Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: New engine development. Part 4. Propulsive efficiency April 19, 2024
- Boeing unlikely to meet FAA’s 90-day deadline for new safety program April 18, 2024
- Focus on quality not slowing innovation, says GKN April 18, 2024
- Boeing defends 787, 777 against whistleblower charges April 17, 2024
- Dissecting Boeing CEO’s statement next new airplane will cost $50bn April 15, 2024
Airbus only one reason for Boeing cost-cutting
- The bigger danger at Boeing is not Airbus pricing, but the potential for up to 15,000 early retirements this year by engineers, technicians and touch-labor. See Scott Hamilton’s column at Forbes online.
- Job cuts drive margin at Boeing, analyst concludes.
March 31, 2016, © Leeham Co.: Boeing has to cut costs. So it’s cutting 10% of its work force.
The reason?
Ray Conner, CEO of Boeing Commercial Airplanes. Photo via Google images.
Pricing pressure from Airbus, says Ray Conner, the CEO of Boeing Commercial Airplanes (BCA). The Seattle Times, which reported March 30 that it obtained an internal memo citing the 10% number, quoted Conner extensively from a Feb. 10 internal webcast that Boeing is losing orders to Airbus over price.
Declining market share, especially for the 737, is a major concern, The Times quotes Conner.
“Their biggest weapon that they’re using in the competitions today is price,” Conner told employees. “They are attacking us with price in every single campaign. And as a result of that, you know, we’re being pushed to the wall,” Dominic Gates of The Seattle Times wrote, citing a transcript of Conner’s internal comments.
Gates went on to write that “In justifying the anticipated cuts to employees in last month’s internal webcast, Conner was unusually frank as he invoked a dire threat from Airbus.
“He said that Airbus winning 63 percent of single-aisle sales last year with its A320 jets going against Boeing’s 737 jets was ‘alarming … because the 737 is the biggest contributor to the earnings of the Boeing Company.’”
Gates went on to extensively quote Conner in his article and the defensive posture Boeing is now in vis-à-vis Airbus.
Conflicting messages
Dennis Muilenburg, CEO of The Boeing Co. and Ray Conner’s boss. Boeing photo.
But Conner’s boss, Dennis Muilenburg, the CEO of The Boeing Co., the parent of BCA, disagrees. Shortly after Conner’s internal webcast, Muilenburg appeared at an investors conference sponsored by Barclay’s Bank. Muilenburg volunteered his take on Conner’s comments. According to the transcript of the appearance, Muilenburg had this to say:
“I’ve seen comments out there about are we seeing some significant increase in pricing pressure. Some of those attributed to some comments that Ray Conner had made at his meeting with his team. And I can tell you, as you all know Ray, Ray is a very strong competitor in the marketplace and a great partner of mine. And his message out there is, yeah, we are focused on competing and while we are in a competitive marketplace and we are continually dealing with pricing pressures, we haven’t seen that roll into our booking rates.
“Our booking rates have held up well,” Muilenburg continued. “That’s consistent with what we’ve told you before, and we recognize if pricing pressure is going to be a threat, so our job is to continue to drive cost competitiveness. And I think some of the comments you’ve seen out in the press where our comments about driving cost competitiveness have been interpreted as a defensive move that we have to make in a tough marketplace. It’s quite the opposite. Myself, Ray, our whole team, we are committed to driving cost competitiveness to win in the marketplace, to drive bottom-line performance, to drive the earnings and margins up and to create our investment capacity for the future.”
Other reasons
But using Airbus as the whipping boy, a favorite Boeing tactic, tells only part of the story. Consider:
- On the year-end 2015 earnings call, Muilenburg reiterated that the corporate goal for profit margin at BCA is the mid-teens. BCA ended 2015 with a 9% margin. Boeing is pursuing productivity gain, continued cost cutting with its supply chain and lean manufacturing. Cutting headcount is another tactic. Achieving margin is probably more important than protecting market share.
- The drag on BCA from the 787 program continues. With around $29bn in deferred production costs and another $3bn for tooling, Boeing is constrained on its ability to compete on price with Airbus. For example, our Market Intelligence indicated that Delta Air Lines wanted a price of $115m for 787-9s; Boeing would only go to $125m. Airbus was in this range for the A350-900 and won the deal (along with a companion order for the A330-900). Boeing claimed Airbus went much lower, but LNC could never confirm the claim, but that’s beside this point: Boeing’s floor on the 787 pricing is artificially high because of the deferred production costs from the debacle of the entire program.
