Alongside the Boeing 737, the A320 brings in the majority of orders and profits for the European aerospace giant.
Currently, Airbus is exploring the development of a new airliner that could surpass the A320, which has been in service for over thirty years. This new model would be a stretched version of the smaller A220 jet and would be capable of carrying a similar number of passengers as the A320, which has a capacity of 170. However, it would offer better fuel efficiency and more modern design specifications. By opting for this stretched version rather than an entirely new aircraft, Airbus SE can avoid the significant investments required for a brand-new model.
By venturing into the market segment currently dominated by the A320 and the 737, the A220-500 presents Airbus with an opportunity to capture a larger market share, particularly as Boeing Co. has announced that it has no plans to introduce a brand-new aircraft model for the remainder of this decade. During its annual meeting in April 18, Boeing's CEO, Dave Calhoun, stated that the company will wait until there is a significant technological advancement, resulting in fuel savings of 20% to 30% compared to current narrowbody jets. This timeline may provide Airbus with a chance to establish sales momentum for the stretched A220 variant in the coming years. According to Addison Schonland, an analyst at aviation consulting firm AirInsight, "While Boeing may be compelled to create a new product, Airbus can continue to profit from its existing offering without any loss."
According to insiders who requested anonymity, airlines that are currently operating the A220 variants, including Air France-KLM, Air Baltic, Delta, and JetBlue, have expressed an interest in Airbus developing a larger version of the aircraft. Other potential purchasers mentioned by one of the insiders include Air Canada, the parent company of British Airways, IAG SA, and even Lufthansa, which was Boeing's first customer for the 737.
Airbus has indicated that it is not a matter of if but when it will commence the production of the A220-500. The upcoming Paris Air Show in June will offer an opportunity to assess customer interest and solicit their feedback. "They will need to consult with airline customers and aircraft leasing companies to obtain precise specifications," says Michael Weiss, the Chief Strategy Officer at aircraft financier ABL Aviation.
In recent years, both Airbus and Boeing have opted to make modifications to existing aircraft rather than investing in the development of new models, which can cost up to $15 billion. However, the more cost-effective approach of extending a proven airplane still carries substantial financial and strategic risks. If Airbus leaders are incorrect in their assessment of airlines' interest in a potential successor to the current workhorses of the skies, the 737 and the A320, it could drain billions of dollars in much-needed cash flow.
For the larger A220 to be financially viable, it would require a range that would enable it to fly cross-country in the United States, necessitating a more powerful engine than the two currently available. The turbofan engine that powers Boeing's 737 Max, manufactured by the CFM joint venture between General Electric Co. and France's Safran SA, would be a suitable fit - assuming Airbus could amend the current agreement that grants Raytheon Technologies Corp.'s Pratt & Whitney unit exclusive rights as the engine supplier for the A220.
However, this would require a redesign of the wings and pylons that hold the turbines, resulting in significant investments for Airbus and its suppliers that could quickly amount to billions of dollars. Additionally, to start making a profit on the jet, the company would need to increase A220 production. Currently, it produces around 50 A320-type planes per month, while only manufacturing approximately half a dozen A220s.
Currently, Airbus is exploring the development of a new airliner that could surpass the A320, which has been in service for over thirty years. This new model would be a stretched version of the smaller A220 jet and would be capable of carrying a similar number of passengers as the A320, which has a capacity of 170. However, it would offer better fuel efficiency and more modern design specifications. By opting for this stretched version rather than an entirely new aircraft, Airbus SE can avoid the significant investments required for a brand-new model.
Airbus has indicated that it is not a matter of if but when it will commence the production of the A220-500. The upcoming Paris Air Show in June will offer an opportunity to assess customer interest and solicit their feedback. "They will need to consult with airline customers and aircraft leasing companies to obtain precise specifications," says Michael Weiss, the Chief Strategy Officer at aircraft financier ABL Aviation.
For the larger A220 to be financially viable, it would require a range that would enable it to fly cross-country in the United States, necessitating a more powerful engine than the two currently available. The turbofan engine that powers Boeing's 737 Max, manufactured by the CFM joint venture between General Electric Co. and France's Safran SA, would be a suitable fit - assuming Airbus could amend the current agreement that grants Raytheon Technologies Corp.'s Pratt & Whitney unit exclusive rights as the engine supplier for the A220.
However, this would require a redesign of the wings and pylons that hold the turbines, resulting in significant investments for Airbus and its suppliers that could quickly amount to billions of dollars. Additionally, to start making a profit on the jet, the company would need to increase A220 production. Currently, it produces around 50 A320-type planes per month, while only manufacturing approximately half a dozen A220s.
