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The Boeing Company (BA): This Revolutionary Plane Needs to Get Bigger to Compete

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At last week’s Paris Air Show, Airbus, The Boeing Company (NYSE:BA) , and Embraer SA (NYSE:ERJ) each sold billions of dollars of commercial airplanes to airlines and leasing companies looking to take advantage of new fuel-saving technologies. The highest-profile aircraft this year were Boeing’s 787 Dreamliner (the largest version of which officially launched at the air show), Airbus’s A350 (which achieved its first flight earlier this month), and the second-generation of Embraer SA (NYSE:ERJ)’s popular E-Jets (which also launched at the air show).

The Boeing Company (NYSE:BA)

All of these new aircraft — but especially the The Boeing Company (NYSE:BA) and Airbus offerings — make heavy use of lightweight composite materials. By reducing the weight of the aircraft, these materials improve range, payload, and fuel efficiency.

Yet there is a fourth major competitor in the commercial aircraft market — Bombardier, Inc. (TSE:BBD.B) — and it has its own advanced-technology airplane. The company’s CSeries plane is expected to make its first flight as early as this week. Yet the CSeries put up a goose egg at the Paris Air Show, failing to notch a single order. While Bombardier has nearly 200 firm orders for the CSeries, the company will rapidly burn through that backlog once it starts CSeries mass production.

Bombardier, Inc. (TSE:BBD.B) claims that the CSeries will offer 15% lower cash operating costs than competing aircraft, due to its advanced technology. Whereas Airbus and The Boeing Company (NYSE:BA) made heavy use of composite materials for their new widebodies (the 787 and A350), only Bombardier is doing the same in the narrowbody market. So with order backlogs at Boeing, Airbus, and Embraer SA (NYSE:ERJ) swelling, why is Bombardier’s CSeries falling flat? One reason may be its awkward “in-between” size; it is small for a mainline jet, but larger than regional jets. Adding a larger model would greatly increase the CSeries’ competitiveness, and could lead to significantly more orders.

Commonality is key
The CSeries will primarily compete with Embraer SA (NYSE:ERJ)’s E-Jets, The Boeing Company (NYSE:BA)’s 737 family, and Airbus’ A320 family. All three of these aircraft families have current-production models that will be superseded by new versions later this decade. Bombardier, Inc. (TSE:BBD.B) opted for a “clean sheet” design to maximize performance, whereas all three competitors are updating current models with new engines and wings while minimizing other changes.

A significant problem for Bombardier is that while its design may have a performance advantage relative to competitors, most airlines like to keep their fleets as simple as possible. The new Airbus, Boeing, and Embraer SA (NYSE:ERJ) models will all maintain “commonality” with the current generation aircraft. Airlines currently operating Boeing 737 Next Generation aircraft will not need to retrain pilots to fly Boeing 737 MAX planes when they arrive.

Furthermore, while the smallest versions of the Airbus and The Boeing Company (NYSE:BA) families go head-to-head with the CSeries, Bombardier, Inc. (TSE:BBD.B) does not offer a plane that competes with larger variants of the Boeing 737 and Airbus A320 families. Whereas the largest CSeries plane has a maximum capacity of 160 passengers, the Airbus A320 seats up to 180 and the A321 has a maximum capacity of 220. Similarly, the Boeing 737-800 seats up to 189 passengers and the 737-900ER maxes out at 220.

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