- The 747-8 continues to be a financial drag.
- Money is going out at prodigious rates for development of the 737 MAX, the 787-10, 777X and the KC-46A. The first MAX doesn’t deliver until next year.
- The corporate priority is shareholder buyback and dividends, at the rate of some $6bn a year. Costs need to be cut to help support this commitment.
Conner is right that Boeing is under pricing pressure from Airbus. But this is only part of the story.
Hello Scott,
Can Ray Conner’s comments on Airbus putting pressure on price be transformed in another offensive on Illegal subsidies? Or a mean to prepare a political action ?
Best regards
If Shell, Toyota and VW are any indication? YES.
The US is on a war footing.
It didn’t sound like it form how I read it. If Donald were to become president, that attitude could possibly change dramatically and what a bloodbath that would be.
On top of all of the trade deals that would be cancelled.
@Crise: No grounds for a legal challenge on this that I can see.
Pricing pressure is also there in case you want to sell an inferior product. You will not get the same price like your competitor.
Ouch!
Ray Conner is a politician-type executive, more of a commercial profile, neither a military troops’ Chief, nor an industry workforce enthusiasm-whipper and fore-runner. So he chooses his words with an agenda on his mind. He’s up to some devious backstage scheme and has called the sinner : Airbus ! always Airbus ! Again Airbus ! Wait and see : next time he appears in public, he’ll unveil his intents. As Poncho says, possibly a WTO action or else a Mobile (Alabama) show-down or something underhanded of same caliber, we’ll soon find out ? Trust Ray Conner : we’ve seen him scoring footage in Japan !
Once again, let us say: pay dividends and buy back shares is a strategic choice. It is a choice made through other possible strategic choices. The problem with Boeing is the fact that this company belongs to a manufacturing industry that is large capital-intensive research and development. Yes, undoubtedly does it achieve a balance between the development of new products and the compensation of its owners. This balance is only on the condition of having continuous future products in the pipeline … Besides 787-10 and 777x, what do we find in the pipeline? In the military sector, what is left to generate future growth? Finally, when you sell 737-700 to United at 20 million, sooner or later, you turn employees because managers did not do their work, and worse, because the members of the board suffers from an extraordinary myopia. Those responsible for the drift of affairs at Boeing are in Chicago, the top floor of a tower surrounded by clouds …
share buybacks and dividends for a technology focused company are like punching your future in the nuts.
moronic business decision in pursuit of artificial stock price gains that actively harm the future of the company (and hence the long term value of the stock) in favor of short term executive compensation.
embezzling by another name (diverting company resources for personal gain)
yep
Boeing is more manufacturing , especially in the airframe business,than pure technology.
Its R&D spending is heavily skewed towards the manufacturing process, and when it tried to be just an designer/integrator/assembler of others manufacturing ( like most computer makers are) on the 787 project it failed miserably.
The real technology comes from the engine builders and those who make carbon fibre weaving equipment.
Anything that uses rivets hasnt been ‘technology’ for a long time
“The corporate priority is shareholder buyback and dividends, at the rate of some $6bn a year.”
Considering that it will have cost Bombardier about $6bn to develop the C Series, Boeing has no credibility if they say they lack funds to develop new aircraft.
On the other hand, dividends and share buybacks do push the price of the shares up, thus increasing value of management stock options…
The price effect is likely short term. So yes, mgt gets to make a tidy profit on the shares they get (subsidized) as performance pay. But for long term shareholders, a $6Bn buy back is not really a good deal. Investing in a competitive product line is what we want.
Buybacks are really for management’s benefit and the hedge-funders/arbitrageurs. It is very disappointing. Imagine if Boeing had invested in a real replacement for the 737, instead of the very poor-selling MAX9. Airbus may be pushing margins down at BA, but it’s BAs own-goal that the A321 is trouncing them.
Funny that this price competitiveness weapon that Airbus is using doesn’t seem to be translating into more widebody orders for them.
I wonder why that could be.
Thats not right- what it means is that wide body orders have slowed, thus the fight over price has intensified- as it should.
I think for both Airbus and Boeing the NB’s remain the main drivers for revenue, because of the shear numbers being produced.
What everybody knows, but doesn’t dare to say: The 737 MAX isn’t that competitive with the A320 NEO, a solution is due.
The 3000 MAX backlog doesn’t tell the complete story. To few blue chips, to many undisclosed (=doubters?).
