Boeing (NYSE:BA) has indicated that it is committed to producing its upcoming airline, the 737 MAX, as long as their is a market for it. Their were rumors floating in the market that 737 is just a place holder for an all new small airplane being designed by Boeing. Boeing principally competes with other global jet manufacturers like Lockheed Martin (NYSE:LMT), Northrop Grumman (NYSE:NOC) and Airbus (EPA:EAD). We have a $91 price estimate for Boeing.
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Boeing launched the 737 last year with a more fuel efficient engine and called it 737 MAX. This plane offers fuel savings of 12% over the current 737 and is fitted with an engine designed by CFM International, a joint venture between General Electric and Safran. Boeing has already garnered over 450 orders for this variant after winning its first provisional order for the plane from AMR Corp’s American Airlines last year. Southwest Airlines will be the first operator of the plane, and the plane is expected to enter into service by 2017.
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Boeing had to launch this airplane under immense pressure from Airbus which has been a staunch competitor. Last year was the ninth consecutive year in a row when deliveries of Airbus exceeded those of Boeing’s. Airbus has recently brought to market a re-engined version of its competing narrowbody A320. This upgrade, known as the Neo, will enter service in 2015 and offer fuel savings of 15% over the current Airbus 320. The upgrade has been hugely successful and Airbus has garnered over 1,200 orders from it. In fact, the company has raised the list price this year and is not permitting customers with an original A320 to convert it into a Neo.
It was widely believed that Boeing wanted to completely redesign it’s narrowbody so that the fuel savings can be even higher than what they will be currently with Max. However, pressure from Airbus pushed it to take the upgrade route.
There were talks that in spite of the upgrade, Boeing will have a shot at the redesign. However, Boeing has put these talks to rest by indicating that it will be producing MAX for the foreseeable future. It will also be easier for customers who already have a 737 to adopt MAX rather than a plane which is completely different in body and structure.