Boeing Co. may need to rethink one of the most distinctive features of its proposed new mid-range jet—a small cargo hold—to win over customers in Asia, potentially the plane’s largest market.

The manufacturer faces a “cargo conundrum,” for the jetliner dubbed the 797 by industry observers, said Domhnal Slattery, founder and chief executive officer of Avolon Holdings Ltd., the world’s third-largest aircraft leasing firm.

The big three U.S. carriers and their counterparts across the Pacific have very different views on how much baggage and freight the airliners should haul, with Asian airlines pressing for greater below-deck capacity, Slattery said. The disagreement potentially calls into question the distinctive oval-shaped fuselage that Boeing is planning for the 797, which sacrifices space for goods in favor of improved aerodynamics and passenger comfort.

“The U.S. majors have an appetite for less cargo in the belly than the Asians,” he said on the sidelines of the Americas conference for the International Society of Transport Aircraft Trading. “Typically in the States, it’s bags plus five tons of cargo. The Asians want bags plus 10 tons for this aircraft. So, who do you build it for?”

Middle Market

Avolon sees a large market for mid-sized Boeing and Airbus aircraft: between 3,500 and 4,000 in potential sales, particularly as Chinese and Indian consumers start to stretch their wings, Slattery said. Boeing officials have predicted about 4,000.

Boeing has revealed few details about its first all-new jetliner since the 787 Dreamliner. The general plan is for a two-aircraft family designed to overlap the largest single-aisle planes and smallest wide-body models. The twin-aisle planes would seat between 220 and 270 passengers, Randy Tinseth, a Boeing vice president for commercial marketing, said Monday.

The proposed aircraft, which would debut by 2024 or 2025, would be able to fly about 5,000 nautical miles. The goal is to serve both heavily congested short-range flights within China and Asia as well as longer routes from, say, the U.S. Midwest to central Europe far more efficiently than current generations of Airbus SE’s A330 and Boeing 767 jetliners.

Boeing thinks the aircraft have the potential to open up hundreds of new direct routes, much like its 787 Dreamliner. That plane’s fuel-efficiency and long range prompted airlines to connect 170 new city pairs, Tinseth said. Delta Air Lines Inc. and United Continental Holdings Inc. are among the operators that have signaled their interest in the 797, which is known within Boeing as the NMA—for new middle-of-market aircraft.

The largest U.S. industrial company declined to comment on customer disagreement as it refines the business plan for the jetliner, which is needed to win board support to formally begin sales talks.

Belly Cargo

As Chicago-based Boeing worked with about 50 customers around the world to hone its design, the large U.S. network carriers indicated belly cargo isn’t a high priority. That freed Boeing to consider a frame that analysts have described as “ovoid,” pinched on the sides to provide for a roomier passenger cabin and smaller cargo hold.

Asian buyers may have a different view of the plane’s ideal cross-section—the combination of cabin and cargo hold, said Slattery, whose leasing company is controlled by China’s Bohai Capital Holding Co. “This is the big issue,” he said. “I coined it today as the cargo conundrum.”

Tea Leaves

A decision to launch the 797 may come later this year, said John Plueger, CEO of Air Lease Corp., with Boeing moving ahead with the smaller cargo bay.

“If I read the Boeing tea leaves right, I think Boeing has already made a decision not to maximize freight and cargo in that airplane,” Plueger said in an interview. “And that decision has been reinforced to them by most major customers, including the big three in the U.S., that have expressed strong interest in the NMA.”

The plane, if it is launched, would emerge at a time when the aviation market is tilting toward rapidly growing airlines in China and other Asia-Pacific countries. The growth is a product of an expanding middle class that’s beginning to seek travel by air for the first time.

Of the 1,350 unique new-city pairs launched worldwide last year, about 600 were in Asia, including roughly 400 in China, Slattery said. Within the domestic market served by U.S. carriers, only 61 new city routes were created.

Super Careful

“Historically Boeing would have launched an airplane like this with a U.S. major,” Slattery said, noting the large need of airlines such as United, Delta and American Airlines Group Inc. as they eventually replace their 757 and 767 fleets. “Boeing has to be super-careful that they build an airplane that is fit for purpose in Asia, because that’s where the action is.”

Plueger agreed that air freight is of increasing importance to Asian passenger carriers, especially as the “Amazon Prime effect” spurs inbound and outbound parcel deliveries to the region. However, the 797’s features like twin-aisles to ease boarding—and spur on-board snack and drink sales—may ultimately prove more valuable for low-cost carriers, he said in an interview.

Boeing also doesn’t want to risk adding costs that could price its new plane out of the market. “If they build a lot more capability into that plane and weight to carry more freight, then the cost goes up. And cost is going to be what makes or breaks this airplane,” Plueger said.