Boeing Has MAX Ambitions
In September, investors' eyes turn toward Tokyo, in hopes of glimpsingthe first arrival of Boeing's (NYS: BA) now-FAA-certified 787 at All Nippon Airways. Meanwhile, news continues to filter out about Boeing's other big story: The reengined 737.
Dubbed the "737 MAX," Boeing's latest 737 variant packs LEAP-1B engines designed by a General Electric (NYS: GE) joint venture. So far, there are no plans for Boeing to offer an alternative engine from United Technologies (NYS: UTX) , as Airbus does on its A320s. But why bother?
Depending on who's talking, and what they're comparing it to, Boeing's reengined 737 could be 7% more fuel efficient than "the competition," 16% better than Airbus's current A320, and 4% better than the A320neo. (That's according to Boeing. Airbus still says the A320neo is more efficient.)
For now, all of this is just speculation. Airbus doesn't have any A320neos yet, and it won't till 2015. General Electric hasn't even built the new MAX engine, and we won't see how it improves performance on the 737 until the plane is ready in 2017.
The magic number: 2017
You'll notice that Boeing has given itself a big time-window in which to redesign its new single-aisle flagship. (Maybe, it'll even meet this deadline.) And there's another reason for Boeing to push out the MAX six years: Its backlog. Boeing already has 737 orders stacked up seven years high, awaiting fulfillment. It will take time to build all those planes.
You might think this would pose a problem -- if Boeing has the MAX ready for prime time in 2017, can it still foist obsolete "old" 737s on customers who ordered them for 2017 and 2018 delivery? But I don't think this is a problem at all.
Some of Boeing's "old" 737 orders have already been converted to requests for the 737 MAX. While Southwest (NYS: LUV) and Delta (NYS: DAL) reportedly remain on the fence, AMR (NYS: AMR) famously demandedthe creation of the MAX in exchange for buying 200 737s from Boeing last month. So it's already on board, as are four other airlines. I'm guessing we'll see more such "trade-ins" as time goes by. Perhaps, if the fuel efficiency claims pan out, they'll even be "trade-ups." If Boeing can charge a premium on conversions to the new plane, it might help to repair some of the damage done by its 787 debacle.
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At the time thisarticle was published Fool contributorRich Smithowns shares of Southwest. Also,Motley Fool newsletter serviceshave recommended buying shares of Southwest Airlines. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.
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