Airbus is betting on the stretched A220-500 to compete with Boeing’s 737 Max

Airbus is considering a stretched version of its A220 jet to compete with Boeing’s 737 and the A320. The A220-500, which would accommodate the same number of passengers as the 170-capacity A320, would offer better fuel economy and more modern design specifications. This option could help Airbus sidestep the huge investments needed for a completely new aircraft.

The A220-500 would give Airbus an opportunity to take market share while Boeing has said that it won’t release a new jet model until a “generational leap” in technology offers fuel savings of 20% to 30% versus current narrow-body jets.

Airlines already flying the A220 variants, including Air France-KLM, Air Baltic, Delta, and JetBlue, are interested in the European planemaker building a larger version, according to sources close to the discussions. Other potential buyers include Air Canada, British Airways parent IAG SA, and even Lufthansa, Boeing’s first customer for the 737. Airbus has stated that it’s not a question of if but when it will start making the A220-500. The Paris Air Show in June will provide a chance for it to gauge interest from customers and seek their input, reported bloomberg.com.

Airbus and Boeing have focused on tweaking existing aircraft rather than designing new models to avoid the development costs of up to $15 billion. However, stretching a tried-and-tested plane still bears financial and strategic risks. If Airbus leaders are wrong about airlines’ appetite for a possible successor to the 737 and the A320, the company could lose billions of dollars of much-needed cash flow.

To be commercially viable, the larger A220 would need the range to fly cross-country in the US, meaning it would probably need a more powerful engine than the two current versions. However, that would require Airbus to modify the current deal that makes Raytheon Technologies Corp.’s Pratt & Whitney unit the exclusive engine maker for the A220, as the CFM joint venture between General Electric Co. and France’s Safran SA’s turbofan is a better fit.

This would necessitate a redesign of the wing and the pylons from which the turbines hang, involving investments that could quickly run into the billions of dollars for Airbus and its suppliers. The company also needs to increase A220 production to start earning a profit on the jet, as it only churns out about half a dozen A220s each month compared to around 50 A320-type aircraft.

As Airbus studies the stretched A220, management is weighing a series of complex trade-offs. The new model could pose risks for the company’s most lucrative product, the A320. The model would have similar passenger capacity but better fuel efficiency and modern design specifications, making it an appealing alternative to the ageing A320 and the Boeing 737.

While airlines, including Air France-KLM, Air Baltic, Delta, JetBlue, IAG and Lufthansa, have expressed interest, Airbus must decide on an engine strategy after technical problems grounded the existing A220 fleet for years.

Airbus must also balance the risks of cannibalising its best-selling A320 with the A220-500, which is costlier to manufacture. “They’re absolutely under no compulsion to do it because the A320 competes well with the Boeing 737-8 Max,” said George Dimitroff, head of valuations for Ascend by Cirium. “Yes, it would boost sales, but it would eat into the A320 market.”

Pratt engine’s supply chain issues may take another year or two to resolve, creating uncertainty over whether it could invest in an upgraded version. Alternatively, rival engine maker CFM might be tempted to develop a new engine, but only if it could supply all three A220 models.

A second engine option could also reduce the A220-500’s commonality with the smaller models, reducing its commercial appeal. Nonetheless, the A220-500 would allow Airbus to divide its narrow-body offering into six models across two families, spanning the lower end of the market to complement the larger A321.

The Paris Air Show in June will allow Airbus to gauge interest from customers, but analysts warn the longer the company waits, the more it risks being overtaken by Boeing’s next narrow-body offering.