Boeing’s need for engineering talent from Embraer has been touched on by many media, including LNC. But a detailed analysis hasn’t been forthcoming, that we’ve seen.
Not discussed yet is the fact that new airplane programs at Boeing and Embraer wind down in 2021-22, leaving both companies in danger of facing the next decade without new products at a time when competition will be emerging.
The lack of new airplane programs endangers the engineering talent pool. For Boeing, this is already going to be critical as more than 5,500 engineers and technicians reach age 65 in the next 10 years.
Boeing’s New Midmarket Airplane, if launched, will address part of the company’s new product requirement after 2020. On the other hand, Embraer has no new product, although officials have discussed potentially launching a turboprop program.
In the context of this analysis, “winding down” means the research and development and peak engineering is winding down.
The last derivative of the 787, the -10, enters service this year. Except for performance improvements and potential minor upgrades, such as the rumored increased gross weight versions of the 787-9 and 787-10 for more range, this program is pretty well wrapped up.
The 737 MAX is over the hump. The 737-8 entered service last year. The -9 enters services this year, followed by the 7 MAX next year. The EIS of the final version, the 737-10, is in 2020. Then this program will largely be over, likewise with continuing efforts to improve performance and range in upgrades.
The 777X enters production this year, flight testing next year and has its EIS in 2020 with the -9. The smaller -8 follows by two years, in 2022.
At this point, Boeing doesn’t have any new airplane programs—unless it launches the New Midmarket Aircraft for the Middle of the Market sector. The NMA is already unofficially called the 797 on the expectation Boeing will green light the program.
Like Boeing, Embraer’s current crunch on its new commercial airplane program is fast approaching the downhill slide.
The E190-E2 enters service this year. The larger E195-E2 enters service next year. The smallest member of the family, the E175-E2, was postponed from 2020 to 2021 to give US airlines more time to renegotiate scope clauses that lift the weight restriction. The E175-E2 is too heavy to be operated by partner airlines.
However, at this point, labor unions don’t appear willing to lift the restriction. The current E175-E1 appears to be the future of this sub-type for the medium-term.
Embraer doesn’t have another commercial project to follow the E2. There’s been talk of a new turboprop, but this market is highly limited—just 2,500 airplanes over 20 years. And re-entering the turboprop market is, essentially, a step backwards for the innovative Embraer.
EMB’s future is brighter with a Boeing hook up.
The NMA, the 220-270 seat, twin-aisle aircraft with a range of 4,500nm-5,000nm, is widely considered to be Boeing’s next new airplane. Launch is generally expected this year, perhaps at the Farnborough Air Show in July, but LNC is increasingly hearing launch may not come until early 2019.
Coincidentally—and this seems to be what it is—the prospective business tie-up with Embraer reportedly would take about a year to consummate.
The type of tie up is a matter of speculation. News reports range from a minority stake, a joint venture or a full take-over by Boeing. The companies aren’t commenting.
But a combination, in whatever form it takes, provides Embraer with the opportunity to get a major position on the NMA. Boeing’s been looking for industrial risk-sharing partners, without much success, Wall Street analysts say.
Importantly, Embraer has a key resource—engineers—at a time when Boeing is facing thousands of retirements by engineers and associated technicians.
Boeing has long known it’s facing an exodus of engineers and technicians from its white collar ranks as the workforce ages. (It faces a similar exodus with its touch-labor union as well.)
The talent departure was exacerbated by Boeing itself, however. Since 2013, Boeing laid off thousands of engineers and technicians from its Washington State operations, simply cutting jobs and transferring others to lower cost working environments in right-to-work (ie, non-union) states.
But the cuts have been too deep. Thousands of tasks on the 737 and wide-body lines have been incomplete as the airplanes rolled out the doors, LNC is told. Boeing’s had to scramble to complete the jobs on the ramps to maintain delivery schedules.
Boeing has been hiring back retired and laid-off engineers and technicians as contractors to rebuild the force.
But this doesn’t help fill the thousands of jobs coming up through retirements and the emerging labor pool isn’t going to be enough, either.
Turning to Embraer for this highly skilled engineering force could be the savior.
Figuring out where to get key resources for the NMA isn’t Boeing’s only concern for the next decade. The 737 MAX line, the first airplanes of which entered service only last year, remains under pressure from Airbus.
The A320neo is holding its own against the slightly larger 737-8. The A321neo continues to dominate the 737-9 by a wide margin and the new 737-10, a band aid at best, isn’t the answer.
Delta Air Lines chose the A321neo over the 737-10 in an order and options just before Christmas for up to 200 aircraft. This order was the only lump of coal in 2017 for what otherwise was an outstanding year for Boeing.
Last week, the first A321neo in Alaska Airlines colors rolled out of the Airbus factory in Europe. Although Alaska hasn’t said anything officially about the 30 A320neo and 10 A321neo orders inherited from the acquisition of Virgin America Airlines, it’s now clear the Airbuses will be in Alaska’s fleet for at least the next decade if not beyond.
This will be a blow to Boeing. Alaska has been an exclusive Boeing 737 operator since retiring the McDonnell Douglas MD-80 from its fleet in 2008. The airline painted “Proudly All Boeing” on the noses of its 737s to tout the relationship.
Airbus’ tie-up with Bombardier, taking a 50.01% stake in the C Series program, adds to the pressure on Boeing and puts new pressure on Embraer in the process.
The pressure on MAX be well be ratcheted up soon. Airbus is expected to announce this year its long-discussed A320neo Family Plus development, adding range and other key features to the flagship A321neo but also perhaps applied across the entire family.
Boeing needs a New Small Airplane, or NSA. With attention and billions of dollars at stake for development of the NMA, the Embraer resources may well be a helpful solution toward developing an NSA.