By Lewis Krauskopf
NEW YORK (Reuters) - As the next generation of narrow-body airplanes takes to the skies later this year, makers of the new fuel-efficient engines that power them are battling for market share.
Orders worth $20 billion are up for grabs in the competition between Pratt & Whitney and CFM International. Pratt also stands to gain market prominence as it makes what some experts describe as an industry comeback.
Pratt, a unit of United Technologies Corp and a major military contractor, has had a smaller commercial engine market presence in recent years.
In contrast, CFM, a joint venture between General Electric Co and Safran, has supplied the dominant engine on narrow-body, single-aisle planes, which are the best-selling Boeing Co and Airbus Group models.
Single-aisle planes make up more than 60 percent of all commercial jets flying today, and are expected to account for 70 percent of the 35,000 new commercial jets delivered over the next 20 years, a market worth nearly $2.3 trillion.
Jet engine sales are expected to top $500 billion over the next decade, according to the Teal Group, an aerospace research firm. Manufacturers fight hard for sales because a large installed base of engines yields big profits later through maintenance and replacement parts.
While Boeing's 737 MAX and the Airbus A320neo will have aerodynamic improvements that make them more efficient, the new engines account for most of their fuel savings.
Pratt and CFM have promised at least 15 percent lower fuel use than current-generation engines.
"The most significant change on either of these jets is the engines," said Will Alibrandi, an aero turbine analyst for Forecast International.
FOCUS ON NEO
That means airlines will scrutinize the engines' performance and their choice will show in the A320neo competition.
CFM has already sewed up a swath of the single-aisle market for its LEAP engine. CFM is the only engine option on the 737 MAX, the A320neo rival, a deal that keeps CFM as the top engine supplier in the single-aisle category.
But Pratt's new power plant, known as the geared turbofan (GTF), the other option on the A320neo, aims to challenge CFM's dominance.
Pratt also has signed exclusive deals to supply the GTF to four regional jet makers, including Bombardier Inc and Embraer. While each is much smaller than the 737 and A320, those jets combined will represent significant sales over time.
The A320neo has so far won more orders than the 737 MAX, making it a big market opportunity for Pratt.
And Pratt already is proving to be a tough competitor. So far, Pratt and CFM have evenly split the A320neo market. Out of 2,610 A320neo orders as of January, about 32 percent have selected CFM and 32 percent have selected Pratt, Airbus said.
The contest for the remaining jets represents about 1,880 engines worth nearly $20 billion at list prices of about $11 million per engine.
"Where you see the real competitive battlefront between these two is on the Airbus," said Ernest Arvai, an aviation industry consultant with AirInsight. "It's a huge market."
START YOUR ENGINES
The two engines use radically different designs. Pratt's GTF relies on a gearbox that lets the front fan operate at a different speed than the rest of the engine. On traditionally configured engines they run at the same speed. CFM's LEAP, among other improvements, uses new materials designed to reduce weight and add durability.
Pratt's GTF will be the first engine into the sky on a new generation jet when Airbus A320neo flights start in the fourth quarter, and therefore the first to provide actual flight performance data that could help win over undecided airline customers.
"A successful flight test program by all rights should generate more sales and should kick some folks off the fence," said turbine analyst Alibrandi. "You can make all kinds of performance guarantees," but the proof is from engines actually flying on the plane.
United Technologies, which poured $1 billion into developing the GTF, projects Pratt's revenue will roughly double to $26 billion by 2020, fueled in part by the GTF. Pratt also makes engines for the F-35 Joint Strike Fighter jet. United Technologies - whose Chief Executive Officer Louis Chenevert was Pratt's president for seven years - posted $62.6 billion in revenue last year.
"The GTF has become the cornerstone of Pratt & Whitney's commercial engine business," David Brantner, president of Pratt's commercial engines business, said in an interview.
Aviation also is an important division for GE, accounting for about 15 percent of its $146 billion in 2013 revenue. The importance is likely to grow as the U.S. conglomerate focuses more on industrials businesses and moves away from exposure to the financial sector.
Including orders from the China's Comac C919, CFM expects to continue to have about 75 percent of the engine market for single-aisle planes, said Chaker Chahrour, CFM's executive vice president.
"We are certain that we will maintain the overall 75 percent," Chahrour said. "The battle is not over. There are still many orders to come on these airplanes."
Beyond price, airlines want guarantees on performance and reliability, as well as agreements over maintenance and other costs over as long as 20 years, said Norman Hecht, an engine consultant and former Pratt veteran.
The first Pratt-powered A320neo is due for delivery to customers in late 2015. The LEAP-powered A320neo is scheduled to enter into service in the second quarter of 2016.
That means some airlines may take years to see how both engines perform before choosing.
"It's early, and they both have very compelling products," said William Storey, Teal Group's president. "The jury is out on who will win."
(Reporting by Lewis Krauskopf; Editing by Alwyn Scott and Lisa Shumaker)