Boeing’s Albaugh talks about 737 future

Here is another segment of our interview with Jim Albaugh, president of Boeing Commercial Airplanes, during the Farnborough Air Show.

In this post, we report Albaugh’s thoughts on boosting the 737 rate to 40 per month and the challenges associated with doing so; the chess game between Airbus and Boeing over re-engining vs. replacement; the prospect of using an open rotor engine; and more.

Pinch points for 737 ramp-up

As we noted in a previous post, Albaugh indicated a decision will be forthcoming in September whether to ramp up production for the 737 line to 40 a month. We noted this decision will be driven by the supply chain. Here, we provide direct quotations from Albaugh.

Albaugh: We have a couple of partners who have a pinch point who would have to invest a not insignificant amount of capital in order to get to 40. We’re working through that with them, about how real the market is and how long the market can sustain itself. I think that by the time we have to make a decision on this, and we are targeting September, that we will have our ducks in a row about what we would have to invest and what the supply chain would have to invest. I know the numbers in terms of the total investment and I can tell you that the payback on that investment is pretty attractive.

Naturally we asked Albaugh was the investment would be and naturally he declined to divulge it.

Albaugh, continuing: [Boeing had] asked the supply chain to go from 31 [737s a month] to 34 and they guaranteed they would. [We] then asked the chain to stretch and go to 35. Once this number is reached, then some in the supply chain need to recapitalize.

We plan to get to get to 35 in January of 2012. In September if we decide to go to 40, it’s going to be later than 2012. Right now we talk about 18 months. That’s too long. Airbus can turn inside of that. I’ve asked our team to get down to less than that. But if you get down to brick and mortar, it would be some time in mid-2012 before you get to that.

We noted that if Boeing decides to replace the 737 as early as 2019, what will the impact be on the supply chain going to 40 737s by 2012? Albaugh said that “all goes into the equation, obviously.”

He continued: What you have to remember is that I think we are in an up cycle. If you recall what happened to the Classic and the NG, we were selling Classics right up until the time we started delivering the NGs. We didn’t see a real impact to production or an impact to margins. When it comes to making money for airlines, filling seats, passengers in seats, is more important to them for profitability from their standpoint than having a more efficient airplane.

Airbus is betting on the open rotor as a game-changing engine attached to fuselage technology that Airbus believes will also be game-changing. These technologies won’t converge until the mid-to-late 2020 decade, Airbus believes. We asked Albaugh about these bets.

Albaugh: I’m not spending a lot of time looking at the open rotor. The physics of it I understand in terms of how it can be more efficient. In terms of one of the ‘long poles,’ is how it is going to be when you start losing blades and what happens to the fuselage and how you protect the cabin. Yeah, you can put some shielding around the cabin and it adds weight. I think those are the kinds of trades…that you go through. We are a long way from having engineers design an airplane with an open rotor as their baseline.

Airbus has said many times that it would be “silly” for Boeing to proceed with a replacement airplane for the 737 in 2020 if Airbus was going to produce a replacement for the A320 by 2025-27 with entirely new technology that would render a 737 replacement obsolete (in the Airbus view).

Albaugh: It’s an interesting game, isn’t it? It would be crazy for them to re-engine if we are going to come out with a new airplane in five years.

Without giving away a lot of the things we are thinking about, there are a lot of ways to gain efficiencies in airplanes and certainly engine technology is one of them. But there are some other things we are looking at that we think will provide some pretty significant savings to our airline customers. I would be the first to agree that you don’t build a new airplane if you have only 5, 6, 7, 8, or 9% improvement [in fuel burn]. That’s an awful lot of capital to invest in incremental improvement. It’s the same thing about re-engining. Re-engining on paper sounds like a great deal, 15% fuel burn improvement, but if it costs several billion dollars to do and you have to pass it on to the customer, if you have a mixed engine fleet, that costs money, and you’re going to have lower reliability because it’s going to be a higher temperature—everybody knows that, by physics, what is the real savings to the customer? Five percent is probably being kind. Then does somebody buy an airplane to have a mixed fleet for 5%? Those are all the things that we’re thinking about.”

Airbus and Boeing say it’s tougher to downsize composite for a single aisle airplane. Is the technology there for a launch for EIS in 2019-20? Albaugh acknowledged that Airbus and Boeing have said this and added that Mitsubishi came to this conclusion in designing the MRJ 70-90 seat regional jet.

Albaugh: I think the analytical tools for composite need to catch up to some of the manufacturing capabilities. I think when we get into the second generation of composites, or the third generation or the fourth generation, it’s going to come. You will see some ability to do downsizing for composites. But there are some really interesting technologies out there that are going to improve the efficiency of the airplane. I am not going to tell you what they are because I don’t want the other guys to start thinking about it.

4 Comments on “Boeing’s Albaugh talks about 737 future

  1. It sounds like Boeing is going to go to 40 B-737NGs per month as soon as they can. It also sounds like they have already decided to build a new NB airplane to replace the B-737NG and A-32X.

  2. Scott – My impression of Albaugh from your interview, the Boeing investor conference last May, and his long interview with Dominic Gates is that he is not only very competent and unflapable but also has a sort of “holistic” view the business; ie., he seems to have an intuitive awareness of all the moving parts, the variables, the “known unknowns,” the uncertainties, and what ought to be Boeing’s goals. What are your observations of him (without disclosing anything that will result in hour never interviewing him again).

    • When Albaugh was named CEO of BCA, I had my doubts only because I didn’t know much about him. I didn’t follow IDS closely at the time but had the impression IDS was struggling to win business from the Pentagon, which of course reflects on the head of the unit.

      In the nearly one year since Alaugh was named CEO of BCA, and becoming more familiar with the legacy he left at IDS and the stragetic changes he put in place to reflect changing national security needs, I think he not only had a good vision for IDS but is making the sorely needed changes at BCA that are required. The Condit-Stonecipher years decimated Boeing. McNerney is not an engineer and waited far too long to make changes in the 787 program.

      Albaugh’s engineering background and his desire to return Boeing to its engineering roots is a breath of fresh air compared with the McBoeing emphasis on shareholder value above all else. If you have good engineering and good products, shareholder value follows. Good engineering and good products don’t necessarily follow emphasis on shareholder value first.

      I think Albaugh also has a better attitude and understanding toward labor than does Chicago but I fear the atmosphere has been so poisoned that repairing it–if at all possible–may come too late to keep the legacy Boeing intact. Chicago and the IAM seem more interested in being Macho and saying “I told you so” (and believe me, there are solid reasons on both sides to say so) than moving forward with repairing the relationship.

      I do think Albaugh has been too slow to reach out to labor but he has a golden opportunity to do so. He has been preoccupied with sorting out the 747-8 and 787 programs (with lots of work still to do) and being interactive directly with labor isn’t his style (as history at IDS demonstrated). Albaugh’s style is more delegate authority and hold responsible but the labor relations needs some one-on-one time.

      Reports at the time say McNerney was selected over Albaugh. Given Albaugh’s age it is unlikely he will have a shot at succeeding McNerney. It’s too bad; he would, I think, be an excellent choice to head The Boeing Co.

Leave a Reply

Your email address will not be published.