Pontifications: Boeing’s long-term message doesn’t resonate

By Scott Hamilton

Feb. 20, 2017, © Leeham Co.: Boeing’s long-term messaging that all is well isn’t resonating with a number of industry analysts and observers.

To be sure, today and in the short-term, Boeing’s stock is on a steady upward trajectory.

But aerospace analysts are not buying into the long-term message.

Neither did three speakers at last week’s annual Pacific Northwest Aerospace Alliance (PNAA) conference in Lynnwood (WA), including me.

Consider:

787 production rates

Boeing CEO Dennis Muilenburg repeated on the earnings call that taking 787 production to 14/mo remains under consideration. None of the analysts whose notes I receive, including those with Buy or Outperform ratings on Boeing stock, believe this will happen. None sees the demand justifying this.

Muilenburg also said on the January earnings call Boeing sees “no scenario” under which production will go below the current 12.

Several analysts see rate 10 after 2020, including Goldman Sachs and JP Morgan. One, Buckingham Research, last Monday predicted rates will have to come down to 7/mo after 2020.

At the PNAA conference, consultant Michel Merluzeau sees a rate less than 12/mo and no possibility of a rate going to 14/mo. LNC previously forecast rate 10 after 2020.

Analysis by Kevin Michaels.

Deferred costs

Many analysts don’t believe Boeing will be able to recover all the deferred costs on the 787 program, which amount to nearly $30bn.

Many believe that at best, Boeing will fall short about $6bn to $7bn. A few think the shortage will be higher.

Consultant Richard Aboulafia, speaking at the PNAA conference, likewise predicted Boeing won’t recover the costs, but in a colorful metaphor.

Increasing production—for cash flow

In his presentation at the PNAA conference, Kevin Michaels of AeroDynamic Advisory outlined why he believes Boeing must increase the production rates of the 737 to 57-60/mo.

Because of the declining production rates of the 777 Classic, which he estimates provide a profit margin of 20% per plane, Boeing will lose $1.3bn in profits in the coming years.

Increasing the rates on the 737, with his estimated 30% profit margin, will add $2.5bn in profits during the same time.

Analysis by Kevin Michaels.

On the defensive

In my own presentation to PNAA, I said Boeing is on the defensive in the single-aisle arena.

  • The MAX 7 isn’t selling.
  • The Max 9 is outsold 4 or 5 to 1 by the 321neo.
  • The MAX 200 is a niche airplane.
  • The MAX 10 won’t recover market share.

Airbus has a 54% market share with the 320neo family. Boeing has a 39% share with the MAX. COMAC and Bombardier have 7%.

I was clear that Boeing isn’t in dire shape, by any means, not with a 737 backlog of 4,400 family members (3,612 of which are MAXes). But for a company that once led the single-aisle sector by a wide-margin, to be down to 39% is an anemic showing.

Randy Tinseth, VP of Marketing, responded later in an email:

First, you know that orders are important but deliveries are what really matters. 

We have been and expect to be at market share (delivery) parity with Airbus into the next decade. Fifty percent share is a good place to be.

Second, I assume you are using Ascend data – it’s important for you to know that it is at best a rough estimate and is generally inaccurate.  We do not post 737 MAX model mix on our Orders & Deliveries website.  This is because most of our customers have the flexibility to select model type lead time away.

Finally, our best estimate is that between 20 and 25 percent of 737 MAX deliveries will address the top end on the single aisle segment.

Boeing’s upside

Indeed, in LNC’s own analysis last September, we concluded Boeing has more upside to sell 737s than does Airbus to sell A320s.

While Boeing doesn’t post the MAX sub-types, only some 60+ MAX 7 orders have been specifically announced and fewer than 300 MAX 9 orders have been so identified. Boeing also told some that the MAX 9 only represents 9% of the backlog, which computes to about 325 aircraft.

This means Boeing has to sell a lot of MAX 9s (and, if produced, MAX 10s) to hit 20%-25% of the top end of the market. The 737-900/ER represents only 8.2% of the sales of the NG family, so the MAX 9 is fractionally ahead of the -900/ER. Hitting 20%-25% with the MAX 200, 9 and 10 seems an aggressive goal.

Airbus, it turns out, has more A320 family members in service today than Boeing has 737s. Also, since the launch of the A320, Airbus sold more A320s than Boeing did of the 737s—albeit, the difference is only several hundred aircraft out of more than 12,000 sold by each company.

 

105 Comments on “Pontifications: Boeing’s long-term message doesn’t resonate

  1. The reason Boeing isnt ‘seeing’ the downside on the 787 production rates is that their senior executives inventive program is set up to have increasing production rates no matter the real world. The board is just putty in executives hands. The Chairman, CEO and President are one person, the rest are heavy with private equity figures, a retired Admiral, two Insurance people, one ex GE, one telecommunications guy and only one former airline guy.
    I would have thought it would be more technology and airline people but Insurance and communications ?

  2. It seems Airbus will raise A320 / A321 to 60 in 2 years, regardless of what Boeing does. With A321s production reaching 30/ month.

    1450 A321 were delivered today and more 2200 end 2019, 360 per deliveries / year after that. It seems Boeing failed to respond adequately during the last 5 years, while the writing was all over the wall, and is now sidelined for the next 5 years in the >200 set NB segment.

    Comparing only aircraft ordered / delivered neglects the real driver, nett margin per aircraft. Looking at the 2 dominant 737-9 customer, Lionair (200) and United (100) I wonder how high that margin is.

    If there are 300-325 737-9 on order, about 100 were cancelled behind the curtains. Who? Lionair -100 or United -100?

    https://en.wikipedia.org/wiki/List_of_Boeing_737_MAX_orders

    • Keesje – you hit this one on the head a few years ago. Each year your views on the A321 program continue to be realized. I never would have thought that Boeing would have allowed this to happen, but their concern has always been how the 757 was both ahead and behind its time. Boeing could not sell them while Airbus was not making any traction with the A321. The difference – Airbus listened to you and improved the A321 while Boeing thought you were crazy. Again congrats on this market analysis.