The MAX sales team and airlines face:
– less efficient/ noisier engines (ground clearance)
– no engine choice / geared PW option
– a narrower, noisier cabin / cockpit
– no cargo container carrying option
– no cockpit commonality with larger aircraft
– less growth potential (tail clearance)
– inferior runway performance
– 739MAX vs A321NEO performance gap
– no 200 seat 4000NM TATL option
– no European and Chinese assembly lines
Airlines are not ready to pay as much for a MAX as for a NEO so Boeing has to go real low to score orders.
Delta and United are in the market place and Boeing can’t send them 737-9s for free.
http://static.seattletimes.com/wp-content/uploads/2016/03/808139be-ebe7-11e5-bbd6-925978a04307-1020×528.jpg
Boeing bought themselves a decade with the MAX, 5,000 single aisles, ten years at 500/yr until 2028.
That gives them until 2020 to make a decision, look at MAX sales at that point and launch then, or re-evaluate every year thereafter.
Most likely the design will follow the template for construction of the CSeries, CFRP wing and LiAl fuslelage, maybe 13′ outside diam. Will it be a two pilot aircraft?
Why not a one-pilot, single engine aircraft, suited to complacent ESOPS regulations. After all, there are 50% less chance of engine failure with only one engine 😉
true, but as its noted in the industry, when it does fail its the worst possible thing
You might be right that Boeing has bought themselves a decade with the MAX. If thru, then Boeing needs to launch the NSA program this or next year.
Boeing will require about 10 years to design, certify, get the aircraft in service and then ramp up an enormous production system so that it is able to deliver up to three new aircraft to customers every single working day all year around. This ramp up will take several years. This is not just another widebody among several models, this is the company’s high volume aircraft. High volume production is paramount in order to be cost competitive with Airbus.
It is time to Boeing to invest in the future or be prepared to continue to loose market share and relevance.
@ Meg
Fully concur, they have to have a NSA brewing almost as we speak. That is why I suggested developing it in two phases, an A321/2 large wing, long fuselage competitor that will address the need to compete in that market.
As the initial ramp is achieved then develop a smaller wing, short fuselage replacement for the MAX to take on the many competitors in this market but of course the A320.
Whatever they do it must be started pretty much now.
Basic one wing solution on two aircraft, one 130′ and 150′ .
36m gate compatible.
So logically they are saying Airbus wold sell more if it wasn’t for the pricing pressures imposed on them by Boeing?
Good one.
Good one.
Good one.
Must be hard to compete again a customer for a contract – unheard of in business… And please… Enough of the subsidies’ malarkey… What’s good for Peter is good for Paul. Boeing need to look to themselves more and stop the blame game
yep
I think what we are observing here is a turning point in the history of Boeing. For decades it has been the unrivaled leader in general aviation with many dominating and profitable products like the 737, 747 or the 777. Today their only top product, the 787-9 is not even profitable (in a conservative eye like mine).
If you look into the history of industrial giants you see many fail after similar dominance.
The cultural change since the merger with McDonald has proven most unhealthy for Boeing, one might even say disastrous. A once engineering-driven company is since run by people who seem to be concerned more with politics, dividends, stock options and personal glory than with strategic product development and the happiness of their customers. Such a management might work well enough for a bank, but surely not for a technology driven company like Boeing. The tragedy in this situation is that the only body that could correct this course are the shareholders, and those are exactly the ones for which this proud company is plundered. So most probably they will not act until it is too late, which will be when the situation is becoming so difficult that the stock buybacks have to stop. But that moment might come sooner than some expect.
Gundolf,
While there is no doubt that the 1997 merger with McDonnell-Douglas (MacDac) did a lot to accelerate the Boeing’s demise (it certainly seems to be the most prominent milestone!), it doesn’t explain everything. I mean, even before the merger with McDonnell, Boeing had a lot of executives in place whose judgment was questionable, at best, and this was elegantly demonstrated by the episode of the hopeless “Sonic Cruiser” (or…the “Chronic Snoozer” as Airbus’ John Leahy liked to call it). Or…as the Boeing Legend and father of the 747, Joe Sutter, put it: “It was a real effort,” he said, “by people who were smoking marijuana.” http://www.wsj.com/articles/SB10001424052748704746804575367350030750626
Of course, I disagree with Joe entirely about the Sonic Cruiser being inspired by Marijuana Smokers, for most Marijuana Smokers I know have more sense than to design something like the “Sonic Cruiser”. Now…if Joe has said that the Sonic Cruiser was the result of a LSD-induced Psychotic Break, then he could have had a point. Anyways…marijuana is now legal in Washington State and Joe can Smoke a bowl and find out for himself. Nevertheless, a lot of legacy Boeing Executives bought into the Sonic Cruiser concept – even the beloved Alan Mullaly (and I lost a lot of respect for him for doing it).
