As Boeing's 797 Nears, GE `Wrestling' With What to Do on Engines

(Bloomberg) -- General Electric Co. said it remains unconvinced that demand for Boeing Co.’s potential midrange aircraft, nicknamed the 797, will be enough to justify developing a new engine for the jet.

The U.S. turbine maker needs to do more work on the proposals, especially since Boeing has yet to decide whether to recruit an exclusive engine provider or involve two competing suppliers, GE Aviation chief David Joyce said Monday at the Farnborough air show.

“We’re still wrestling with what the size of the market is,” Joyce said in a media briefing. “People feel great when you launch, but shareholders don’t feel great until you’re successful.”

Joyce’s caution underscores the uncertainty around Boeing’s propulsion strategy as the planemaker crafts plans for the so-called new midmarket aircraft, or NMA, which it envisions as succeeding its 757 and 767 models and halting Airbus SE’s success in edging into the niche with the popular A321neo. Boeing is mulling a two-jet family with 220 to 270 seats designed for 5,000-mile routes, available by 2025.

2019 Decision

The decisions to launch the NMA and select engine suppliers probably won’t be made until next year, Boeing Chief Executive Officer Dennis Muilenburg said in an interview at the aerosapce expo in the U.K. The Chicago-based planemaker is evaluating all options for the turbines and having productive discussions, he said.

GE is bidding for the engine contract through CFM International, its joint venture with France’s Safran SA. United Technologies Corp.’s Pratt & Whitney division and Rolls-Royce Holdings Plc. have also prepared proposals for the aircraft, which is the only all-new jetliner in the pipeline among the four largest planemakers.

One potential customer for the plane, Avolon Holdings, is convinced Boeing will opt for two engine suppliers despite the risk that the market may not be large enough for both to see much return on the investment.

‘Maximum Optionality’

“If I was a betting man, I’d think Boeing will go with a dual source,” Domhnal Slattery, CEO of Avolon, a Dublin-based aircraft leasing firm, said in an interview. “They want to give maximum optionality to their airline clients. They want to create maximum tension on pricing. And they want to mitigate technology risk.”

Given concerns over teething issues in current-generation engines, many airlines would prefer to have a choice among new models developed for the Boeing plane. Slattery sees demand for about 3,000 to 4,000 jets in the segment targeted by Boeing. That’s about 1,000 fewer aircraft than the planemaker’s forecast range.

Airbus would probably claim about half that market, Slattery said, with the remainder split between Boeing’s two NMA models. That would leave relatively small slivers for the engine makers, assuming there are two suppliers. And if Boeing misses the 2025 targeted entry date, demand could shrink as airline customers find other aircraft to replace aging 757 and 767 jets.

Another challenge: bringing manufacturing costs down to the point where Boeing could profitably charge the $70 million or less that major customers are willing to pay.

“I’m sure they’ll build a good airplane, a fantastic airplane in fact,” Slattery said. “But the price they want will be very, very critical.”

CFM Bid

GE’s Joyce said that CFM, which specializes in narrow-body jets, will spearhead negotiations with Boeing rather than GE. That’s despite the possibility that the NMA engine will be required to exceed the 50,000 pounds of thrust that represents the upper end of the alliance’s agreed remit.

“Even if it sneaks a little bit north of 50,000 thrust, we would still consider it to be in the spirit of the JV,” he said. “We are very respectful of the spirit of the JV and not the letter.” It’s also yet to be determined how many variants of the NMA there will be and what range of propulsion will be required, he said.

Joyce said GE turned down an opportunity to join Boeing in a joint venture to develop auxiliary power units that help start jet engines and provide electricity while planes are on the ground because it preferred to allocate capital elsewhere.

Safran opted to join Boeing in the venture, which will challenge United Technologies and Honeywell International Inc., the leading manufacturers in the APU market.

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