      • he.
        Keesje observed the right things and assigned some weight to them.
        One intrinsic “design property” is how overall mass is distributed between structure, payload and fuel.
        The core driver of airframe capabilities is engine sfc.
        Has been for quite some time. This will extend any under ranged airframes capabilities nicely. Same amount of fuel will reach significantly further out.
        Complementing this is by beefing up carrying capacity from tuning structure aided by FBW tweeks derived from in use data.
        For an early overranged type like the 757 engine sfc will only increase the “overrangedness” ( due to more structure assigned to carrying fuel than revenue payload.
        Thinning out, reassigning structure, using FBW features without FBW is much more difficult _and_ expensive.
        doing all this in scope of an outmoded design and production process is a further distinct hold back.

        Listening to Keesje would not have helped Boeing much.

  3. But But aerospace analysts are buying into the long-term message.

    Shouldn’t that be, aerospace analysts AREN’T buying into the long-term message?

    • @Rick, Uwe and others: Correct, analysts are not buying into the long-term messaging. Sorry about that.

  4. Scott,
    Thanks for the interesting insights and the charts from Kevin. My take on the now again rising Boeing stock is that, since the beginning of 2015, it was aleready in a slow decline, despite the stock buyback program. It’s not BCA that generates the new lift, it´s BCS. The latest stock take off was initiated about the DTA (Donald Trump Administration) and their desire to buy lots of additional military stuff. And with a nice long term outlook for tanker (KC-X, KC-Y…), new engine program for the Buff, a resurrected “Super Hornet” life and a potential T-X win, that seems not as a too distant fantasy.

    • Boeing is not necessarily going to get the BUFF engine if that occurs.

      What an awful management approach, saved by Trump, but we will take it.

      Have to see if the flinty eyed conservatives go alone with it.

    • “And with a nice long term outlook for tanker (KC-X, KC-Y…), new engine program for the Buff, a resurrected “Super Hornet” life and a potential T-X win, that seems not as a too distant fantasy.”

      I agree with you on this. I had reached the same conclusion. Until recently (before the election) I thought Boeing’s military division had a bleak future. But suddenly the outlook has completely changed. This is all coming at a critical time for Boeing and may carry it through this difficult period I see at the turn of next decade. Since the New Administration seems to be in a big hurry tu build up this could be very favorable for Boeing almost immediately.

      • The Navy needs new F/A-18 soon. The F35-C is not ready yet. Two third or more of Navy’s Hornet fleet is in-operational due to lack of spare parts and other sins (“we will get the F-35 soon…”).
        https://warisboring.com/the-u-s-navys-f-a-18-squadrons-are-broken-f21ec52bde99#.tv6u6jdf6

        In my opinion the F-35C is to late. A package of Hornets and a stealth drone like X-47B is a better option. Therefore several Hornets should have two seats to control the drones in a proper way. I doubt the US could operate drones from Florida or elsewhere in the US in a war against an technical advanced enemy. So control has to be close to the drones.

  5. You know a company has done one or two things wrong when you sell 1,000+ planes and can’t make a penny’s profit from them. The 787 program will haunt Boeing for decades and will be the common denominator in all financial discussions for years to come…

  6. What I don’t get is why Boeing is not reworking the 787-8. I am sure they could bring production cost down quite a bit. Selling more of those would allow them to keep the production line busy long term and to hold down the A330neo.
    Or maybe they have looked into it and found they can’t beat the A330neo economics, no matter what they do?

    • Its the Ford Mustang syndrome.

      The market has moved past it, those free wheeling newlyweeds (sp yes) are now mom and dad and need a Mini Van.

      So the Hot Mustang has grown into a station wagon.

  7. His comment almost implies that the NMA solution might be categorized by Boeing as a narrow body.

    When I saw that chart last week about profits it was interesting. It’s also the only place Boeing and Airbus are investing (narrow body and 777). Boeing again isn’t really impacted by the program cost on the 787 when they just announced another 14 billion in stock buy backs. If I were a shareholder I’d be more concerned about pending news that could come from shutting down the old Douglas St. Louis plant.

    Airbus is showing nothing in profits yet from a350 or a380, their two 21st century programs….hmmm. Strange synergy between Boeing and Airbus new widebody profit centers. I wonder if both companies have seen a dramatic need to get costs under control and limit unprofitable sales prices.

    • Outlook was A350 XWB will break even “in real numbers” on production in 2019 or thereabouts?

    • “Finally, our best estimate is that between 20 and 25 percent of 737 MAX deliveries will address the top end on the single aisle segment.”

      I would agree and this would correlate well with what he hinted about a possible 737-10.
      I still dont see how this would not be the case. I cant see it being anything other than an advanced rewinged, re-engined 757 if they do it. Seems like the smart move to me.

    • Analysts have already written off the 5-10 billion forever lost on the 787. It is now irrelievent to stock price.

  8. A T-X win for Boeings seems more likely by the day. NG out. Leonardo on its own and probably a (justified) feeling LM needs some competition long term. And America First. Regardless of my opinion the Boeing offering might be the best match for the latest requirements.

    • It does but its going to be a cost shootout and Boeing will leave a lot of blood on the floor like the KC46.

      Question is can they make money at it or is it just a place ho9lde to keep them in the fighter business (modern and low end that it is)

      While its a really cool jet they came up with, do we really need a new Trainer? A number out there paid for and ready to go.

      • If Boeing T-X offering is the best in terms of local work / supply chain, balancing defense suppliers and meeting operational requirements now and in the future, Boeing will be able to set a realistic price and make money. The KC-X was totally different, congress forced them & DoD into the contract.

        • It will be exactly like the KC-X. Its not new technology, it will be 80s engineering for a lead in trainer that can be thrown around the sky.
          The pricing will again be ‘competitive’ to get the contract but there wont be cost plus contract where they can stumble their way through like the KC-46. The real problem is the very smart people dont go into aerospace any more and the incentive system works to paper over problems rather than saying ‘delay this while we fix it early’

          • Keesje:

            I beg to disagree, it is exactly like the KC46.

            Boeing was desperate to get the tanker contract and left huge amounts on the table.

            They are equally desperate to get this one.

            I have not been able to see the real terms.

