European plane maker Airbus Group NV launched the revamped twin-aisle long-haul wide-body A330 jet – the A330neo – at the Farnborough International Airshow. The latest reincarnation of the A330 jet is aimed at challenging The Boeing Co’s (BA - Free Report) preeminent position in the lucrative long-range passenger jet market.
Airbus Group plans to spend over $1.4 billion on the upgrade of its A330 passenger jet to combat the more technologically advanced 787 Dreamliner from Boeing.
A330neo versus 787 Dreamliner
The European manufacturer’s new A330neo comes in two versions – A330-800neo and A330-900neo. By making aerodynamics improvements with new Rolls-Royce Holdings PLC Trent 7000 engines, these jets would reduce fuel consumption by 14% per seat. The overhauled units will also increase the range by 400 nautical miles from current models.
The A330-900neo has a basic arrangement of 310 seats and will be introduced in the fourth quarter of 2017, while the 252-seated 800neo will land in early 2018. The A330neo’s fuselage as well as wings will be made from conventional aluminum that is considered to be heavier.
In contrast, Boeing’s 787 Dreamliner is made up of lightweight and environmentally friendly carbon composites that diminish fuel burn. This was Boeing’s trump card, bringing about a welcome change from traditional materials like aluminum and titanium. The Dreamliner carries between 242 and 323 passengers. The 787 family continues to evolve with the 787-9 and 787-10 being the latest versions. The third and longest 787, the 787-10, is in development and set to deliver in 2018.
In addition to bringing big-jet ranges to mid-size airplanes, the 787 provides airlines with superior fuel efficiency, resulting in exceptional environmental performance. The airplane as per Boeing uses 20% less fuel than similarly sized aircraft.
As far as prices are concerned, the A330-900 version will cost $275 million at list prices, which might make it a compelling option. Boeing's 787-10 costs $288.7 million at list prices though customers generally get discounts on bulk orders.
A330neo’s capital costs are expected to be 25% lower than the present version. Airbus’ executive asserted that it would have 5% lower direct maintenance costs.
Why the Upgrade
This major upgrade will expand the life of A330, which entered into service in 1994. With only 241 more in backlog and about two years’ worth of production, the A330neo will give a new lease of life to the A330 wide-body jet. The A330, built at a rate of 10 a month, has been an important profit contributor for Airbus.
Boeing and Airbus dominate this typically duopolistic commercial aerospace manufacturing market, with major airlines across the globe using airplanes manufactured by these giants to run their fleet. Canada’s Bombardier Inc. and Brazil’s Embraer S.A. (ERJ - Free Report) are also in the commercial race but their presence in the market is negligible compared to the other two.
While the new Airbus airplane will not be as superior or as fuel efficient as the Dreamliner, it will likely be less expensive. If Airbus can deliver 1,000 aircraft to airlines as well as leasing companies, it might match the orders notched up by the 787 Dreamliner. We note that the 787 Dreamliner has suffered technical problems since entering service in 2011.
Los Angeles-based aircraft leasing group Air Lease Corp. (AL - Free Report) has already ordered for the new jet. The Air Lease will buy 25 A330-900neos and 60 A320neo (the next-generation model of A320 narrow-body). Airbus is also hopeful of winning orders from Delta Air Lines Inc. (DAL - Free Report) , AirAsia Berhad and CIT Group Inc. (CIT - Free Report) .
Airbus is confident of selling more than 1,000 of the new version through 2030. The company is betting on the lower purchase and repair cost of its revamped jet to make it a success. Boeing has, however, raised doubts about Airbus’ stated potential market for the A330neo. The archrival sees A330neo sales at only 500.
On the other side of the story, the U.S. aerospace giant reported strong delivery numbers for the second quarter as well as the first half of 2014, beating its archrival, Airbus. Its 787 Dreamliner despite setbacks and technical snags remains a popular choice for major airlines, roughly doubling its deliveries in the second quarter of 2014.
Given Boeing’s impressive track record in both innovation and fuel efficiency, it’s a wait and watch game to see whether the uphauled A330neo can dent Dreamliner sales.