The $ 15 billion jet dilemma facing the Boeing CEO

A Boeing 737 MAX 8 sits outside the hangar during a Boeing 737 MAX media tour at the Boeing plant in Renton, Wash. On December 8, 2015. REUTERS / Matt Mills McKnight / File Photo

Boeing Co CEO Dave Calhoun faces a multibillion dollar dilemma over how to rebuild sales in its core airliner business, which has sparked internal debate and put the future on the line. the largest US exporter, according to industry insiders.

Boeing is reeling from a safety scandal following crashes of its 737 MAX airliner and a collapse in air travel caused by the pandemic. These crises have eclipsed a deeper and longer-term risk to the company’s airliners business.

Boeing’s share of the single-aisle airliner market – where it competes in a global duopoly with Airbus – has grown from around 50% ten years ago to around 35% after the 737 MAX’s prolonged shutdown, according to Agency Partners and other analysts.

The single-aisle Airbus A321neo (AIR.PA) has booked billions of dollars in orders in a booming market segment, as the larger MAX variants struggled to block it.

Without a new addition to its portfolio at the perfect time, analysts warn America risks ceding a huge chunk of that market to Europe – valued by aircraft manufacturers at some $ 3.5 trillion over 20 years.

But Boeing is not yet ready to decide on a plan to develop a new aircraft to counter the A321neo, and two main options – go ahead now or wait until later – carry financial and strategic risks, said several people briefed on the discussions.

“I am confident that over a longer period of time we will come back to where we need to go and I am confident in the product line,” Calhoun said in April as Boeing won new MAX orders.

Asked about the company’s discussions and options for a potential new aircraft, a Boeing spokesperson said he had no immediate comment beyond Calhoun’s remarks to investors.

OPTIONS

A weakened Boeing has little room for error, especially as it tackles industrial issues that hamper other airliners.

Boeing’s first option is to strike fairly quickly, bringing to market by about 2029 a 5,000-mile single-aisle jet with about 10 percent more fuel consumption. This could potentially be launched for orders in 2023.

“There is no better way to repair their image than to invest in the future now, outright,” said Richard Aboulafia, analyst at Teal Group.

A new single-aisle jet would replace the out-of-production 757 and fill a gap between the MAX and the larger 787, confirming a twist from earlier mid-market plans, as reported by Reuters in April of last year. The idea faded into the background at the start of the pandemic, before regaining attention.

It would also be an anchor point for a possible replacement of the 737 family white sheet.

An alternative option is to wait for the next leap in engine technology, which is not expected until the early 2030s. This could involve open rotor motors with visible blades using a mix of traditional turbines and electric propulsion. .

Fearful of letting short-term product decisions guide its strategy, Boeing is also prioritizing a deeper dive into the investments or business changes needed to regain the top spot, analysts said.

TIME DILEMMA

Both approaches carry risks. If it moves too quickly, Boeing can face a relatively simple countermove.

Airbus’ preference is to do nothing and preserve a favorable status quo, according to European sources. But years ago housed studies codenamed “A321neo-plus-plus” or “A321 Ultimate” with more seats and composite wings to repel any commercial attack.

Such an upgrade could cost Airbus some $ 2-3 billion, but far less than the $ 15 billion Boeing would spend on a new aircraft.

For Boeing, a premature tit-for-tat decision runs the risk of simply replicating the strategic spot where it currently stands.

If it moves too slowly, however, investors could have to put up with a decade of dangerously low market share in the single-aisle category, the industry’s profit powerhouse.

Those calling for restraint, including soon-to-leave CFO Greg Smith, have a simple point, according to insiders.

Boeing has racked up a mountain of debt and burned $ 20 billion in cash, going from crisis to crisis.

“It’s a different world,” said an insider. “How could you think of a new plane? “

However, some engineers at Boeing’s Seattle trading house are calling for a bold move to reaffirm its dominance of engineering after the worst period in its 105-year history.

“This should be a priority for Boeing right now,” said Tom McCarty, a former Boeing avionics engineer. “Take back the undisputed leadership of advanced technology. “

ENGINE WORDS

As it weighed in on when to act, Boeing requested the first technical data from engine manufacturers Rolls-Royce (RR.L), Pratt & Whitney (RTX.N) and General Electric-Safran (GE.N), (SAF.PA) . ) associates CFM International, according to industry sources.

Firm competition is not expected for a year or more, they add, a delay that illustrates the Boeing link. Rolls, which has the most to gain as it tries to re-enter the lucrative single-aisle market, said last month it would be ready for any new product.

China, where state-owned COMAC is working on a narrow-body C919, is looking aside Boeing’s decision in a potential challenge for the 737 and A320 cash cow families.

Sitting on $ 7 billion in net cash and a second-mover advantage, analysts say Airbus looks the most comfortable, though it also faces its share of industrial headaches.

A wild card in the deliberations is the increasing environmental pressure, reflected in the priorities of each aircraft manufacturer.

Airbus is committed to introducing the first small commercial hydrogen aircraft in 2035.

The “zero emissions” program reflects its CEO’s belief that disruptive technology will play a role in next-generation jets. But industry sources say it’s no coincidence that such rhetoric also keeps Boeing away from launching an interim jet.

Boeing has focused on faster gains through sustainable aviation fuel (SAF). Any new 757-style jet would have the ability to run 100% on SAF, people familiar with the plan said.

While supporting refueling for technical reasons, Boeing has left enough room to say that a relatively early new aircraft would still meet the industry’s environmental goals.

Meanwhile, Airbus kept up the pressure with proposals last week to almost double single-aisle production in four years.

While some vendors questioned how quickly the plan was achievable, an industry executive noted he had sent a “message that Airbus is coming out of the crisis as No. 1 and has the intend to stay there “.

One of the risks is that anything that looks like market share could trigger the Boeing jet that Airbus hopes to avoid.

When asked if he thought Airbus expansion plans might spur Boeing to launch a new aircraft, Airbus CEO Guillaume Faury downplayed the prospect of a new arms race in the air. ‘industry.

“If they trust the MAX with the pent-up demand they see for single aisle, then I don’t see why they would be in a rush to replace the MAX. If they’re in a different situation, they might come to other conclusions, ”Faury told Reuters.

Our standards: Thomson Reuters Trust Principles.


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About Joaquin Robertson

Joaquin Robertson

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