And before the Sonic Cruiser and the merger with MacDac, there was the fall 1993 decision to upgrade the 737 instead of building a clean-sheet aircraft to compete against the newly-marketed Airbus A320 – and that’s a mistake that is haunting Boeing to this day. For when it was “make or break” time in 2011 as to whether or not Boeing was going to compete against the A320neo with a Clean Sheet Aircraft or an upgraded 737, Boeing seemed to be compelled financially to choose the upgrade, for they were losing lots of money on the 787 (with no end in sight) and there was still the 777x that needed funding. Or…as Aibus’ John Leahy said about Boeing’s decision to upgrade the 737 instead of designing a new aircraft to compete against Airbus’ A320, “Airbus has dodged a bullet!” And so they did.
No…even before the MacDac merger, Boeing was starting to make all the wrong moves and it became a habit they could never shake. I mean, do you remember the under-funding of the 777 program…that took way to long to break even (and…it took twice as much money to develop as the Airbus A330/A340 combined!)? Do you remember the staff reductions in of older engineers in 1995 that essentially left a generation of Boeing engineers relatively untrained? Or…what about the production debacle of 1997? All of these were performed absent the influence of MacDac. Nevertheless, the MacDac merger made things worse, I’ll agree.
Jimmy,
if you read this article from 2002 it appears that it was the A380 that blow Boeing off its tracks.
http://archive.fortune.com/magazines/fortune/fortune_archive/2002/12/09/333457/index.htm
Their first reaction was to catch up with a 747X, but that failed. Airbus was too far ahead both in development and in marketing. In the same year Airbus out-produced Boeing for the first time too. This would have been the right time to take a step back, check the own weaknesses and strengths, check the entire product range, travel the world to talk in privat to all those companies who just ordered Airbus products, study, learn and develop a long term strategy of how to develop the company to regain market leadership, or at least keep level with Airbus.
Instead of keeping the nerves, everybody got crasy with the idea to shoot Airbus out of the water. The first shot went wild (Sonic Cruiser), the second one went right into their own foot (787). Now lame and half blind they blundered again (737Max), and again (777X).
Jimmy:
You do not get that all aircraft mfgs do trial runs at what they think they have gotten from customers on a market.
That’s what the sonic cruiser was, like the MOM, they though there was an interest there.
Often airlines express an interest in a concept but when it comes down to any kind of commitment, they turn it down. Cargolux participated heavily in the A380 freighter program, never committed and went with 747 because it had the floor loading they needed.
What the Sonic Cruiser did lead to was the 787. 777 went through a major number of iteration before it came out in the form it did.
Nothing wrong with the 787, the program execution was a complete debacle, that was not and is not a tech issue, its a management issue (not that they will ever admit it).
Sonic Cruiser lead to what should have been a highly successful if not the most highly successful wide aisle program in history, management managed to bolox it.
787 will probably be the all time sales leader in wide body, it will not be a financial success because of what management did to it.
Sonic Cruiser was post MD/Boeing merger – March 2001.
As a customer, I find A320 cabin far more comfortable and spacious when compared to B-737. The latter is also noisy and more bumpy to fly in. Both are bought not for luxury airlines, but by low end cattle class airlines. So if you are not price competitive you are not going to sell many. Tell me in which industry or product line price is not a first choice for selection by customer. B737 is too old a design, except in the cockpit end. It has too many mechanical parts and will always remain expensive to assemble. So it will remain the second choice unless Boeing can sell them cheap. If that is your cash cow also, then you are in trouble. It is not rocket science.
“As a customer, I find A320 cabin far more comfortable and spacious when compared to B-737. The latter is also noisy and more bumpy to fly in.”
I find the new Boeing Sky interior quite pleasing. Also, noise level might be a matter of where you’re seating in respect to the cabin. To say that something is “far more comfortable and spacious” just because the A320 cabin is a few inches larger does not IMHO make it so. I’ve flown Southwest (new B737-8), and I can say with certainty, that the cabin is very comfortable and the noise level is comparable to the Jetblue ones on their A320s.
The noise and comfort are really dependent on location and how the airline furnishes the cabin. For instance, I’ve flown in both UA 737-800 and UA A320 and the A320 is not anymore comfortable than than the 737-800. My experience with the Sky Interior in the 737-800 to be quite nice and comfortable.
