The factors in airframe and engine acquisition are so numerous, that I'd think it's almost a black art. Aviation press talk about how "Boeing offered a deeply discount price", but I doubt it's as simple as bartering for a rug at a public market. Multiple engine offerings definitely costs more, but the costs and the risks are spread between multiple vendors. GE's GE90 engine was something like 6 months late after suffering some serious nacelle design issues. Much of which was detailed in "Profit At Any Cost", a scary book on GE's cost-cutting 90s. But in the case of the LR, a new engine was required (with something like 115,000+ lbs of thrust), and no one wanted to put up the cash to develop it. GE, and I'm sure PW, GE and RR all did the same, offered to develop the engine, but only if they could make it a better investment by reducing their risk (i.e. competition.) The final deal had GE being the exclusive (at least initially) offering. In most cases, I don't think Boeing foots the bill for engine certification, but it could delay a product introduction. Imagine if GE became the exclusive on the LR, and then had SNAFU's like the GE90. Boeing would be up the creek for a while with nothing to sell. Big risks, big decisions. As you noted GECAS doesn't require GE engines on it's assets. (When I was with GE, we didn't even have GE light bulbs in our ceilings... we simply chose the best, and if it was a GE product, so be it.) BUT, with GE selling the engine, and possibly servicing the engine, financing the flying fleet, possibly running the airlines credit card, providing their commercial operational financing, leasing the ground fleet, running their IT services, managing the companies pension plan or insurance coverage... ...I do know that if GE had to lower the price of the engine a few bucks to close the deal, they would and wouldn't bat an eye. Interesting comments and conversation. Though I'm not sure GECAS, ILFC, State Street and others are in a real rush to finance planes to too many airlines these days. Too risky! Cheers, Matthew On Thursday, October 2, 2003, at 08:03 PM, Douglas Schnell wrote: > Is that true? > > Assume you and I are starting a new airline. From our perspective, the > 737NG and A19/320 are largely interchangeable, especially because we = > have no > existing fleet to worry about for commonality purposes. If Airbus is > selling their product at $50 and Boeing is selling theirs at $100, the > choice becomes pretty simple. (jetBlue, in fact, was certain that they > would be purchasing 737NGs until they got the final bids from Airbus > and > Boeing.) If we change the facts a bit, so that Airbus is selling their > product at $95 and Boeing is selling again at $100 (and the $5 = > difference is > attributable solely to the extra cost of a CFM engine), think about the > pressure Boeing will put on CFM to lower engine prices to make the > plane > competitive. Plus, GE does not get to set prices willy nilly on the > CFM > 56--it must answer to Snecma as well. > > If we move to an airframe that has engines sourced from a single, = > non-joint > venture supplier (the 777LR you reference, for example), we, as a > whole, = > are > actually better off from the exclusive arrangement. Assume the 777LR > provides a societal surplus of 100 (this is the "extra value" > associated > with the production and sale of the airframe). That 100 exists > _solely_ > because of the engine exclusive--if there was no exclusive, there > would = > be > no 777LR and thus no surplus. Surely, the benefit of having the = > airframe > outweighs any potential costs associated with a single-source engine = > deal. > Boeing saves costs on testing and certification, and those savings are > passed directly to the customer (and ultimately to the individual = > traveler > in the form of a better cost structure for the airline). GE is > assured = > of > some revenue (likely at least enough to cover the engine's development > costs). Airlines get an additional airframe from which to choose. > Who = > is > the loser? You cannot just say "oh, well we'd all be better off if = > there > was a choice of engines." There is zero justification for that--in = > fact, if > anything, there is a justification that more choices leads to higher = > costs > (through type certification, etc.). > > GECAS does not mandate the purchase of GE engines for leasing, nor the > = > use > of GE maintenance facilities. If the GECAS package is not > competitive, = > ILFC > is happy to provide financing. At the end of the day, it costs money > to > make an engine. What is the difference if GE pays for that engine = > upfront > or over the life of the airframe? > > -----Original Message----- > From: The Airline List [mailto:AIRLINE@xxxxxxxxxxxxxxxxx] On Behalf Of > Matthew Montano > Sent: Thursday, October 02, 2003 8:48 PM > To: AIRLINE@xxxxxxxxxxxxxxxxx > Subject: Re: More 737 stuff > > > GE has to sell engines and reasonable prices, but if it's the only one > available for Boeing's plane, the customer doesn't get a competitive > environment for engine procurement. > > From Boeing's side, of course they want to keep their plane reasonable > priced, if they are in a competitive environment. Which they are. > > But when Boeing's LR project was dangling by a thread, neither Pratt, > RR = > or > GE were willing to ante up the considerable engine development dollars > = > to > develop the required engines... UNLESS they were the exclusive (i.e. > not > subjective to a competitive environment) supplier. > > Boeing, as you say, wants to sell planes, so they signed an > exclusivity = > deal > so they can go ahead and build it. > > .. and since GE not only builds and sells the engine, they will > service = > it, > and finance the whole plane through GECAS, even if they sell the > engine = > at > garage sale prices, they have the financial discipline to ensure they = > make > it up elsewhere. > > Matthew > > On Wednesday, October 1, 2003, at 06:38 PM, Douglas Schnell wrote: > >> Assuming GE wants to sell engines (which is a pretty safe >> assumption), = > >> what is its incentive to price them uncompetitively and lose orders? >> >> Plus, you have Boeing pushing _very_ heavily against any price >> changes = > >> by GE. Boeing, incidentally, is interested in selling as many=20 >> aircraft as possible. >> >> I just don't see a competitive concern. >> >> -----Original Message----- >> From: The Airline List [mailto:AIRLINE@xxxxxxxxxxxxxxxxx] On Behalf >> Of = > >> Matthew Montano >> Sent: Wednesday, October 01, 2003 10:59 AM >> To: AIRLINE@xxxxxxxxxxxxxxxxx >> Subject: Re: More 737 stuff >> >> >> Boeing also cut a deal with GE for the engines on the 777 LRs. >> >> GE's way, or the high-way. >> >> (which also means GE's price...) >> >> But of course, Airbus with their 330/340s are just across the street. >> >> Matthew >> >> On Tuesday, September 30, 2003, at 08:47 PM, Alireza Alivandivafa >> wrote: >> >>> In a message dated 9/30/2003 8:36:44 PM Pacific Daylight Time,=20 >>> damiross2@xxxxxxxxxxx writes: >>> >>> << It would require new certification >>> Airlines with large fleets of 737's wouldn't buy (no commonality=20 >>> with current fleet) If it ain't broke, don't fix it >> >>> >>> That explains that. It is interesting the Boeing made that deal.=20 >>> They must have made a deal that keeps the engines from being >>> priced=20 >>> too high