Breeze A220 Rendering
As Airbus considers the feasibility of the stretched A220, its management is evaluating a range of intricate trade-offs. One of the primary concerns is the risk of undercutting its most lucrative product, the A320, by introducing a more expensive plane at a lower price point. "There is absolutely no pressure on them to pursue this because the A320 competes well with the Max 8," commented George Dimitroff, Head of Valuations for Ascend by Cirium. "While it could boost sales, it could potentially reduce the A320 market share."
In addition to the other challenges Airbus faces in considering the stretched A220, executives must also determine their engine strategy, particularly after technical problems with the Pratt engine forced a significant portion of the current A220 fleet to be grounded in recent years. One of the insiders close to the discussions suggests that Pratt will not be in a position to invest in an updated version until it resolves its own supply chain issues, which may take a year or two. Neil Mitchill, Chief Financial Officer of Raytheon, declined to comment on whether the company is engaged in talks with Airbus regarding the A220-500, stating that he does not want to get ahead of the customer.
Although rival CFM may be tempted to develop an engine for Airbus's new plane, ABL Aviation's Weiss notes that it will only do so if it can provide engines for all three A220 models, rather than just the stretched variant. This will ensure sufficient potential sales to justify the investment. A second engine option could also pose commercial complexities by reducing the new plane's commonality with the smaller A220 models. Airlines generally prefer to maintain as much interchangeability as possible within their fleets to facilitate the management of spare parts and employee training. Otherwise, according to Dimitroff, "it becomes a standalone product, and that is not desirable."
When Airbus assumed control of the jetliner family from cash-strapped Bombardier Inc. in 2018, it inherited the engineering studies for a third A220 model. Bombardier developed the plane, then known as the C-Series, but struggled to generate sufficient sales. As Airbus scrutinizes the market for a more spacious aircraft with a newer design and superior fuel efficiency, executives have become increasingly interested.
The A220-500 would allow Airbus to split its narrowbody lineup into six models, distributed across two families. The three A220 models would cover the lower end of the narrowbody market to complement the three variants of the company's larger A321, which is a stretched version of the original A320 and has become the company's best-selling single-aisle model. The new A220-500 would offer a roomier cabin with seating capacity comparable to that of the 737 Max 8, which is Boeing's only popular single-aisle model.
According to Airbus CEO Guillaume Faury, there is no urgency to develop a stretched A220, and the company can afford to take its time. "We don't require the aircraft immediately, but we believe it will be highly beneficial when the A320 family has transitioned more towards the A321," Faury stated in an interview in November. This was shortly after Boeing's Calhoun ruled out developing a new midsize aircraft.
Nonetheless, Airbus risks missing its chance. If the new jet does not commence commercial operations until the early 2030s, it risks being overtaken by Boeing's next narrowbody. Some experts believe that launching the plane now may already be too late. "To be frank, the A220-500 should have entered service today to have a reasonable chance of significant market penetration," remarked Scott Hamilton, a consultant at Leeham Co.
In addition to the other challenges Airbus faces in considering the stretched A220, executives must also determine their engine strategy, particularly after technical problems with the Pratt engine forced a significant portion of the current A220 fleet to be grounded in recent years. One of the insiders close to the discussions suggests that Pratt will not be in a position to invest in an updated version until it resolves its own supply chain issues, which may take a year or two. Neil Mitchill, Chief Financial Officer of Raytheon, declined to comment on whether the company is engaged in talks with Airbus regarding the A220-500, stating that he does not want to get ahead of the customer.
Although rival CFM may be tempted to develop an engine for Airbus's new plane, ABL Aviation's Weiss notes that it will only do so if it can provide engines for all three A220 models, rather than just the stretched variant. This will ensure sufficient potential sales to justify the investment. A second engine option could also pose commercial complexities by reducing the new plane's commonality with the smaller A220 models. Airlines generally prefer to maintain as much interchangeability as possible within their fleets to facilitate the management of spare parts and employee training. Otherwise, according to Dimitroff, "it becomes a standalone product, and that is not desirable."
The A220-500 would allow Airbus to split its narrowbody lineup into six models, distributed across two families. The three A220 models would cover the lower end of the narrowbody market to complement the three variants of the company's larger A321, which is a stretched version of the original A320 and has become the company's best-selling single-aisle model. The new A220-500 would offer a roomier cabin with seating capacity comparable to that of the 737 Max 8, which is Boeing's only popular single-aisle model.
Nonetheless, Airbus risks missing its chance. If the new jet does not commence commercial operations until the early 2030s, it risks being overtaken by Boeing's next narrowbody. Some experts believe that launching the plane now may already be too late. "To be frank, the A220-500 should have entered service today to have a reasonable chance of significant market penetration," remarked Scott Hamilton, a consultant at Leeham Co.