            There is a brief yadi yadi on specs, but there is not the in depth of who pays for what.

            As its structured after the KC46 program, it would appear any cost overruns will be borne by Boeing/SAAB (err the tax payer)

            As Boeing had an aircraft in hand, two variants of the 767 Tanker and has had more than its fun (cost overrun) with the KC46, this will be no different.

            I believe it was Clausewitz that said “no plan survive contact with the enemy? ”

            No program plan survives its first contact when real world metal bending begins.

  9. The significance of the B77W profit must be very worrying. Presumably the profitability is declining due to volume and also due to the end of line special deals. I note the obsessive importance placed on maintaining current FCF and profitability, decisions made on this basis can lead to perverse and damaging long term consequence. Current profitability is a poor indicator of future success.

    Boeing Commercial should place more emphasis on its strategic options and use the fillip on defence orders to cover the current issues. Patching up current profit shortfalls will just lead to more and more issues in the future. The B787 write down or the MOM decision or the MAX 9 weakness will not just disappear. Further the NB share to COMAC and BBD was a clear indicator that the 2 player market is slowly ebbing away and the MAX has the weakest competitive position going forward.

    • Ahhh, you fail to understand modern management.

      Kick the loss down the road and hope it happens to hit the fan on the next guys watch!

      In the meantime get yours while the getting is good, don’t leave a solid legacy.

  10. Not sure when or how Kevin Michaels did his chart, but I can only presume it is based on program accounting if it doesn’t assign any profit to the 787. Given that the 787 deferred charges are now coming down, it means that the 787 is actually earning above anticipated program profits. If we assume a conservative average 12% profit margin and average sale price of $150 million, based on 137 2016 deliveries the 787 would have delivered almost $2.5 billion in profit.

    • 748 in the black: isn’t that frame in a state of “forward loss”?

      distribution comparison is interesting but lacks a tiny bit.:-)
      also I’d assume this to be about today’s profits what is the underlying bookkeeping ( Airbus, Boeing.)

  11. While the 787 is maybe never going to make money (I don’t count it out) the program is in good shape with fewer -8s all the time and more -9 and now -10.

    We keep seeing a trickle of orders and that is historic norm as opposed to the bubble.

    Bubbles are funny, we see them, were know they are bubbles, they last longer than they should, then most think that is the new norm until someone or smiting comes alone with the needle and pokes the balloon and the kids start crying.

    While I wish I could take credit for the term (Normalizing Deviation) I cannot but it does solidly describes it (from the first Space Shuttle disaster when they launched into colder and colder conditions when the specs said not to launch in cold in the first place and the O rings were screaming not to)

    Human behavior is based on norms, once we think its the norm we are in trouble.

    So the 787 while viable and may well produce more than 1300, the variation estimate are rate 7 to 10. That means 8 or 9 most likely. I think lower.

    Of course what that means is large over capacity.

    The 747 looks to lumber along for some time (5 years) and then we see. About the same timeline for the A380.

    None of it solves the Single Aisle debacles.

    While I agree with Tinsesth on producing vs sales short and medium, in the long term that’s a different story and we are now into the long term part, that means market share.

    That there are as many A320 flying as 737 is a shock. It tells you where its trending though. Just because its a shock does not means its not right.

    The bottom line is Boeing needs to get off their butt and come out with two new aircraft.

    The single aisle is more critical than the MOM. The Max is a good enough holder but its not going to hold for long and its getting Maximum Beating from the A321.

    What you get is a lot of buzz and interest and people think, yea that’s worth it, I want to be part of that lineup.

    Its a stark choice and we get to see if Boeing has the guts to bit the bullet and do it or not.

    Or are they such piss poor managers that a challenge scares them?

  12. Boeing surely has an order/sequence in mind. Their ability to design a frame, wing, and pick engine partners isn’t really in doubt. The production/outsourcing on the 787 was inarguably a debacle though.

    Keesje, they could very well win the tx contract but I’d discount substantive profits on that regardless, and frankly doubt it would need half the space the t45, harrier, f15, and f18 lines did (or old f4/a4). It’s a huge facility facing total termination on those lines over the next 5-7 years regardless of what is being said politically. (Many are already gone but support/parts etc remain.)

    The TX doesn’t (or wouldn’t) keep Boeing in the fighter game any more than the fiat panda keeps fca in the super car game. In fact, for Boeing, the space and defense businesses are under imminent FCA threat much more so than commercial which is why I frankly would guess they commit sooner than later to MOM and NSA: one of the few businesses they can control their own destiny so to speak.

    • If they run the TX program right, they should be able to at least fully earn a small profit. The building’s got to be near paid for–hasn’t it been around since the 50’s? And I hope they’re implementing the BCA heavy automation plan on “their side” too! And using the Shock/Gillette razor blade model, the profit’s in the parts–and support equipment!

      • They need more than the 350 called for.

        It may happen, it may turn money, but its not a modern jet fighter either.

        On the other hand the F/A-18 looks to have a new lease on life.

        If anyone can screw a program up worse than Boeing it is Lockheed Martin!

  13. Whereas NB market share recalculated from units delivered as offered by Randy gives a “feel good” visibility, the objective metric is indeed (as keesje says) units delivered times net profit margin per each delivered unit. Here the players are holding their cards close to their faces. Selling (= delivering) at break-even doesn’t get you anywhere … However, I think the mad price discounts have cooled down somewhat since 2011/12 specially for A321. Now Boeing are clever narrowbody builders, the 737 NG and its siblings the MAX’es are being built cheaper than Airbus ever could achieve with their A32X Series aircraft. So I am genuinely at a loss to figure out which of A or B has the biggest “market share” if measured in the referred new metric ?

