Boeing’s (NYSE:BA) top selling model 737’s successor is winning big orders from airlines. But the aircraft major isn’t satisfied. The company plans to increase the capacity of the next generation plane, called the 737 Max, up to 200 seats. The main purpose is to attract low-fare carriers who are the primary order source in the emerging markets of the Asia Pacific region.
The American aerospace giant made the announcement of expanding the capacity of the re-engineered jet on Sunday, ahead of the Farnborough Airshow held every alternate year. The statement came at a round table meeting with the media in the presence of Boeing’s VC and Commercial Airplane unit CEO Ray Conner.
Boeing won’t add capacity by stretching the aircraft further. Boeing would space out each seat 29 inches from each other, which is otherwise 31 inches in the current arrangement. As a result, the legroom would reduce. Also, the jet maker shall put an extra exit door to make sure that the 200 passengers can evacuate the aircraft within the stipulated timeframe of 90 seconds.
- Warning! GuruFocus has detected 2 Warning Signs with BA. Click here to check it out.
- BA 15-Year Financial Data
- The intrinsic value of BA
- Peter Lynch Chart of BA
Declaring the plan at the eve of the Airshow was not without purpose. All big and large plane manufacturers, component makers, and airlines across the world meet at the trade show. Several orders are announced and won at the industry event. Boeing has already won an order for 30 737 Max 8 valued $3.1 billion from Monarch Airlines at the event. The order is yet to receive firm commitment. Monarch plans to create an all-Boeing fleet.
Low-cost European airliner operator Ryanair has been asking the plane maker to increase capacity. Boeing’s announcement just before the event was a strategy to attract mass orders and combat its never-ending order fight with archrival Airbus (EADSY).
Being More Competitive
Boeing says that the increased capacity would help the jetliner give 5% higher efficiency per seat compared with the 737 barring an additional door. The Chicago-based aircraft maker accepts that this version would cost higher to the airline operators, but rewards would be higher as well. The additional cost can be split among greater number of seats that would eventually pull down the cost per seat and improve margins. In simple words, this version of the aircraft offers “11 more seats of potential revenue.”
The fresh engines from CFM International make the 737 Max 14% more fuel efficient. This isn’t all. Boeing, together with the CFM team, is working to find out more ways of boosting the fuel efficiency.
European peer Airbus isn’t staying idle. The jet maker made a similar announcement last month by planning to enhance capacity of competing single aisle A320 aircraft to 189 seats, and A321 to 240 seats. The maker of A320 is also exploring ways to make the A2320neo family jet more competitive by making it 2% more fuel saving by 2019.
In its latest market forecast released on Thursday, Boeing predicts narrow body jets’ capacity to increase by 10 seats over the next two decades. The aircraft maker has already bagged firm orders for more than 2,000 737 Max from 42 customers across the globe, and expects to add more during the Farnborough Airshow.
Both Boeing and Airbus have been trying to attract as many low cost carriers as possible. In an effort to do so, they are working to squeeze and pack as many passengers as comfortably possible in their narrow body aircraft. This would obviously bring higher orders from airlines. Each plane manufacturer is aiming to be more competitive than the other. It remains to be seen which aerospace giant would be more appealing to the airliners.