Boeing Saves The 737: New Engine Trumps New Design (BA, EADSY, GE, AMR, LUV)

After nearly a year of dithering around, Boeing Co. (NYSE: BA) has apparently scrapped the idea of building an all new version of its best-selling 737 and chosen instead to put new engines on the existing model, make a few other improvements, and give the family a new name — the 737 MAX. The family includes three new models, the 737 MAX 7, the 737 MAX 8, and the 737 MAX 9.

The new plane gets Boeing back into the competition with the Airbus A320neo from the European Aeronautic Defence and Space Co. (OTC: EADSY). The new engines for the 737 MAX will be built by CFM International, a 50-50 joint venture between General Electric Co. (NYSE: GE) and France’s Safran Group.

Boeing forecasts global demand for single-aisle planes like the 737 will top 23,000 aircraft over the next 20 years. That’s about $2 trillion worth of airplanes, and right now Boeing figures to get at least half of that because only it and Airbus make this class of plane. Boeing says it has sold more than 9,000 of the various aircraft in the 737 family since the first planes were sold in 1965.

Boeing claims to have 496 order commitments for the 737 MAX from five different airlines. The company did not specify any buyers except AMR Corp.’s (NYSE: AMR) American Airlines, which will take 100 of the new models as part of an order announced earlier this month. Deliveries of the 737 MAX are scheduled to begin in 2017, about two years later than production deliveries of the A320neo. American said it expects deliveries to begin in 2018.

Earlier this year Boeing was still considering replacing the 737 with an all-new double-aisle, narrow-body design. Southwest Airlines Co. (NYSE: LUV) was reportedly pushing for that design because it would mean quicker loading and unloading, and faster turnarounds, than the single-aisle planes.

The 737 makes up Southwest’s entire fleet of 550 planes, and it’s probably cynical to think that American Airlines and the other major US carriers would rather eat glass than support anything that might be favorable to Southwest Air.

Boeing claims that a fleet of 100 new 737 MAXes will save 175 million pounds of fuel a year and emit 277,000 fewer tons of carbon dioxide. The company also said that the engines are 16% more fuel efficient than those on the Airbus 320 and 4% more fuel efficient than those on the A320neo.

Boeing’s shares are up more than 1.5% in the early afternoon, at $67.08, in a 52-week range of $56.01-$80.65. GE’s shares are also up more than 1.75%, at $16.41, in a 52-week range of $14.60-$21.65.

Paul Ausick