Has Boeing Become A Permanent Number Two To Airbus? Or Can A New 757 Save The Company?

The Boeing 737 Max flew on Wednesday for the first time in nearly two years, but experts agree that the airplane’s catastrophic safety record, the coronavirus crisis and years of mismanagement have left the once-vaunted aircraft maker in an unfortunate position.

In the current century, Boeing tied its fate to two new aircraft. The 787 was introduced in 2009, while the 737 Max first flew in 2017.

The company’s miscalculation and misfortune have enabled the Airbus A-321 to displace both, said aviation consultant Richard Aboulafia, vice president of analysis at the Teal Group. Aboulafia spoke Tuesday during an aerospace analysts web panel on the future of Boeing and aerospace.

In the 200-seat single aisle marketplace, the biggest segment of the commercial aircraft business, Airbus has a backlog of about 3,000 orders, Aboulafia said, while Boeing’s backlog is just 500 aircraft.

“It’s quite possible that the 60-40 story becomes a 65-35 story or even a 70-30 story by the end of the decade,” Aboulafia said.

 “It’s really tough to recover,” he added. “It’s easy to get demoralized and not do anything as McDonnell Douglas did back in the 80s and 90s until, of course, it exited the jetliner business” following a 1997 merger with Boeing.

Panel member Kevin Michaels, managing director of consultant AeroDynamic Advisory in Ann Arbor, Mi., agreed that aircraft manufacturing has “gone from a 50-50 duopoly to something that looks like 60-40 or more in the long term.”

Boeing’s decline coincided with the tenure of James McNerney, CEO from 2005 to 2015. He chose to focus on the share price rather than the employees, said Aboulafia, adding that McNerney differed from Herb Kelleher, longtime CEO of Southwest Airlines.

Kelleher chose to “look after people,” while at Boeing, “A lot of the damage was from doing the exact opposite, (focusing) on the share price,” Aboulafia said.

In the case of the 787, McNerney’s establishment of a global supply chain reflected efforts to bypass the experienced, unionized Seattle workforce by moving work to Charleston, S.C. and to require more investment from suppliers.  

In the case of the Max, Boeing sought to introduce a new technology, intended to offset a tendency to pitch up due to more powerful engines, while avoiding the expense of providing pilots with increased simulator training.

The 787 production model also model also demanded more from suppliers.

“Boeing burned bridges with many of its leading suppliers even before this,” Michaels said.

While Lockheed Martin pays small suppliers within 15 days, the Boeing model is generally to take as many as 90 days to pay. “Your small suppliers can’t be your bank,” Michaels said. “It doesn’t work that way if you want them to be around.”

Boeing cumulative losses on the 787 reached a peak of about $33 billion. Panel member Ron Epstein, Bank of America aerospace analyst. said Max development will also cost about $30 billion, far above guidance of about $5 billion.

Can Boeing save itself?

Panelists agreed that the current crisis represents an opportunity for Boeing to introduce a new aircraft, referred to as NMA for new midsize aircraft, which would in many ways resemble the Boeing 757.

Boeing manufactured the single-aisle 757, which seated about 200 passengers and had a range of about 4,500 miles, between 1982 and 2004.

“We’re all in agreement that something has to be done in the middle market,” said Michaels.

“It could be we’re looking at a 757-type airplane loaded with new technologies.” The aircraft “has to be something that is a little bit smaller, in a world where airlines are downgauging,” than the NMA that was widely envisioned before the coronavirus crisis, he said.

In a survey, two thirds of the investment community think “Boeing has to do an airplane to remain competitive with Airbus,” said Epstein. “Investors always get queasy around investment, but not when that investment is required to keep the company competitive.”

Given the time required to develop the NMA, the new aircraft could come to market in 2027 or 2028. That would “dovetail really nicely for the market economics likely to be around,” Epstein said.  “You could be bringing something to the marketplace when the market is hot again.”