Analyst: Boeing likely to replace 737

Boeing is leaning toward replacing its 737 single-aisle jetliner with a new airplane rather than updating it, according to a new report.

"Despite (Boeing's) discussion, we think current thinking could be leaning toward a new airplane," Richard Safran, analyst with Buckingham Research, said in a report, according to Leeham Cos.

Safran attended Boeing's annual investor update.

"If BA opts for a new design, we would view BA stock more favorably as that could defer the substantive R&D... spending on a narrowbody product until after 2013 (assuming a 2019-2020 service entry)," Safran wrote.

Boeing CEO Jim McNerney said on a first-quarter earnings conference call that a decision whether to put new engines on the 737 or build a new airplane would be made by the end of this year.

"It's not an uncomplicated question," McNerney said.

One of the considerations is whether the company would cannibalize demand for the current product, he said.

The decision would affect Wichita-based Spirit AeroSystems, which builds the 737 fuselage and derives a significant portion of its revenue from the airliner. Boeing now produces 31 737s a month.

The conclusion that Boeing is leaning toward a new airplane counters an assumption that the company would put new engines on its 737 to meet an expected decision by Airbus to re-engine the A320 family of jetliners.

According to Leeham, Safran's report cites checks with unidentified airlines, aircraft lessors and bankers to reach his conclusion about an all-new airplane that replaces its popular single-aisle airliner.

Foregoing a 737 upgrade could put Boeing at a short-term disadvantage should Airbus proceed with an upgrade of its A320 that would enter service in 2015, the report said.

Should Boeing opt for a new airplane, Airbus would likely scrap its upgrade and proceed with a new aircraft of its own, Saffron's report said, according to Leeham Cos.

"Boeing will be rolling the dice on several levels," should it replace the 737 rather than upgrade it, Scott Hamilton, analyst and founder of Leeham Cos. wrote in a report.

Few believed Boeing "had the stomach" for a new airplane after its "disastrous design-and-production process for the 787," Hamilton wrote. "To proceed with a new 737 is a gutsy move."

Boeing also would be gambling that Airbus would be committed to an A320 re-engining program. That would leave Airbus at a disadvantage against a new Boeing plane, Hamilton wrote.

Boeing would be betting that enough new technology would be available before the next decade to make a new 737 a viable decision.

"If Boeing proceeds with a new airplane, this will upend all the previous conventional thinking for the current decade and assumptions that a new airplane would not be forthcoming until the second half of the next decade," Hamilton wrote. "Airbus will have no choice but to respond."

That could disrupt Bombardier's CSeries and vex Embraer and the emerging competition from China and Russia from better product offerings from Boeing and, eventually, from Airbus, Hamilton wrote.