Fully agree with Oscar. The Airbus cabin could be a little wider at the floor level, but not at the armrest height, so I have not noticed any difference either. The new 737 interior beats the A320 by a long shot. And as a former pilot, I prefer to fly on airplanes (as a passenger) that have a realistic and straightforward cockpit and autoflight design, such as on the 737.
Shareholders is our system in the USA. We do not have companies with the majority shareholders as government. Our company have to respond to their owners and not some government mandate. Boeing is doing this so that they can remain the largest producers year over year. It does not matter if your backlog is 7, 8 or 9 years because you will still have future orders. The name of the game is production and margins.
Funny how that commie socialist entity with its uninspired labor, sloppy worker in Europe with its mucked up totally incompetent and inefficient commie socialist management is driving Boeing with its super lean , mean , agile, free capability management up the wall , despite said super unrestrained free capitalist company having now 10 billions plus in tax break.
Really?
Heavens forbid, its almost like US companies just can’t compete!
And if that’s true (seems to be) then what is wrong with a capitalistic structure that makes that true?
Maybe the Lords and peasant mentality?
Maybe unrestrained capitalism is not such a good thing after all?
“Maybe unrestrained capitalism is not such a good thing after all?”
Jerry Pournelle:
.. unregulated capitalism will eventually end with human meat sold in market places, and slavery.
Note that neoliberalism in Europe has trashed already quite a substantial part of humanist achievements.
You need quite a bit of Jing and Jang balance.
Pure cutthroat capitalism and socialism don’t have “balance”
that is really funny as Jerry Pournelle is about as far out on the lib(tard)ertarian political spectrum as it is possible to be without being Ron Paul or Ayn Rand.
I’ve heard him tagged as “Paleocon”.
He’s fun reading ( better in colab with Larry Niven. )
.. and has a knack to sometimes kick your intellectual shins .-)
( Then there is “Fred on everything” to entertain you 🙂
“lib(tard)ertarian”
Wow that’s brilliant.
“Maybe unrestrained capitalism is not such a good thing after all?”
Yeah that is not what we have in the US.
Really?
Lets see, Boeing gets 8 billion tax break in Washington State.
Every time a company builds something now, they ask for billions in tax breaks (noting Ford, Chevy, Boeing et all never asked for tax breaks when they were founded, they built where it made sense)
All pensions have or are rapidly going away (and they never funded the ones they had which was illegal, never charged).
Companies declare bankruptcy and the US taxpayer is on the hook for what they are owed.
I could go on and one.
ITs about as close to unrestrained Capitalism as it gets.
Oh yes, lets not forget that pesky Depression in 2008. That was caused by what?
You know, you would almost think (gasp) that US companies are so used to getting out of legal obligations that they simply don’t know how to compete with the rest of the world.
After you buy your 4th or 5th fight you probably can’t box anymore either.
When Boeing gives away 737-700 to United under the cost, that means you have problem selling. If Boeing can put aside its Ego, one Option would be to joint venture with Bombardier and built the CS-500, CS-700 and CS-900. This would replace the 737-8-9 Max or New Gen.
The Cseries is a new clean sheet plane, Quieter, Economical and needs funds to built the above.
Doing this, it would benefit Boeing and Bombardier and Boeing would save lots of $$.
It would be great if they had that much sense, I don’t think so.
Something about keeping the pig trough to the shareholders full.
Will producable at a profit?
Airlines do this all the time, sell seats for less than the cost to fly. The reason is that once checkout has closed any unsold seats are worthless. Better to get something.
Boeing is same position as car makers are with an old model that is being replaced by a refreshed one. They have to keep the production lines running with 737s, no way to reduce the numbers till the new model starts to fill the gaps. So those 737-700s were easy to discount, its not a popular model that anybody wants anyway, the greatest loss comes from not selling those slots as more expensive 737-800/900s anyway. Plus its a massive customer like United who they feel will be a good customer for a long time to come.
No argument there, but Boeing should have come out with a new model two generations ago.
If they don’t have a new model in the pipeline then it changes the entire situation.
I think the glass is not only half empty, its getting rapidly closer to 1/3 full
Wow, as usual the workers will be blamed, Mr. Conner, Please don’t blame your workers, you have to blame the top ranking management team and start cutting from their salaries and benefits at the end of the year. There is no doubt A320/A321 Ceo & neo planes are far better and advance in design , quality and use than B737 NG & Max at least from the user point of view. B737 still an old plane, very hard to compare it with A320. This is why A320neo / A321neo grab more than 63% of the market. The product price is a main factor and there is no doubt if the product quality is better or even the same, the customer will select the cheaper one.