    • “Now Boeing are clever narrowbody builders, the 737 NG and its siblings the MAX’es are being built cheaper than Airbus ever could achieve with their A32X Series aircraft.”

      is this for feeling good or do you have hard evidence? 🙂

      • If anything, the astronomical size of capital tied down to the 787 programme must have one downside : unit production costs are cheaper, much cheaper than for eg A350 or why else in this earth would Boeing have spent all that money up front ? And how about average wages Boeing/IAM vs Airbus/CGT ? And how does direct man-hour input per 737 unit built compare with the same index per A320 unit built ? For avionics/systems they both buy from the same vendors so the accounts should square out. I’ve tried to find current figures but, yes, I feel good proposing what I said … I would be pleased though if you could evidence that I’m wrong ? Because to my appraisal, non-recurrent costs for both the 737 Series and the A320 Series are fully amortised so in 2017 the cost of production is the sum of DIRECT COSTS only. NEO/MAX upgrade costs and non-recurrent tweaks/PIPs excepted but that is not so much ?

        • “unit production costs are cheaper, much cheaper than for eg A350 or why else in this earth would Boeing have spent all that money up front ?

          Simple:
          Because 787 manufacture cost about twice as much as planned. With that as a starting point it was easy to achieve a good learning curve. Still they had to work down from twice the expected height.
          to wit: most of the money sunk into the 787 is not an investment.
          It was thrown away.

  14. Edit/addendum to my comments; DoD Maintenance will be a real source of revenue for BA. Something like half the DoD’s fighters are even flight worthy according to AW&ST article this week, post Obama.

    Likely, major overhaul/upgrade programs will be needed just to bring back a semblance of readiness to the elderly tactical fleet. Those are almost always profitable programs.

    • The situation you are describing in regards to the level of readiness of the fighters is a direct result of budget sequestration.

      • Sequestration is a direct result of the democrats refusal to negotiate a budget, or even pass a plan for one when running congress. As that one guy once said to John McCain: “I won.”

        • um, no. it is a result of 8 years of obstructionism by the GOP refusing to negotiate in good faith a solution that recognizes that in order to finance our already ridiculous defense budget at the levels they want, taxes have to go up on rich white guys.

          all because they couldn’t abide a black man in the white house as anything more than a butler.

  15. Few want MAX-9. MAX-10 is clearly aimed at Airlines will all 737 fleets who might want to stay that way with such a performance limited aircraft. ( Boeing may well not find enough interest to even launch it).

    But few recognize he real issue going forward: Single aisle demand.

    Every podunk player in the world who wants to get into the airline business can go out and find cheap money and cheap leases. acquire some 737’s or A-320’s and make skimpy profits or marginal losses.

    Until debts and deficits begin to bite, and economic cycles return to work their slate cleaning magic.

    And when the cheap money dries up, when the credit markets weaken or God forbid, seize up due to the massive global economic instability being generated, the narrow-body party is OVER.

    Only the strongest will survive. There will be a mass cull of marginal players.

    I agree that a 787 rate cut will be in order, and I predict 100% of it will be accomplished at Everett.

    777X sales will continue to be slack with continued oil price stability and a solid used aircraft supply.

    Boeing needs to get off the ‘shareholder value’ bandwagon for a few years, and come up with TWO new aircraft using that buyback and dividend money for R+D for a change, instead of proffering poverty pleas. It will seem to be the wrong time, but that slack period in demand is exactly the right time. Boeing must me ready for the next demand cycle with new models to offer.

    Then they need to cut a deal with the IAM to produce them in the least risky location, in the least risky manner, Western WA. They could probably get the bulk of whatever they demand out of the IAM right now. Nothing incentivizes cooperation out of labor like layoffs.

    Another 787 experiment would be ruinous.

    • I don t get this logic:

      Many here say that there is a narrow body bubble.
      The same people suggest, boeing should launch TWO new aircraft family in exactly that market.

      This is economic suicide!

      If there is a bubble, then both are right to keep current families, create the one or other additional variant, squeeze out as much as possible and then reduce production. However, investing 25bn+ in two new families and then not being able to get a RoI is the Bombardier desaster at big scale.

      • If you are going to be a success, you do not worry about the downturns.

        Y0ui keep a portfolio of up to date products.

        A downturn is a fine time to do that.

        Each time there has been one Boeing has pulled back.

        They did not have a modern product in each segment when things turned back up.

  16. Yep, investing for the future is the key for long term success. I guess they thought they were doing that with 787, but no sign yet of them re-using big chunks of that on another design.

    It’s still early days in Bombadier’s C series life cycle, and I wonder what damage it may do to Boeing. It’s a modern design, shows lots of promise, things that the 737 isn’t. OK, so the 737 is bigger, but surely it represents the kind of thing that Boeing needs; a modern and fresh start. I wonder if Boeing should buy Bombardier simply to get their hands on the tech rather than waste time doing their own development. That is unless they intend to do a Carbon Fibre, 787 inspired 737 replacement.

    • It would not be possible for Boeing to acquire Bombardier because it is a family-controlled company and it is likely to remain this way for ever because this was a wish expressed by its founder Joseph-Armand Bombardier. Boeing and Airbus had a chance to invest in the C Series programme though, but they elected not to.

    • “It’s still early days in Bombadier’s C series life cycle, and I wonder what damage it may do to Boeing.”

      Not only Boeing…

    • Never underestimate ownership’s and management’s power to screw things up. Ownership and prior management nearly busted this company. (Can you say “government bailout X 2”?) They’ve still got s good opportunity to “blow it” during the ramp up. Maybe the working capital ramp up for 100 and 300 production, together with the clamor in for a 500, will put them in the grave.

  17. What would a B737 replacement (or for that matter A320) cost to bring to the market? We look at the cseries costing something in the region of $10bn after including additional ramp up charges. I believe the issue for Boeing is the enormous retooling and infrastructure costs of ramping the core product they offer within a short timeframe. It is well documented that senior management have gone back time and again to the sign off and decided to defer. This must relate to the very real concerns relating to having to tool for the new product and the loss of both volumes and margins on existing products. The issue is that there could be no better time to do this but when they have such a substantial backlog of current orders, it will not get better than this and will be seen as a lost opportunity

    • We are talking about 10 billion or so.

      How much of that is invested and how much is already fixed costs (building in place, engineers on staff etc) I don’t have the accountants knowledge to know.

