA. This would be Boeing’s first clean-sheet passenger jet since the 787, and the company is being very careful in determining what features the plane will have and how Boeing will be able to produce them at a cost that leaves a profit.
One way to keep production costs under control is to broaden the supplier base so Boeing can wring out more concessions on parts costs. Another is to acquire key suppliers. A third is to devise new technologies and methods to assemble the aircraft. Boeing is working on all three, and until it is satisfied that it can build the NMA profitably there will be no announcement of the new plane.
For now, apparently, Airbus is content to wait for Boeing to decide whether to go ahead with the NMA. If it does, then Airbus can respond. If Boeing decides against the NMA, Airbus thinks its A321neo can fill the gap adequately.
Airbus is gambling that it can hold on to its dominance in the single-aisle market no matter what Boeing does. That’s a big gamble, but it’s far less costly than the one Boeing may take if it decides to build an all-new airplane.
Boeing stock traded up about 3.4% Tuesday morning, at $333.52 in a 52-week range of $174.47 to $371.60. The 12-month consensus price target on the stock is $386.00.