Airbus proves to be expert in marketing their product. the same stand was taken when Airbus introduce A330neo. and soon Airbus will show how there are going to gain more share in the wide body sector. A350-900 so far proves to be a good plan, A350-1000 is coming soon and I am sure A350-1100 will come after that to be a big competitor to B777X.
So Mr. Conner, please don’t blame your workers, you have to find the right ways and means to sell your product and cutting cost by cutting at least the high ranking positions salaries and benefits.
I do want to correct this, the 737 has an old architecture (structural design) its a very new aircraft.
Having worked with both computers, electronics and old fashions mechanical relay logic systems, the relay logic mechanical ones are the easiest to work on.
That said, the 737 cannot compete with an A321 because of its architectural limits not because its old.
What Boeing has is a management issue, not a product issue.
That may sound odd,
If Boeing management had been doing their job of balancing returns with product, they would not be in the place they are in.
737-8/800 competes fine with the A320, where if fails is the A321 segment. Again management has failed.
Having the 737 around as your current offering is nothing more than a reflection of managements failures.
You could still have the same mechanical system on a newer aircraft that would be fully competitive.
Boeing is trying to get its house (and costs) in order before committing to new aircraft. First it was the union agreement and now the call for cost cutting.
Really?
You think you can do this with street people (not that they could not do a better management job)
A lot of it is middle management which is a good thing.
How about upper management? They are the ones most in denial and insist their perks are critical when its the power they wield.
And unless you are very selective, middle managers are key connections within a company.
I think Boeings Management is complaining on a very high level. As said before, the market is way too big for just one manufacturer,so you really can`t call a backlog of a couple of thousand units a bad thing,just because you are temporarely on a very comfortable second place. Of course they lost marketshare, but thats the name of the game,there are some up and downs. In a few years from now they might find themselves in a better position. With the soon to be developed B787-10 they will have a clear winner, they just have to add some range.
Unfortunately its also a very slow industry.
Once you get down its incredibly hard to get back up.
Boeing management has yet to show a commitment to the company rather than shareholders.
You can’t cost cut your way out of a lack of a modern product.
while the lineup is good up top, at the bottom its got a huge flaw and they have made no move to correct that (denial not being a move)
The problem, as I understand it, is not the loss of market share in itself, but rather the amount of money they are earning on each aircraft they deliver.
Look at the factors:
-747-8 overruns and a weak market = big losses
-777 no longer unique = reduced sales at reduced prices
-737 MAX is late & not top dog = sales & price are reduced
-787 overruns and competition from A350 &
A330CEO/NEO = low margins on each aircraft delivered,
even if lots are being sold
Cost cutting seems like good business, but Boeing has to keep pace with aircraft development, about a new airplane every decade. 777x was about a half a new airplane, so Boeing is due to launch something new by 2019, otherwise, they’re slacking. Airbus is due for at least an all new wing on something too.
They have been cost cutting for a long time.
Cost cutting does not create new products. Cost cutting can and does destroy your business. Its the last act of a failure to blame your problems on costs.
15k early retirements, you want to think about what that does to your business.
Its taken Charleston all this time to get up and reason ably operating, we have not heard what happened to the contract workers (still there and the actually cost per hour of production higher than Everett?) not something they will tell you
You need to invest in your future not eat your seed corn.
I agree, I don’t think Boeing will do nothing when their development wave comes to an end 2018 /2019.Boeing are not stupid-OK they are stupid, but they are not that stupid (trainspotting).I don’t think that you can really wait for technology to advance, that seems to of been Rolls Royce narrowbody strategy and I don’t think it turned out too well(as well as share buybacks briefly )
Completely replacing the 737 will be a big programme owing it’s industrial size, probably 2 wings and major derivatives. Airbus will have to replace the A320 and produce something to replace the A330 by 2030.There’s not going to be much of a holiday
grubbie:
That really is a crux question. Can Boeing come out (or even will) with an offering that outdoes the A320.
Airbus has the quiver in its bow of an all new wing or wings for the A320 fuselages (and add a bit more length to the gear if needed).
When you see Connor come out with stupid statements you have to question just how bad it is (Muilenburg may not be, still have to see). Is it the party line or is he shifting the blame for his division issue?
