Dave Calhoun, CEO of Boeing Co., faces a multi-billion dollar dilemma on how to rebuild sales in its core aircraft business that has sparked an internal debate and jeopardized the future of the largest U.S. exporter, industry insiders say.
Boeing suffers from a security scandal following the crash of its 737 MAX plane and an air traffic collapse caused by the pandemic. These crises have overshadowed a deeper, longer-term risk to the company’s commercial passenger aircraft business.
Boeing’s share of the single-aisle jetliner market, in which it competes in a global duopoly with Airbus, has fallen from around 50 percent a decade ago to around 35 percent after the lengthy grounding of the 737 MAX, according to Agency Partners and other analysts .
Airbus’ single-aisle A321neo has won billions of dollars in business in a recently booming market segment as the largest MAX variants struggled to block it.
Without a perfectly matched addition to its portfolio, analysts warn that America risks ceding a large portion of that market to Europe – valued by aircraft manufacturers at around $ 3.5 trillion ($ 4.6 trillion over 20 years) .
Boeing is not yet ready to agree on a plan to develop a new aircraft against the A321neo, however, and two leading options – press ahead now or wait until later – come with financial and strategic risks, said several people speaking over the discussions were informed.
“I am confident that we will be getting back to where we need to be over a longer period of time and I am confident of the product line,” Calhoun said in April when Boeing won new MAX orders.
When asked about the company’s discussions and options over a potential new aircraft, a Boeing spokesman said there was no immediate comment beyond Calhoun’s remarks to investors.
Options
A weakened Boeing has little room for error, especially as it addresses industrial problems that hinder other commercial aircraft.
Boeing’s first option is to strike relatively quickly and launch a 5,000-mile single-aisle jet with about 10 percent more fuel efficiency by about 2029. This could possibly be introduced for orders in 2023.
“There is no better way to improve your image than simply investing in the future now,” said Richard Aboulafia, analyst for the Teal Group.
A new single-aisle jet would replace the discontinued 757 and fill a void between the MAX and the larger 787, confirming a twist on earlier mid-market plans, Reuters reported last April. The idea faded into the background at the beginning of the pandemic before attracting attention again.
It would also be an anchor for an eventual replacement of the 737 family without conceding a goal.
An alternative is to wait for the next leap in engine technology, which is not expected until the early 2030s. These could be open rotor engines with visible blades that use a mix of traditional turbines and electric propulsion.
Boeing shies away from letting short-term product decisions drive strategy and also prioritizes deeper entry into investments or business changes necessary to recapture the # 1, analysts say.
Timing dilemma
Both approaches involve risks. If things go too fast, Boeing could be faced with a relatively easy return move.
Airbus prefers to do nothing and maintain a favorable status quo, European sources say. But it has been hosting studies code-named “A321neo-plus-plus” or “A321 Ultimate” with more seats and compound wings to fend off any commercial attack for years.
Such an upgrade could cost Airbus around $ 2-3 billion, but far less than the $ 15 billion Boeing would spend on a new aircraft.
Boeing’s premature move risks replicating just the strategic point where it is now.
If it goes too slow, however, investors may have to endure a decade of dangerously low market share in the single-aisle category, the industry’s profitable power.
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Those who urge restraint, including soon-to-be-out CFO Greg Smith, have a simple argument, insiders say.
Boeing has amassed a mountain of debt and burned $ 20 billion in cash from crisis to crisis.
“It’s a different world,” said an insider. “How could you think of a new plane?”
However, some engineers at the Boeing Seattle office building are crying out for a bold move to reassert their technical dominance after the worst time in their 105-year history.
“That should be a priority for Boeing right now,” said Tom McCarty, an experienced former Boeing avionics engineer. “To regain the clear leadership of advancing technology.”
Engine talks
In considering when to act, Boeing obtained initial technical data from engine manufacturers Rolls-Royce, Pratt & Whitney and General Electric Safran Troop CFM International, industry sources say.
Fierce competition is not expected for a year or more, they add, a delay that illustrates Boeing’s commitment. Rolls, which has the most to gain by re-entering the lucrative single aisle market, said last month it was ready for any new product.
From the sidelines, Boeing is watching China’s decision, where state-owned manufacturer COMAC is working on a C919 narrowbody to potentially challenge the 737 and A320 cash cow families.
Assuming $ 7 billion in net cash and the benefit of a secondary vendor, analysts say Airbus looks the most comfortable, though it’s also faced some industrial headache.
A wild card in the deliberations is the growing environmental pressure, which is reflected in the priorities of every aircraft manufacturer.
Airbus has committed to launch the first hydrogen-powered small airliner in 2035.
The “zero emissions” agenda reflects the CEO’s belief that disruptive technologies will play a role in next-generation jets. However, industry sources say it is no coincidence that such rhetoric also prevents Boeing from launching an interim jet.
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Boeing has emphasized faster profits through sustainable aviation fuel (SAF). Any new 757 jet would have the ability to run 100 percent on SAF, said people familiar with the plan.
While Boeing supports drop-in fuel for technical reasons, it leaves enough space to argue that a relatively early new aircraft would still meet the industry’s environmental goals.
Meanwhile, Airbus kept the pressure going last week with proposals to nearly double single-aisle production within four years.
While some suppliers questioned how quickly the plan could be implemented, an industry manager noted that he had “sent a message that Airbus is the No. 1 out of the crisis and wants to stay there”.
One risk is that anything that looks like market share could trigger the very same Boeing jet that Airbus is trying to avoid.
When asked whether Airbus’s expansion plans could lead Boeing to launch a new aircraft, Airbus CEO Guillaume Faury downplayed the prospect of a new arms race in the industry.
“If you trust the MAX with the pent-up demand that you see for single aisle, then I don’t see why you should be in a hurry to replace the MAX. If they find themselves in a different situation, they might come to different conclusions, ”Faury told Reuters.
