As airlines evolve with changing times, they are pushing aircraft makers for more modern and fuel-efficient planes. The A330neo is Airbus' (NASDAQOTH:EADSY) attempt to rejuvenate demand for its highly successful but aging A330 jet. With of one of the best dispatch reliability rates of 99.4%, the A330 has been one of Airbus' best-selling models and the company has delivered more than 1,100 planes so far to more than 100 operators. But with the advent of new technology, the 20-year-old model is failing to attract buyers the way it used to. Let's find out how the successor to A330 can help Airbus gain more traction in the wide-body segment.
Why was a new A330 so crucial for Airbus?
The wide-body segment is witnessing a major shift in technology brought about by Boeing's (NYSE:BA) 787 Dreamliner. Dreamliner's arrival delay boosted A330 sales significantly as many of the airlines ran out of patience and started opting for models in service. According to Adam Pilarski, senior VP at Avitas, a U.S.-based aviation consultancy firm, "They [Airbus] have been doing fine with the A330 because Boeing was late, but it is becoming painfully obvious that Boeing has newer technology than the A330."
With Boeing rolling out 10 Dreamliners a month at present, the scenario has obviously changed for the A330 and the plane is witnessing a predictable decline in demand. In the second quarter of 2014, Airbus landed just six new orders for A330 compared with 23 in the previous quarter and 47 in the 2013 fourth quarter. So, it was imperative for Airbus to come up with a new strategy to boost demand for this plane.
Airbus had yet another reason to upgrade the A330. It was finding it difficult to sell the smallest version of the new A350 jets that it's building from scratch. The 276-seat A350-800 has managed to receive only 34 orders. So it made sense for Airbus to scrap this model and fill the gap with an upgraded A330. This way the larger A350 models would take on the larger versions of the 787, while the new A330 would compete with smaller 787s.
Airbus' answer to rising concerns -- A NEO, obviously!
Airbus has had some success in empowering old jets with new engines, and the A320neo is a perfect example. The new engine option (neo) has dramatically pushed up demand for Airbus' A320 series and the company's got 2,494 firm orders for A320neos at the end of September. This is more than the 2,295-unit backlog that Boeing has garnered for its own reengineered 737Max in the same period. The wide acceptance of the A320neo triggered Airbus to work on A330neo, and the company launched the new plane at the Farnborough air show in July.
The A330neo will come with new generation and more fuel-efficient Rolls-Royce engines. The upgraded jet will sport a better range, up by 400 nautical miles, and will accommodate 10 more passengers. Externally, it will have an improved aerodynamic design for the wing tips and a wider wingspan.
While it's true that A330neo won't be as advanced as Boeing's 787, it's also true that A330neo would cost a lot less than the Dreamliner. According to a Market Watch report, "The two-engine Airbus A330, which seats between 200 and 300 people, is generally used on mid-distance international routes. ... It doesn't need to fly as far as Boeing's new 787 Dreamliner can. ... That means the engineering challenge and cost of the project would be much lower than the price of an entirely new plane."
The A330neo is special for its engine makers, too
The revamped A330 will come with the option to choose between engines from General Electric and Rolls-Royce, and these engine makers are considering the model to form the core of their success. According to a report published in The Economist, "Both General Electric and Rolls-Royce are keen to have Airbus refit the plane with new engines originally developed for the Boeing 787." The reason being both the engine makers have invested heavily in developing engines for the 787 Dreamliner, and Boeing's delays have slowed down cash flows. The A330neo can pace things up. Additionally, Airbus' offering will help to expand the engine models' market.
With 120 commitments already in its kitty, Airbus' management is quite optimistic about the A330neo, which will enter service in the fourth quarter of 2017. A few months back, CEO John Leahy had said that the company is looking to sell more than 1,000 A330neos with production stretching up to 2030. For Airbus, the model is definitely a trump card that's helping revive the gradually declining A330 demand.
ICRA Online and Eshna Basu have no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.