  18. I wish people would stop talking about the development costs of the 787. If the company loses $30 Bil or $6 Bil who really cares. The money is now sunk and is a cost of doing business. The 787 had to be developed and the $6 to $30 Bil will never be accounted for from the sales of just the 787 program. Every program going forward will consume a portion of the 787 development costs. If an analyst does not understand that companies need to spend money developing technology they are not worth their weight in air. Many companies spend money developing programs that end up being the foundation of the long term growth of the company. Corning sunk huge dollars in their fiber business which almost put that company under. Today fiber is the backbone of the world’s communication. Don’t blame a company for taking risk, blame them for not taking the risk. Sometime you win, sometimes you lose but the willingness to grow your business through technology is an effective growth engine.

    • To take risk is one thing, to be reckless is another. In regards to development costs this is still relevant because the stock price is tied to it. There is a real danger that Boeing may have to write it down one day because the accounting block will no longer be able to absorb this huge deficit. It all depends on the backlog, which was huge at the beginning but now has great difficulty replenishing itself because of the downturn in the widebody market, and of course the competition coming from Airbus with the A330neo and A350-900. The 787 is stuck between these two, just like the NMA is stuck between the A321neo and A330neo; which is like being stuck in first gear. No wonder it’s not going anywhere!

    • @ Vincent

      I agree with your underlying point regarding risk and development cost but specifically I think you are missing the point. The issue of the B787 deferred costs is that they blew the budget massively which call into question their ability to develop a brand new aircraft on time and budget.

      The other concern is that the moonshot that was the B787 has not given rise to much technology transfer going forward. There seem to be more dead ends such as laminar tail, barrels, all electric, autoclave based CFRP etc than tech that has been applicable to MAX or X.

      Boeing seems to have developed recent products in isolation of each other, most of them excellent, but has not benefitted from the evolutionary development approach which has fed through Airbus from the A320 step by step to the A350. Cost of B787 ~$30bn, cost of A350 ~$12bn. If I were an analyst I would look to the past and worry about the cost of the NMA or the MAX replacement and its impact on future profit/FCF

      • Mistakes can teach you an awful lot, and not just how not to do things. The thing that really costs is development holidays.Airbus made a horrible mess with new wonder design software with the 380.Airbus could do with designing a 2nd generation carbon wing before to long, as soon as they’ve absorbed the lessons of the first.

        • Airbus was a showcase for “Even single issues can make a fantastic mess”. ( IMU the version issue was known and they had conversion software prepared. .. which did not work out as expected. Strange. happenstance or enemy action 🙂

          currently Airbus has three generations of wing designs that show stepwise advancement of composite useage.
          A380: CFRP center wing box, composite _al_ wingskins
          A400M: low sweep back CFRP wing
          A350XWB: high sweep back CFRP wing.

        • “Airbus was a showcase for “Even single issues can make a fantastic mess”. ( IMU the version issue was known and they had conversion software prepared. .. which did not work out as expected. ”

          And still turned out to be a mess…

          • Vincent:

            So you think that each program can be horribly run and still have successfully company?

            Do you remember the Yugo?

            That 33 billion is THREE NEW AIRCRAFT PROGRAMS !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

            So, folks step right up, for the price of 3 you get one, what not to like?

            Can you say slippery slope that has just had silicone added to it?

            Step up to the gas pump, pay 3 x as much for gas as the next guy.

            How does that work out for you finances?

      • “The other concern is that the moonshot that was the B787 has not given rise to much technology transfer going forward. There seem to be more dead ends such as laminar tail, barrels, all electric, autoclave based CFRP etc than tech that has been applicable to MAX or X.”

        Shouldn’t we wait for a clean sheet design before making that judgement? The Max and 777xs were meant to be affordable upgrades and incorporating all those new design features for marginal benefits is not a recipe for success.

        • Wholly agreed.

          People keep forgetting the TECH WORKED.

          Build costs are reasonable and coming down.

          Its the mucked up management , world wide scattered production and the costs of the fastener delays as well as lack of production teams to oversea that scattered operation that created the loss.

          Airbus has no tech in the quiver so went with what they could.

          That meant that they did not even study more electrical.

          Bits and pieces are being used and in some cases discarded (laminar flow tail) as it did not work.

          You now have real world experience with all of it and can make informed decisions as to cost, vitality, return etc going forward.

          While negative information is not what you set out to do, all information is extremely valuable (unless you are Trump, then nothing is valuable)

  19. To me it looks like Boeing is in dire need of a “Long Term Technology and Product Line Strategy”, which they apparently don’t have. They probably don’t even know what that is. Their product management seems to be directed by opportunity, whims, ego, greed or whatever, but I see no effort to develop say a 20 or 30 year plan.
    R&D strategies and product management should be at the very heart of very major decision made in the airline industry. From what I can tell it looks like Airbus does have a strategy that seems to be working quite well.
    For a starter here are two ways to make a successfull product:
    1) Fullfill market demand with the chapest possible product
    2) Introduce a high-tech product that delivers a better performance than you customers expect, and sell it at a premium price.
    The A330 and the A350 are almost perfect examples for 1) A330 and 2) A350.
    The 787 is certainly a product of category 2) The problem here is that too many fundamental things were changed big time in one go (material, technology, production, logistics). In my experience such ambitious projects almost always fail. Airbus has a more cautios approach here, changing only one or two fundamental things in every new plane.
    Following these basic rules, there is basically two ways out of the tight spot Boeing is in right now with the 737. And that could well be two products, not one.
    The first plane would be the cheapest possible but very nicely designed aluminum plane. Taking the A320 as a starting point and then improve the aerodynamics a little further, maybe use Al-Li, maybe a slightly wider body (for improved comfort and boarding). With this plane they can use the existing infrastructure. Development would be relatively fast and cost would be comparatively low.
    The second plane would be a full carbon bird, with all the goodies on board, all the lectures learned from the 787. Make it expensive but give it impressive performance. Probably a little larger than the first, so it can best the A321LR on capacity, field performance and range by quite a margin.

    • Isn’t your first option the Irkut MC21 to a tee? Perhaps Donald and Vlad will allow a cosy relationship to develop. Boeing need a design now, Irkut need all manner of things both political and technical to get this project over the line and into ramped production. I have always had a healthy respect for Russian aero design, less so for the engine technology.

