RLLCF - General Electric: The Big Winner From Big Boeing And Airbus Order

Summary

• General Electric won the bulk of the Air India order.
• Rolls Royce will supply the engines for the Airbus A350 for which it is the sole turbofan supplier.
• Selection of GE/CFM turbofans makes a lot of sense when considering expertise and reliability.

On the 14th of February, Boeing and Airbus announced tentative agreements with Air India for the purchase for up to 540 aircraft. When split orders are placed, we often see that investors are trying to assess which jet maker can be crowned the winner of the mega order. My conclusion, however, has been that while Airbus (EADSF) seemingly is the big winner as it will gain a significant share in the wide body market in India, both jet makers lose in some areas and gain in others, and the net result will be that Boeing ( BA ) will gain market share. There's less attention for which engine manufacturer actually can be labeled as the winner, and when it comes to the Air India order, there's one clear winner: General Electric ( GE ).

How Many Airplanes Did Air India Order From Boeing and Airbus?

For those who are not fully informed on the order: The order is actually not a firm one and it's a tentative order, meaning that is pending finalization and will only be booked to the order books of Boeing and Airbus once finalized. The Boeing part of the order consists of 190 Boeing 737 MAX airplanes, 20 Dreamliners and 10 Boeing 777-9s plus options for 50 more MAX aircraft and 20 Boeing 787-9s. Putting the total market value of the Boeing part at more than $20 billion.

Airbus will secure orders for 210 Airbus A320neo family airplanes and 40 Airbus A350 airplanes, but refused to disclose details about any options that could be part of the order. The value of the Airbus order would be around $18 billion, bringing the total value for Boeing and Airbus to around $38 billion.

General Electric Takes The Win Home

For some aircraft, the engine selection is easy because there's no choice in engines. For the Airbus A350 of which Air India ordered 40, the only engine that can be selected is the Rolls Royce Trent XWB turbofan. Similarly on the Boeing 777-9, the only engine that powers the aircraft is the GE9X and on the Boeing 737 MAX the only engine is the CFM LEAP 1B turbofan. For the Airbus A320neo family, customers can choose their turbofan and they can either opt for the PW1100G produced by Pratt & Whitney or the CFM LEAP 1A turbofan produced by a joint venture between General Electric and Safran ( OTCPK:SAFRF ). Similarly, for the Boeing 787 customers can opt for either the GEnx-1B turbofan or the Trent 1000 series from Rolls Royce ( OTCPK:RYCEF ).

So, the big decision really was about which turbofans would be selected for the Airbus A320neo family. Quite often we see that an engine selection is not announced immediately. However, for this order that was not the case as GE announced it would deliver over 800 LEAP engines (spares included) as well as 20 GE9X turbofans and 40 GEnx-1B turbofans. Initially the wording in the press release suggested that more GE9X could be part of the deal, but upon review that wording is no longer present in the press release.

What we see when looking at the sunburst chart is that while the CFM LEAP 1B, GE9X and Trent XWB were automatically selected, General Electric also won the engine selection for the Airbus A320neo family and the Boeing 787. This means that General Electric won orders for 40 GEnx-1B turbofans, 20 GE9X turbofans and a minimum of 800 CFM LEAP turbofans including a multi-year TrueChoice™ engine services agreement.

Big General Electric Win: No Surprise

Just from the exclusive engine selection on the MAX and the Boeing 777-9, General Electric already knew it would capture orders for 400 turbofans, while Rolls Royce could count on orders for 80 turbofans. The big question was whether it would also be selected to power the Airbus single aisle fleet and the Boeing 787s. In some way, General Electric always had the upper hand in that selection process. The reason is that for the Boeing 787 there already were orders and deliveries for 27 GEnx-1B turbofans making the selection of the GEnx-1B for the 20 Dreamliners more straightforward. Also for the Airbus fleet the selection of the CFM LEAP 1A turbofans makes most sense, since the entire single aisle fleet is currently equipped with CFM turbofans.

Furthermore, in India IndiGo selected the Pratt & Whitney geared turbofan for their first batch of Airbus A320neo aircraft and that's a decision that made sense since the Pratt & Whitney geared turbofan has a lower specific fuel consumption. However, due to the teething issues IndiGo suffered significant flight disruptions. The issues were so bad that the regulator required IndiGo and Go Air which operate PW powered Airbus A320neo family airplanes to replace at least one engine on the aircraft and IndiGo grew frustrated with the continued issues since 2017 and subsequent spare and engine shortages that it eventually selected CFM LEAP turbofans to power its second batch of A320neo family aircraft.

So, Air India has chosen for what it is already familiar with and instead of aiming for possible additional fuel savings it is choosing for the reliability of the CFM engines.

Conclusion: Choice For General Electric Turbofans Makes Sense

Looking at the familiarity of Air India with the General Electric and CFM turbofan, it makes a lot of sense that it had been selected to power the Air India order where possible. The Airbus A350 is basically the only exception to the selection as the Rolls Royce engines are the only powerplants for that aircraft. What has likely also played a role in the selection process is the fact that Pratt & Whitney faced continued challenges with its engine architecture since 2017 and to this day spare parts and engine shortages are hurting airlines in India that chose the PW1100G geared turbofan. So also, from reliability perspective General Electric had the upper hand.

While we often look at orders as an Airbus against Boeing thing, I think we should also keep an eye on the selection of the turbofan supplier as those can rake significant revenue streams from spare parts and services even when the production and delivery of the engine is not necessarily a profitable endeavor.

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