:: June 2013 Letter ::
Nothing disrupts like big air shows. They disrupt your schedule for weeks, they disrupt your diet, exercise regimen, and family life, and, in France, they are almost always disrupted by some labor dispute involving a disgruntled transport union. But five years ago at Farnborough, the industry saw the arrival of that rarest of beasts, a truly disruptive technology. This disruption took five years to play out. As I unpacked my rain- and sweat-soaked suits and rumpled ties from Le Bourget, I reflected on the closing act of this drama.
The disruptive technology: Pratt’s Geared Turbofan (GTF), launched by Lufthansa on Bombardier’s CSeries at Farnborough 2008. Until that launch, I had discounted the CSeries’ prospects; the earlier BRJ-X, and the first pre-GTF CSeries incarnation went nowhere. Yet I had been told the second CSeries (with GTF) would go ahead for a good reason: Pratt parent United Technologies would make it go ahead. Farnborough 2008 saw a lavish reception at the British Museum, nominally a UTC event but with a heavy Bombardier presence. The two were joined at the hip, for the moment. Looking back it seems logical, but in 2008 the CSeries launch came from left field.
UTC’s goal (assuming they had a master plan) quickly became clear: the CSeries was leverage against the two legacy single aisle players, intended to force everyone to go with new engines. By co-creating the CSeries, Pratt lit the fuse on the single aisle powder keg. Airbus, threatened by a new single aisle jetliner with new generation engines, fought back like a crazed wolverine. It had little choice but to adapt the GTF, creating the Neo series, which quickly became one of the fastest-selling new jets ever.
Pratt’s disruption was complicated by a very effective CFM response. GE/Safran didn’t just curl up and sleep. They didn’t passively defend a dying franchise, the way Pratt did 30 years ago, when the CFM56 went after their JT8D business. Instead, CFM was ready with an elaborate new technology development roadmap. The resulting Leap-1 doesn’t have a key enabler like Pratt’s planetary gearbox, but it does have the materials and design improvements needed to make a very competitive product. Both engines, of course, face execution and performance risk.
The A320 Neo’s success left Boeing with little choice but to create the 737 MAX, the third domino in UTC’s grand plan. Unfortunately for UTC, Boeing stuck with CFM as a sole-source engine, using the Leap-1B, a smaller engine than the -1A offered on the Neo. The market is now weighing the wisdom of this move.
This brings us to this month’s Le Bourget, from which my wardrobe and I are still recovering. The big event at the show was Embraer’s E2 launch. The E2’s launch removed any uncertainty about the last new single aisle product to be launched. There’s nothing else in the pipeline for the next ten years, at least, so it represented the last act of the great GTF disruption. A secondary big Le Bourget event: watching the CSeries program get bashed like a piñata yet again (candy still isn’t spilling out). With two other major applications, Pratt might wash its hands of its original GTF application; why bother fretting over the CSeries’ fate? Embraer took in more E2 orders in an afternoon than the CSeries has in five years.
What hath Pratt wrought? Top conclusions from this five year process, in the aftermath of Paris 2013:
1. Pratt is back as a strong single aisle competitor. The Leap-1 provides strong competition to the GTF, keeping 737 exclusivity. But GE/CFM’s remarkable 30 year run of market dominance (with the CFM56 on the 737/A320 and the CF34 on Embraer and Bombardier’s regional jets) has turned into a head-to-head Pratt-CFM competition (particularly with Pratt’s acquisition of Rolls’ IAE share).
2. The GTF Disruption is isolated to single aisles. Pratt remains constrained by a dying widebody market presence, and only one remaining chance in the next five years to scale up the GTF as a large fan. With 777X going to GE, the only thing up for grabs is the A350-800/900. Otherwise Pratt’s sole twin aisle presence in ten years will be 30 PW4000s a year for the KC-46.
3. 737 MAX is Boeing’s biggest risk. Unlike Airbus, Boeing went sole-source on the MAX. That would be fine under normal circumstances, but these aren’t normal circumstances. This engine battle features two extremely divergent technological approaches. With all the uncertainty about which approach will prevail (and about execution risks for each approach), airlines may want a choice. The result: Airbus’s Neo continued to outperform MAX at Le Bourget, keeping market shares at 60-40. What if Boeing’s single aisle share stays at 40%, or even dips to 35%?
4. There was an emerging producer bubble. We’re watching it burst. Scan the headlines from air shows in the last five years. Lots of ink was spilled about emerging jet producers (COMAC, Irkut, Mitsubishi, and Bombardier). Yet all were silent at Paris 2013. Bombardier’s sole announcement was to name a CSeries customer that had previously been listed as “unidentified.” Revealing their name, “Odyssey Airlines,” left them just as anonymous as before. Meanwhile, it’s now clear that Mitsubishi’s MRJ got traction because Embraer had delayed re-engining. Now that they’ve re-engined, Embraer will resume market dominance.
This emerging producer bubble was enabled by an “application race” among the two engine guys, and by the legacy airframers’ delays in adapting the new engines. But when everyone uses the same next generation engines, and airframe technology is largely mature, then competitiveness is determined by non-technical considerations: legacy market standing, access to finance, and aftermarket and support capabilities. At Paris, the legacy OEMs struck back.
5. The CSeries risks becoming a sacrificial lamb. The other emerging producers offer jets that aren’t as good as the CSeries, and don’t have Bombardier’s experience. But Bombardier doesn’t have the government backing the other guys have to survive a serious crisis. Meanwhile, although the E2 covers slightly different turf, if an airline wants a smaller, lighter jet that complements its A320s or 737s, the E2 is smaller and lighter than the CSeries. It does many of the same routes, at lower cost. It beats Bombardier with Bombardier’s own argument. If the folks behind the CSeries don’t get serious about selling it, and it slowly dies, it will have done a lot of good. The world should thank Canadian taxpayers for their noble sacrifice.
6. Duopolies work great. The single aisle airframe and single aisle engine businesses are duopolies, but they see a remarkable degree of innovation nevertheless. Consider the impact of Pratt’s five year campaign of virtuous troublemaking. The new Pratt and CFM engines will save the world billions of dollars in fuel, make flying cheaper than ever, reduce emissions to a new low level, and reduce noise below current or expected goals. On the other hand, you could argue that none of this would have happened if Pratt didn’t help create the CSeries as a third party stalking horse. But otherwise, duopolies do just fine.
I’m back at home and keeping my neighborhood dry cleaner prosperous. Teal Aircraft Binder updates this month include the Learjet series, ALH, LCA, Tornado, and the Trainer/Light Attack Aircraft overview. Have a good month.
Yours, ‘Til The Phrase “Doric A380 MoU” No Longer Evokes Polite Chuckles,
© Richard Aboulafia 1997-2006, All rights reserved.