      • I agree, the engineers at Irkut, starting with no obligations to existing products, figured it out quite well in terms of size.
        But – the Irkut is a half-breed, with 33% CFRP. Probably a good idea for them, but this would put it in no men’s land if it was made in a high-cost-country. It would not work for Boeing, given my strategic analysis is correct. But if you try to make (only) one product in this category you might end up with such a half-breed and I think that is the reason why Boeing is nowhere right now with their single-aisles strategy.

        • 100% CFRP, horray !!

          That is more “fashion of the day” than anything else.
          You are still spun in by B-PR.

          • Uwe, I did not say 100%, did I? Nor would I.
            I am certainly not a victim of PR. I own a company that produces CFRP products (for 18 years now) and I know the pros and cons of that material by heart.
            Until now we are using prepregs only, like for the GE90 fan, and are currently developing a new line that is using woven fibers and resin injection, very similar to the process they use to make the GE9X fan blades. There have been lots of surprises in this development program for us, and I am sure GE is going through something very similar.
            My take is that both the barrel (Boeing) and the panel (Airbus) designs are wasting a good part of the potential CFRP offers. Riveting (!) carbon parts gives me real pain.
            So, back to a possible Boeing strategy: Develop a full aluminum 737 replacement asap and in the meantime work on the second, high-end plane that would need a lot longer and would possibly require a new factory.

          • Isn’t Airbus into resin infusion manufacturing as far back as the A340NG rear pressure bulkhead?
            I’ve seen a range of stitched complex resin infusion test items like cocured window frames in published showcases.
            I’ve found no detractor to Airbus argument that anything done as a cylindrical barrel can be done better and cheaper as a panel. Winding on a mandrel has intrinsic limits to directional placement
            The GE fan blades seem to have a downside in excessive manual labor.
            There is still much to learn in the reinforced plastics domain. What we see today ist still “black metal”. Progress takes time. especially in an industry that is lief to take unexpected risks. This is a Good Thing (TM).

          • Gundolf: The A330 is a fine example of leveraign what you have to give the othger guy a blak eye. I call that well done.

            The A350 I think is not a good example. It was the bvest they could do with what they had as they had no future devlopem progmr or the tech to support it.

            While its well done and a good aircraft, its a very small jump. Thger is no more lecri (grakes which seem to wrok very well) or the A/C system (bleed air still).

            Keep in mind it took 4 or 5 desingn iteration (major ones) to get it.

            Boeing had the tech in place, they had the product developolment.

            There was NO tech issue that was not a result of management screw up (the battery was both, a direct result of Boeing management killing off Boeing electronic division and management screw-up with scattered mfg, Thales responsible, an outfit that was a General Aviator security type (cameras) and never made a part of a large aircraft let alone a electronic device let alone a battery charger for anything in Arizona, a battery mfg that had filthy production rooms for a battery that requires a clean room and a detector mfg that had never done anything like that before)

            It seems to be the wave of the future, Airbus was just not ready to go there.

            It would be good to see Bjorn design us an A350 size aircraft with the 787 tech base.

          • @Uwe: Sooner or later we will have wings and fuselages made in halves or even in one piece design, most probably sandwich. The fuselage of the Honda jet in made in halves. The Boeing barrel is a step in this direction. A regional plane (ATR?) would be a the next step for this technology.
            @TransWorld: The A350XWB is a good example of evolution of the A300 legacy. A rather clever design that allowed to use most of the existing production system and infrastructure. That way they avoided the trouble the 787 had. They also figured out the current sweet spot for the fuselage diameter. Though the whole plane is less advanced than the 787 technologywise, the resulting product looks like a future money maker for both the airlines and Airbus.

          • @TransWorld

            Contrary to your assertion, the 787 is not more “advanced” than the A350. However, in contrast to Boeing and the 787, Airbus was able to re-use and improve upon many of the developments, technologies and industrial processes that were undertaken for the A380, for the A350 — including lessons learnt. A380 systems re-used on the A350 include IMA; AFDX, -double-hydraulic/double-electric (2H/2E) flight-control architecture and the variable frequency electrical generation system philosophy; 5000 psi hydraulic system — just to mention a few of the innovations brought forward by the A380. Only with the 787 did Boeing introduce similar systems.

            As for the composite structure architecture on the A350, I can’t see how it’s supposedly inferior to the “full barrel” concept on the 787. Please do keep in mind that we’re still talking about “black metal” adaptations for composites. Hence, neither the 787 and A350 are really fully optimised for carbon. Taking full advantage of carbon means much less use of fasteners (by at least an order of magnitude) and co-curing not only stringers and skin, but stringers, skin and fuselage frames, as well. The problem is that doing all this on a 787-type “full barrel” does not seem to be very practical at all — that is, if you want to fully optimise carbon for aircraft manufacturing.

            According to Airbus, large fuselage panels have an added advantage that their properties can be fully optimised (i.e. lighter) to whether they are side, crown or belly panels. Also, manufacturing large panels generally include easier handling, smaller and less expensive autoclaves (etc.) than what’s the case for a CFRP composite barrel”. Therefore, the 787 “full barrel” 787 fuselage sections may look like a dead-end, technologically speaking.

    • “2) Introduce a high-tech product that delivers a better performance than you customers expect, and sell it at a premium price.
      The A330 and the A350 are almost perfect examples for 1) A330 and 2) A350.
      The 787 is certainly a product of category 2) ”

      Are you really sure about this?
      I’d deem the 787 a super flashy and expensively created product that does not fulfill on its promises in a meaningful way.

      A330 and now the A350XWB appear to be “sleeper products”. always another rabbit extractable from some service hatch or other.
      That is not what I would call a cheap product.

      • OK, let’s say that the 787 is “meant” to be a category 2) product.
        From the onset the A300/310/330 with its two engines was meant to be the “cheapest” widebody airliner. You could also say “economic”, which sounds nicer. It is even cheaper to manufacture than the smaller 767. Absolutely a category 1) product. That doesn’t say it must be bad or badly designed, quite the opposite actually.

      • “I’d deem the 787 a super flashy and expensively created product that does not fulfill on its promises in a meaningful way.”

