The fall in the backlog combined with lower fuel consumption offered by the CSeries and the emphasis on lower emissions, is increasingly forcing Airbus and Boeing to reconsider their replacement plans for their respective narrowbody aircraft.

Previously preferring to push back a replacement to perhaps 2020 and beyond, both manufacturers are now considering re-engining the B737NG and A320 families. Airbus has gone so far as to indicate that a decision could be made by Farnborough. While both manufacturers have been reviewing new programs, the 15 percent improvement in operating costs offered by the CSeries is being increasingly viewed as a threat. Embraer is now looking at a 130 seater – the E195X – and unconfirmed reports suggest that American Airlines may be interested in replacing MD80s with one of the two new offerings.

The impact of a new aircraft on residuals of existing aircraft is dependent on the extent of the improvement in efficiency. With the A320 having been in production for more than 20 years and the B737NG for more than 12 years, operators will, in any event, need to replace a number of aircraft in the next ten years. A 10 percent improvement is unlikely to justify the expense of upgrading. However, a 15 percent improvement has traditionally been the benchmark at which operators turn to new aircraft. The easiest way for manufacturers to improve the efficiency of aircraft is by means of increasing the capacity. Re-engining therefore may be accompanied by a stretch to the existing designs which would not only reduce seat mile costs but also differentiate products from those of the CSeries and the E195X. Boeing previously effectively surrendered the 100 seat market to the competition when it moved from the B737-200ADV to the B737-300 as did McDonnell Douglas when it replaced the DC9 with the MD80. Traffic on existing routes will likely increase. Low cost operators will increasingly find difficulty in opening new routes that are able support aircraft with existing seating capacities. The focus could therefore be on slightly larger aircraft.

Re-engining using the existing B737 structure is viewed as difficult because of the problems associated with the landing gear. The greater diameter of new engines requires an extension to the landing gear, something that may require significant structural changes to the fuselage. CFM is progressing with the LEAP-X and Airbus has already tested the Pratt & Whitney PW1000G on an A340. IAE is now seeking to offer an engine that could be based on the PW1000G. Such interim measures were effectively dismissed by the manufacturers a few months ago but the pressure for a major improvement in efficiency sooner rather than later is now being sought by the airlines. Operators have pared operating expenses to the minimum such that fuel efficiency remains one of the few major savings to be made. Customers are not willing to wait another 10-15 years. Re-engining could offer the necessary 15 percent improvement in fuel efficiency that would persuade operators to move to the new aircraft. Anything less than 15 percent could see operators defect to the CSeries or the E195X or alternatively await the arrival of an all new aircraft. This would see a slump in production in the interim. While the existing backlog is extensive, a considerable number of deliveries are being pushed back to later in the decade which may prompt a move to more efficient types.

In the event re-engining occurs, residual values of the existing A320 and B737NG will be more impacted at the end of this decade than currently forecast. Given the many thousands of aircraft that will need to be replaced, time will be needed to replace the existing fleet but this will not prevent a greater focus on the new aircraft. The danger for the manufacturers is that if they opt for a re-engined aircraft in 2016 and then a replacement in 2022, the values of the re-engined aircraft may be the more exposed.

Paul Leighton (pleighton@aircraftvalues.net) is also founder and managing director of the Aircraft Value Analysis Company, a UK-based company that specializes in future value forecasting. AVAC was specifically formed in 1991 to provide independent advice regarding current and future aircraft values, and the factors that affect them, to the air transport community.

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