Why The Boeing Company Won't Build a New 757
Last week, my Foolish colleague Alexander MacLennan speculated that The Boeing Company could introduce a reengined 757 (the 757 MAX) to compete in the large narrow-body market segment. After all, the original 757 was quite successful -- Boeing sold more than 1,000 before ending production in 2004.
However, the 757 is quickly becoming obsolete. Slightly smaller aircraft like the Boeing 737-900ER and the Airbus Group A321 are far more efficient and can cover most of the flights currently handled by the 757. As a result, the likely market size for a Boeing 757 MAX would be far short of the critical mass necessary to justify investing in a reengined model.
The Boeing 757: popular but going out of style
The Boeing 757 has been a workhorse of the three big U.S. legacy carriers for the past few decades. In fact, nearly half of the 757s in operation today belong to the U.S. legacy carriers. (U.S. cargo operators also account for a significant chunk of the 757s still in use.)
Nevertheless, U.S. carriers understand that the 757 is becoming increasingly uneconomical to fly. For example, Delta Air Lines is replacing most of its 757-200s (the smaller, more common version of the 757) with Boeing 737-900ERs and Airbus A321s in the next five years.
Delta has stated that the 737-900ER is 15%-20% more fuel efficient than the 757-200. The A321 is similar to the 737-900ER in terms of fuel efficiency. Meanwhile, Delta is adding seats to the 56 757-200s that will remain in its fleet longer term, in order to reduce the gap in cost efficiency compared to modern aircraft.
While most of the 757s that Boeing built are still in service today, that may not be the case even five years from now. Airlines are rapidly retiring their 757s and replacing them with aircraft that are slightly smaller, have somewhat lower range and payload capabilities, but offer huge cost savings. By the time a 757 replacement would be ready for mass production, there will be very few 757s left to replace.
What about long-haul routes?
There is one niche that the 757 still rules -- long-haul routes with insufficient demand for widebody service. The 757 has unusually long range for a narrow-body: up to 4,100 nautical miles with winglets. That's significantly more range than Boeing's 737-900ER or Airbus' A321.
In the last decade or so, rising fuel prices have made it critical for airlines to appropriately match capacity to demand in each market. For U.S. airlines looking to fly from East Coast hubs to smaller markets in Western Europe or from non-hub cities in the U.S. to the big metropolises like London and Paris, widebody planes may be too large, but other narrowbodies don't have enough range.
As a result, routes between the U.S. East Coast and Western Europe have become the "sweet spot" for the Boeing 757. All of the U.S. legacy carriers use 757s for this purpose to some extent. (In addition to U.S.-Western Europe flights, 757s are also needed for some U.S.-South America flights.)
No room for a new 757
However, it's important to remember that the 757 was designed for short-medium haul domestic routes, the same mission as the 737 and A320 aircraft families. Most 757s are still used for that core mission. (Delta has more than 100 757s, but only seven configured for international service.) Fewer than 100 Boeing 757s are operating the long-haul transatlantic or South America routes that are its unique specialty.
Furthermore, new engine technology on the 737 MAX 9 and the A321NEO will cut fuel burn, thereby increasing these planes' range. The A321NEO could thus take over many transatlantic routes, though not all of them.
Lastly, a reengined 757 would not be very fuel efficient. As noted above, current-generation Boeing and Airbus planes offer a 15%-20% fuel burn advantage over the 757. Suppose new engines could fully close that gap for a 757 MAX. By the time it would go on sale, the 737 MAX 9 and A321NEO will offer double-digit fuel-efficiency gains compared to current-generation narrowbodies and the 757 MAX. Talk about a tough sell!
Adding it all up
In short, there's no market for a 757 MAX. Development costs for a reengining project would probably exceed $1 billion. That would make financial sense if the 757 MAX could actually sell as well as the original 757.
However, a 757 MAX would be more expensive and carry higher unit costs than the Boeing 737 MAX 9 or the Airbus A321 NEO. Airlines might be interested in buying a handful to replace 757s on their long-haul international routes. As for the 757's bread-and-butter busy domestic routes, airlines like Delta have already given that job to the 737-900ER, Airbus A321, and their reengined successors.
Ultimately, the long-haul narrow-body market isn't big enough to support the cost of developing a reengined 757. Airlines will have to make do with a combination of smaller narrowbodies and small wide-body craft like Boeing's 787-8 for the foreseeable future.
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The article Why The Boeing Company Won't Build a New 757 originally appeared on Fool.com.Adam Levine-Weinberg has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We 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 a disclosure policy.
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