Today, United Airlines (NASDAQ:UAL), American Airlines (NASDAQ:AAL), and Delta Air Lines (NYSE:DAL) operate hundreds of Boeing (NYSE:BA) 757 and Boeing 767 jets, with transatlantic flights being the most prominent use case. However, these planes are aging, leading to lots of speculation about how the three legacy carriers would replace them.
Until recently, there were no direct replacements available for either model. The Boeing 737 MAX 10 and Airbus (OTC:EADSY) A321neo are similar in size to the 757-200 but don't have enough range for most transatlantic routes. Even the smallest Boeing 787 Dreamliner variant is larger than the most popular 767 model (the 767-300ER). The Dreamliner also has far more range than is needed for transatlantic routes, adding unnecessary costs.
However, Airbus began selling an ultra-long-range version of the A321neo earlier this year: the A321XLR. It has been racking up orders quickly. Last week, United Airlines jumped on the bandwagon, ordering 50 Airbus A321XLRs. This could be the final nail in the coffin for Boeing's proposed "NMA" (new midsize airplane) concept, which would have filled a similar niche.
Quick sales success for Airbus
The Airbus A321XLR has an advertised range of 4,700 nautical miles -- even more than the Boeing 757. It's also about 30% more fuel efficient. As a result, it represents a great direct replacement and can also open the door to new routes that were slightly too long for the Boeing 757 or wouldn't have been sufficiently profitable with the 757's higher fuel burn.
Unsurprisingly, Airbus quickly won commitments for the A321XLR from three U.S. airlines after launching the model at the 2019 Paris Air Show. Most notably, American Airlines ordered 50. It will likely use them for flights to Hawaii from Los Angeles and Phoenix, as well as transatlantic flights from Philadelphia (and perhaps also Chicago and New York). Many of these routes are operated with Boeing 757s today, or were in the past.
Airbus also received smaller order commitments from two U.S. low-fare carriers. JetBlue Airways converted 13 A321neo orders to the A321XLR, as part of its plan to begin flying from Boston and New York to Europe. Finally, Frontier Airlines ordered 18, although its A321XLR plans are less clear.
Another vote for the A321XLR
United Airlines (and merger partner Continental Airlines before that) has been the biggest user of the 757 for transatlantic routes, mainly connecting Newark Airport to smaller destinations in Europe. In early 2017, former United CFO Andrew Levy expressed interest in replacing them with Boeing's NMA concept plane, which was expected to carry 200 to 270 passengers (depending on the variant) up to around 5,000 nautical miles. He noted that none of the alternatives then available could fulfill all of the missions performed by United's 757s and 767s.
At that time, Boeing seemed likely to begin selling the NMA (probably as the "Boeing 797") by mid-2018 at the latest, with the jet entering service by 2024 or 2025. However, it delayed the formal launch decision to 2019 as management worked to nail down the business case, which was complicated by the fairly small addressable market. Boeing has estimated that the total market for planes in the NMA size/range class may be 4,000 to 5,000 units over a 20-to-25-year period. Many others in the industry think the addressable market is even smaller.
The 737 MAX crisis of the past year has led to further delays. Boeing has shifted engineering resources to fixing the MCAS system that contributed to two fatal crashes. Additionally, the 737 MAX fiasco will likely extend the development timeline for new aircraft, further delaying the potential availability of the NMA. Making matters worse, Boeing will need to think hard about accelerating the complete replacement of the 737 MAX family rather than investing heavily in a niche market opportunity.
With the NMA's entry-into-service nowhere on the horizon, United Airlines executives revealed earlier this year that they were looking hard at the Airbus A321XLR. Last week, they pulled the trigger, matching American Airlines with an order for 50.
United's A321XLRs will begin arriving in 2024 and will replace its transatlantic 757s on a one-for-one basis, more or less. They will primarily operate on transatlantic routes from the airline's Newark, New Jersey, and Washington, D.C., hubs.
The Boeing NMA may be doomed
Even as they announced the A321XLR order, United executives continued to express interest in the NMA concept. After all, the airline still has more than 50 aging Boeing 767s waiting to be replaced, and none of the options Boeing and Airbus are producing today are perfect replacements.
Delta Air Lines has also been a vocal supporter of Boeing's NMA concept. CEO Ed Bastian has noted that Delta still has more than 200 757s and 767s that will need to be replaced in the coming years.
However, the American Airlines and United Airlines orders for A321XLRs have further hurt the commercial viability of the NMA concept, given the small size of the addressable market. Furthermore, Delta's 757s and 767s are more than 22 years old, on average. Many will need to be replaced before the NMA would likely become available. Given that Delta already operates hundreds of A320-family planes, it wouldn't be surprising to see the airline pick the A321neo and its longer-range variants to replace its 100-plus 757s, leaving a much smaller opportunity remaining for Boeing.
Of course, there are plenty of airlines in other regions that may have use for a medium-range, medium-size jet. But it seems increasingly uncertain that there's enough of a market to support the massive cost of developing an all-new airplane. With cheaper options on the table that would require fewer development resources -- like building a re-engined 767-X -- United's decision to buy the A321XLR could be the beginning of the end for Boeing's NMA aircraft concept.