That said, anyting that really causes Airbus to do an all new single aisle is a moonshot progrsm.
there are some good ideas out there but Boeing needs to get in gear now.
So far they have continued the previous behind the curve, denial at BAC level, blame costs when the issue is management.
I worked at a company years back that made major mistakes (along with others). they finally decided to take one huge loss for a single year and then go on. Amazing how that cleared up things.
Its always better to bite the bullet than suffer the death of a thousand cuts, but the small pain is appearing as it means you don’t have to bite the bullet (and that’s US for a hard choice, not suicide)
It would be a breath of fresh air if they put their careers on the line like they do the lives of so many others.
We screwed up, past management screwed up, Boeing can and will be a great company, we will suffer short term pain and losses to get there.
The big ammo Airbus has going forward is that they are have preserved their cash. If Boeing come up with a 737 replacement that can´t be equaled by the A320 Airbus have the cash to replace it ASAP.
I don’t know that Airbus has more cash than Boeing.
They are heavily involved in ramp up on A350, A400 issue which continues to get worse and the A320NEO that has gone quiet.
Boeings issue is that they have sent all the development into shareholders.
Does Airbus have an all new A320RS in the que? Probably not as its obvious Boeing does not have an all new 737RS in the que.
Agree Airbus might not have the cash right now, but they cave controled the A350 cists well enough and with upcomming projects capital light and strong NEO sales I think they will have plenty when they need it.
I agree that Airbus is better positioned, I am not that deep into their finances.
Two different models for the costs. Boeing uses blackmail and Airbus has governments cough up with free lunch aid (grin)
At least Airbus is straight forward.
Some of it actually does get retuned (probably a lot on the A320). of course that subsidizes the A380 and A400 (keeping in mind the A400 was under Airbus, not EADS and touted as a civilian aircraft development for the military)
Of course then you should consider that A320 returning profits to the “(errr investor) takes off the topline as well, so its burned by overhead that Boeing is not.
And still sells more and makes as many.
Something to think about.
I don’t really know what the cash situation is for either company.
But the comment from TransWorld is quite misleading.
Yes, there is major focus on A350, A320 NEO, A400 and the A330 NEO but cost and resource wise, the A350 is the largest, followed somewhat distantly by the A32o NEO. The A400, while being a problem child, is not the focus of a majority of people at Airbus.
The product is better, much better, at the same price. Boeing needs to address it’s love in with GE, very quickly. Both appear to think they have market share by right. The market thinks different
You do have to wonder.
When you run out of the same playbook……
Interesting factoid from Flightglobal’s Stephen Trimble:
“Fun Fact: Airbus’ commercial aircraft unit employs 55,000. Boeing Commercial Airplanes employs 82,000.”
https://twitter.com/FG_STrim/status/715471714843406336
It may be hard to compare due to different reliance on suppliers, etc, but if the numbers are comparable, Boeing is massively overstaffed.
You cant compare apples with oranges like that, a more interesting metric is man -hours to build each type of plane.-including the work done by suppliers.
Anyway that 82,000 numbers doesnt include ‘Corporate’ of 28,000 and that is made up with
Engineering , operations, technology 17,000
Shared services 7,500
Other 3,000
That is a bad metric to try to compare. You can have 82,000 highly efficient workers who have specific and profitable roles, and another company can have 55,000 not so efficient.
Plus the makeup of those numbers is the real story, as in, who do they count as “employed”.
airbus has done so poorly with widebodies over the years (remember 4 engines 4 the long haul . . . LOL) and so the airbus figure is likely skewed toward smaller airplanes and so not an apples-to-apples comparison
Fully agree. The 4 engines 4 long haul was a bad joke that did not sell well — heavy, slow and thirsty. So what do they do? Come out with another nightmare, the 380 that nobody needs. That program will never break even.
W’ll see what happens on wide bodies. The 787-9 is an impressive performer. Then we have the other Boeing types. 777, 747 and 767. Maybe Boeing looks good.
If we are going to compare lost costs, I would take the Airbus 20 Billion on the A380 over the 787 30+ Billion.
787 will probably never actually return money (anyone want to calculate what 33 billion or so ROI is on a yearly basis on Boeings target of 15%?
Shoot, lets go with maybe a more realistic 8% . 5%. No percent?
Don’t forget in your calculations that each aircraft has a base cost of 100 million (round figure, forgive me Bjorn!). If they sell each one for 150 million that’s only 50 million profit.
The 787 is part of Boeings future, sadly its not a profit make and probably never will be.