        Well an awful lot of airliners were fooled then.

        • Jup.
          Though (early) customers got what they paid for.
          Though the fool in the lead is Boeing.
          For $30b they produced an A330 copy and sold it up front for small money.
          Boeing will never achieve the premium in price they need to compensate for the effort taken. The projected “getting stinking rich from snapping up Lego Planes” was a mirage from day one.

  20. Sorry, but Boeing is not earning money with a B748 production rate of 6 a year.
    Thus the graphic must be wrong.

    Airbus should be able to gain profit with A350 as the ramp up is working.

    • Boeing is very experienced in running profitable (marginal probably ) production lines at low rate.

      747 has been there before and the 767.

      • Boeing exchanged some parts from existing aircraft for the 767-2C.
        The 747-8 has a complete new wing design. I doubt these development costs could pay of at 6 aircraft a year.

        • Even if you assume the production line has a book value at 0 – which it shouldn’t have, as changes should have been made form B744 to B748,

          there are still fixed cost that broken down on just 6 pieces a year should make it impossible to gain profit.
          Don’t forget Boeing was unable to create high margins in a low selling B748 case.
          At LH they are still talking about the super cheap price they got from Boeing for the 8i’s.

          Analysts said a rate of 12 might be slightly break even, a rate of 6 is a loss.

  21. Nah,

    it’s more like this:

    Neither A380 nor B748 are any factor.

    Neither A319 nor B737max 7 are any factor.

    In single aisle, Boeing has a very nice Max200 and Max8 a good solution for many carries and sold 3000 of em.
    Airbus A320neo is a good product, slightly behind max8/200.
    Airbus 320neo success is all about A321neo.
    Market has moved to a single aisle 250 PAX plane, exactly where A321neo (240PAX) is located. A321neo LR is a nice niche successor for B757 and smaller, shorter B767 routes.
    Boeing is still suffering as it got caught by Airbus with A320neo.

    A330neo vs B787 is to be discussed, it looks like B787-8 is done, but B787-9 is offering a optimal size & range for many Airlines.
    b787-10 is to come and it looks like it can provide great economics.
    Overall, programs usually make money with the bigger variants, so for me it’s not sure B787 program will be a loss, it depends a lot how many -9 & -10 they can sell in future. And it doesn’t look that bright for A330neo too – not to many orders. And Boeing has written off some B787 cost already?

    With A350 and B777x to come, it looks like this: A359 is up against B787-10,
    A350-1000 is vs. B779x – and B778x is against a A359ULR.
    First, there’s still a ramp up issue at A350.
    Second, there’s still the production gap in B777 -> B777x.
    Third, there’s a technical development risk in B777x – the folding wingtips & the powerplant.
    From market side, i did wonder why Airbus didn’t go with another stretch from A350-1000 to directly compete with B779x. The -1000 is 30t lighter, for about 40PAX less, but many of these PAX are from a 10abreast config.
    It’s not that B779x nor A350-1000 have sold really well, 9x would be reality without big orders from Me3, though with SIA & LH two long time Boeing customers did order, though they have A350.
    It will be interesting to see if a bigger B777x can compete with A350, as the 9x is a little to late for a B744 replacement.
    But there are 1000 B777 around, so there’s a huge 350 Pax airplane market.
    I don’t know but Airbus might be in a better position, when they can offer a 67m (A359), 74m (A3510) and 80m (A350-11) plane.

    Both have trouble with military projects, A400m is same same as KC46.

    If I were Boeing, I would definitely think about a quick B737 replacement with a new fuselage, and try to hit market mid- end 2020ies. They should be aware about a A330neo replacement and A350 double stretch.

    If I were Airbus, I would try to push A321neo as hard as I could, same with A350. It will limit Max and 777x sales and seriously harm Boeing.
    I would definitely stretch A350 to aggressively attack 9x and let Boeing do a B737-max10 and B777-10x. Both are on weak basis and from there shouldn’t be successful. I would leave A380neo behind and be aware ob Boeing coming along with a B737 replacement, about 200-300pax.

    • I believe Airbus is pushing the A321 as hard as they can as they are working up to 50% of their production of that model.

      Alabama will only produce A321 (CEO to start, then NEO)

      • I do have to disagree that the A400 is a comparison to the KC46

        The A400 is still in chaos, the KC46 is settled down.

        The A400 was started as a commercial program for military ops and that has been a complete bust and is not a military program.

        The A400 is a typical European program with too man players with too many fingers in the pie wanting too many different things.

        Why they went with turbo props on an aircraft that size is baffling .

        KC46 had problems but they wee all simple screw ups of relatively simple stuff and readily fixed.

        For the time in development the KC46 is vastly ahead of the A400.

        Call the A400 a Plane Too Far.

        • The KC46 is a repurposed 767 with tanker hardware and some wires added in ( and by the people purportedly “owning” the aerial tanker trade at that.)

        • @TransWorld

          IMJ, the A400M will eventually lead to an entire family of ITAR-free military transports.

          The know-how achieved by the A400M programme in technology and industrial processes with respect to airframe, systems and the TP400-D6 engine, should provide a solid ground for the development of future Airbus airlifter programmes.

          Conceivably, future Airbus airlifters could include;

          a) an A410M; a scaled down A400M using four (scaled down) Europrop TP400 derived engines — a direct replacement and competitor to the C-130J. Like the A400M that’s essentially using the basic 222-inch diameter A33o fuselage (crown, side panels), an A410 could re-use the upper half of the A320 fuselage. The A410M would massively re-use A400M avionics and systems (etc) in order to both minimise development costs and production costs.

          b) an A420M; a re-winged, modernised C-295 with full fly-by-wire and with the cockpit section of the A400M integrated with the forward C-295 fuselage.

          Hence, an A400M, A410M A420M family would have identical cockpits (systems etc.) — something that should provide for quite an attractive family of military airlifters.

          Since the A400M is too large (and expensive) for quite a few potential operators around the world, a smaller and cheaper A410M should be extremely competitive with the C-130J in defence markets outside the US. The US, though, will still “buy American”.

