Analysis: Quick decision unlikely in Boeing re-engine debate

By Kyle Peterson

CHICAGO (BestGrowthStock) – The waiting game is about to go into extra innings for the aviation world as Boeing Co (BA.N: ) grapples with a tough decision on how to update its hot-selling single-aisle airplane, the 737.

Experts say an announcement on Wednesday by Boeing’s rival Airbus that it would update its competing A320 jetliner with a new engine starting in 2016 gives Boeing plenty of time to assess market needs and its own engineering capabilities.

Here’s the question: Should the world’s second-largest commercial plane-maker put a new engine in its current 737 design, build a completely new plane, take some intermediate step, or stick with the old plane?

Re-engining is faster but offers fewer cost savings to operators. A new design takes longer but offers more savings.

Until recently, Boeing had said it hoped to make a decision by the end of 2010. The company since has relaxed that schedule, saying it would issue its decision when it had one.

“They probably have a 12- to 18-month reprieve,” said Oliver Wyman consultant Andrew Watterson.

He said the timeline for the re-engining of the A320 by EADS’ (EAD.PA: )Airbus is so long that Boeing can take its time evaluating the Airbus step and the single-aisle offerings of new entrants to the market, Bombardier Inc’s (BBDb.TO: ) CSeries and China’s C919.

In fact, Airbus could even change its mind if it chose, because five years is more than enough time to update an existing airplane design, Watterson said.

“Airbus somewhat hedged their bets here,” he said. “They have not committed themselves as far as engineering resources go.”

Experts say re-engining should deliver cost savings of as much as 15 percent when the plane comes to market. Savings of up to 25 percent could be achieved by an all-new plane.

Airbus had estimated it could produce a new A320 by 2025. Boeing reckons it could produce a new 737 by 2021. Boeing says it also could produce a re-engined 737 by 2016.

Boeing, meanwhile, must determine whether it has the engineering resources available to design a new single-aisle plane. The company is struggling to finish work on the long-overdue carbon-composite 787 Dreamliner, which itself is an unprecedented engineering feat.

Boeing estimates the market for single-aisle planes to be worth $1.6 trillion over the next 20 years.

“To us it’s more about taking the time to figure out how we help our customers. And if it takes longer to do that, then it’s fine with us,” said Boeing spokeswoman Vicki Ray.

“It’s really what the customers need,” she said. “The feedback has been mixed from customers, though.”

The decision, however, is not just about meeting the needs of airline customers, who generally favor waiting for a completely new airplane. Re-engining the A320 and the 737 risks lowering the value and hurting demand for the 4,200 undelivered short- or medium-haul jets worth $300 billion at list prices that the two plane-makers already have on order.

“Boeing is not being forced to do anything in the short term,” said Peter Arment, an aerospace and defense analyst with Gleacher & Co.

“They have a window to continue to study their options” Arment said. “Longer-term, there’s no question that given that the CSeries will be coming to market, the Chinese developments, the narrowbody competition will be continuing to heat up.”

(Additional reporting by Karen Jacobs in Atlanta, editing by Gerald E. McCormick)

Analysis: Quick decision unlikely in Boeing re-engine debate