Worst case Airbus can quit making the A380 and they have a solid core of programs to work with.
Beoing need to separtate the 787 into two different costs, at least in their own mind. The aircraft development cost+defrerred cost+tooling really cost=20 billion. Relearning and rebuilding Boeing to the level of know how shareholders thought they had was the other 15. If Boeing can´t somehow understand that they will be hampered in their evaluation of the value of future products-
Hi TW
I have always seen the A350/380 cost of 32bn as a far better use of resource than the 35+Bn spent on B787/747-8, Boeing have not generated the same bang per buck on R and D for some time in my opinion.
Note the b787, a groundbreaker in some ways but forced to 9 abreast to compete with a 20+year old design. Even then with such cost of development, deferred cost or absorbed in R&D year on year it can’t compete on price.
Was the A380 a waste of an investment? Jury’s out, what about the B748? DOA in my view.
What about the B777x? Not sure where this one is going. All I know is that it is cost a lot and will still be trailing by the A350 series by the time it is introduced.
The new/ MAX war has been well documented elsewhere, in every case it is costing Boeing more money but not always for the best result
If I were a strategist at Boeing I would be very concerned
From my understanding, the 32.5 billions figure is just deferred production cost and tooling. It doesn’t include the R&D (which is estimated to be around 15-20 billions), penalties and other cost. So the total cost of the 787 is about 50-55 billions which is much higher than the A380’s program cost.
I remember a story told to me years ago about an interview with a CEO of a major engine manufacturer.
Upon being asked why he only flies in 4 engined aircraft, he immediately replied, “Since there are none with 5!”
I have seen it written before that Airbus have invested much more in mechanisation. I would say that is the reason for Boeings cost problems, and cost cutting wont fix it. We all know about the 737s limitations.
The mom and NSA will be linked, no doubt, developmentally and from a type perspective. I think mom will come first as GE just doesn’t have a new engine ready for an NSA anyway now.
The McDonnell/mcnerney era couldn’t end soon enough for Boeing. Douglas never got any new products approved out of that company either.
It would be nuts to drive your new aircraft by what engine your favored partner does or does not have (P&W is ready to go are you GE?) Get one ready.
737RS needs a two engine solution anyway.
I don’t see the commonality as a major driver, varying degrees of that all along.
“It would be nuts to drive your new aircraft by what engine your favored partner does or does not have”
Isn’t that what drives the majority of new airliner development? RR is certainly the favored partner of Airbus, and you can bet Airbus won’t make a drawing without knowing what engine RR can feasibly provide. And Bombardier wouldn’t cut a piece of paper unless PW could say the GTF was ready for (almost) prime-time
It Airbus has a independent approach on engines.
The A320 has IAE (PW, RR) and CFM (GE, Safran), the A320 NEO GP and CFM. The A330 PW, RR and GE, the A340 had CFM and RR, The A380 (GP (GE, PW) and RR.
The A350 became RR, but only after GE decided their strategic partnership/ investment with Boeing on the 777 had to be protected. They even said so.
The A330NEO was an open bid upgrade, GE participated but for some reason didn’t proceed.
I have to agree with Keesje on this one.
So you have one offering out there that allows you to proceed but your favored supplier has nothing in the developmental stream?
You go with P&W and you tell GE to catch up when they can.
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Conner has earned millions from Boeing over the years. Then he receives a special $7 million to forgo an opportunity to retire Then he lectures employees on the need to be cost competitive.
http://www.seattletimes.com/business/boeing-aerospace/boeings-mcnerney-got-388m-from-pay-stock-sales-in-2015/
737 RS:
What is being missed by some is that Boeing needs to be moving NOW, not 7 years from now. 7 years form now they are 5-7 years away form an aircraft.
the 777 is the only one in acutaly desing, and its several years into it.
So, if you do not have a 737RS going now, management has committed the company to 15 years minium of non competivie vs the A320/A321.
With long lead times and programs of 20+ years (MAX not being one of those) you need to have active development.
Having kicked the can down the road twice now, Boeing is in a really bad position.
If you have to do fire sales on your current offering you get further and further behind.
If they had a strategy it would have had it in place with the 737MAX.
Airbus can no easily hold their own with a two engine offering of the A320 and not have to have fire sales on the A321,.
Boeing is either going to have to bite the bullet or never recover in Single Aisle and if you fail in single Aisle then your future is black indeed.
http://m.aviationweek.com/commercial-aviation/airbus-sees-no-quick-boeing-reaction-a321neo-success