          • I’d see an A200M as a scaled down A400M twin.
            same systems layout that the A400 sports.
            The C-160 was a very versatile and capable frame.

          • What European government is going to step up to buy another variant of the A400 after what EADS/Airbus has put them through on this fiasco A400 program? Isn’t the program cost overruns in the BILLIONS of euros? Didn’t the French Government just fairly recently have to buy 4 C130Js for paratroop dropping and helicopter refueling, because of continued A400 deficiencies in these areas? Isn’t the German Government still trying to welsh on its original full buy of 60, or 53–or is it not now 40–for the Luftwaffe? (That’s barely two squadrons’ worth!) Didn’t the Spaniards have the dubious honor to watch them “drop one in” on their own soil? Yep, step right up an order your Grizzly/Atlas II boys! LOL

          • Latest A400 ignominy: German Defense Minister left stranded in Lithuania due to A400 engine oil leaks. (She’s apparently left “aggravated” and “frustrated” by this new A400 glitch–before riding home on a non-A400 a/c! Way to go A400–and Airbus–with a key rep of your largest A400 customer!)

          • The A400M looks like a turboprop version of an A300. For normal pax operations 2 instead of 4 engines should be sufficient. Therefor Airbus might not like an enlarged ATR72.
            A400 ~ 200 pax
            A410 ~ 150 pax

            @MontanaOsprey
            The German Defense Minister was flown back on a C-160 Transall. I didn’t get it why she used an A400M in first place. Also why a military aircraft at all? German airforce operates A319 or Bombardier G5000. Fail PR event…

          • A400M: Germany had 3 useable from 9 delivered frames available when Ms v.d.Leyen had her mishap.
            Brits and the French seem to have no apparent use issues.

            My judgement at the moment: this is a Luftwaffe “thing”.

            Why an A400M: you take a war plane to go into a war zone.
            Just like going to Afghanistan. 🙂
            Ullla von der Lügen is very much into PR and spending money on pimping her public image and the achievements of her (changing) ministries. ( instead of doing real work.)

          • @MontanaOsprey

            The A400M is the only in-production large Western transport capable of the strategic airlift mission. However, the A400M is still too costly for a majority of the world’s militaries. Big aircraft need big budgets, and much of the world is cutting defence expenditures and rationalising or pooling strategic transport capabilities.

            The current “sweet spot” in the military airlifter market is in the space largely owned by the C-130J. The global replacement market for older model C-130s and An-12s is expected to grow in coming years. Several OEM’s are developing designs aimed at replacing the large numbers of older C-130s — such as the KC-390 from Embraer.

            To truly beat the C-130J in the global market place — the isolationist and “America First” USA, not included — a state-of-the-art quad-turboprop powered airlifter should IMJ do the trick; such as an A410M that essentially would be a scaled down from A400M.

            So, contrary to what you seem to believe, Airbus would obviously design an A410M primarily to compete in the lucrative global medium military air-transport marketplace over the next 30 – 50 years.

          • upengined Transall?
            ( quite a bit of Transall pedigree in the A400M )

          • @Uwe

            No, an A410M should IMJ be a C-130-sized, A400M-derived quad-turboprop powered airlifter.

        • “The A400 is a typical European program with too man players with too many fingers in the pie wanting too many different things.”

          Thats how all planes are done these days, engines from there, fuselage different sections from all over the place, wings from some where else. Every one does it like that. Some are just subcontractors while others are design and build. Even the DC9 started out with its wings built in Canada, the Caravelle had the nose from the Comet. The B787 has only the tail fin made by a Boeing plant but Boeing later took over the rear fuselage plant from Vought next to their assembly line in South Carolina

        • I don’t see Boeing out of trouble @KC46.
          But it’s less than Airbus with A400m.

          Main issue is the engine – if they just bought that P&W engine instead of developing another just to buy European, that plane would be good.

          It’s as always with European projects – everybody wants its own features in, and that leads to issues.

          But Germany is special – sorry, whatever our stupid Ministress and so called army is doing is ending in a disaster.
          No matter we try for a new tank, heli, fighter, transporter, rifle, or submarine.
          Politicians try to blame Eurocopter, H&K, KMF, Airbus, Thyssen Krupp – but when you have trouble with everything and everybody, there’s a huge chance your are the troublemaker, not the others.

          And before you’ll ask: I have been serving in the German Bundeswehr.

          • The engine is as such is OK.
            HispanoSuiza/BAE made a mess with the wrong (uncertified) SW toolkit for the FADEC.
            GE/AVIO made a mess out of the series production gearboxes.

    • I guess they are pushing the 321 already to the maximum. I am not sure if a further 321 stretch is possible due to rotation/tailstrike issues, but i thought a 320 1/2 for 200 pax as a simple stretch might be an idea.

      I guess they will wait with the 350-1100 until Boeing can t change the 777-9x anymore and have collected some experience onthe 350-1000.

      Don t let the 380 go! I still think, the plane has a future, if not in the current version, maybe it becomes the 1st plane to be equiped with the RR ultra fan, as it matters less to lose 1 engine on a 4 hauler. That combined with a slight stretch and quick-fix-wing and off you go! See you in 2025.

  22. Boeing has two choices. One, build a new airplane with the current GTF that leapfrogs the A321 by 10% to 20%. Or two, wait and build a bigger airplane with an all new 45K engine, that heads into the final frontier.

  23. Looking at the share price today for Boeing and Rolls Royce, someone is going to be very wrong.

  24. Interesting PNAA bullet points . . . how can I get on the distribution list for John Leahy’s talking points?

    • @Maxwell: Leahy didn’t speak at PNAA. Not sure what you are referring to.

  25. The A400M cost overruns were E5-6 Billion from what I found. In some nations that would be absolute peanuts / no news.

    https://www2.deloitte.com/us/en/pages/about-deloitte/articles/press-releases/cost-overruns-persist-in-major-defense-programs.html

    Look at the JSF, F22, C17 and other huge cost overruns. It puts everything in pespective. Unless you’re not interested in that.

    Another factor was the A400M is payed for by 6 democracies, with their changing governments and strong opposition parties, looking for opportunities to charge and gain PR points by attacking waste full militairy programs during the global recession.

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