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

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 All three of these aircraft families have current-production models that will be superseded by new versions later this decade.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.

This means that Airbus and The Boeing Company (NYSE:BA) customers can order different-sized aircraft that use the same technology, simplifying crew scheduling and maintenance, while allowing the airlines to match capacity to demand on various routes. Recently, the most popular models have tended to be the larger ones, as they offer lower unit costs. The models comparable in size to the two CSeries models have seen weak demand recently.

Time to move up
While Bombardier has constantly dismissed speculation that it will offer a stretched version of the CSeries soon, it looks like this may be the company’s best bet. CSeries jets may offer lower costs than directly competing models like the 737-700 and the A319, but airlines increasingly prefer the larger 737-800/900-ER and A320/A321 models anyway. As long as airlines are buying large narrowbodies from Boeing and Airbus, they will usually prefer to stay within the same family for small to medium size narrowbodies, due to the advantages of commonality.

By stretching the CSeries to compete directly with the 737-800 and A320, Bombardier, Inc. (TSE:BBD.B) could enter the highest-volume segment of the narrowbody market while also enhancing the appeal of the smaller CSeries models. Airlines that today are choosing The Boeing Company (NYSE:BA) and Airbus over Bombardier due to the benefits of commonality might find the CSeries more appealing if it would cover most or all of their narrowbody needs.

Foolish bottom line
Bombardier, Inc. (TSE:BBD.B) has stated that it expects to sell thousands of CSeries aircraft over the next 20 years. To do that, it probably needs to offer a larger version of the plane. Right now, Bombardier is stuck in the smallest and lowest-volume segments of the narrowbody market. Even if the CSeries objectively outperforms competing aircraft from The Boeing Company (NYSE:BA), Airbus, and Embraer SA (NYSE:ERJ), it suffers from the disadvantage that it is the only “all-new” design, which increases training costs and complexity.

By offering a larger CSeries, Bombardier would be able to cover more of the narrowbody market, gaining some of the benefits of commonality for itself. Airlines might be more willing to add an unfamiliar aircraft type to their fleets if it covered a larger proportion of their aircraft needs. If Bombardier wants to compete with The Boeing Company (NYSE:BA) and Airbus, it needs to go all the way!

The article This Revolutionary Plane Needs to Get Bigger to Compete originally appeared on

Fool contributor Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool recommends Embraer SA (NYSE:ERJ)-Empresa Brasileira.

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