Dec. 9, 2019, © Leeham News: I know Boeing is preoccupied right now. But it has to get off the pot and decide to proceed with a new airplane.
We believe the New Midmarket Airplane is still required. But Boeing salesmen have also floated the concept of a new, single-aisle airplane to key players in the market. Either way, Boeing has to do something.
At least, that’s how we see it at Leeham Co.
The order last week by United Airlines for 50 Airbus A321XLRs should be a wake up call.
It’s not the only one Boeing has had.
Boeing was riding high from 2015 to October 29, 2018, when the Lion Air crash happened. Even then, the accident—involving an airline with such a spotty safety record that the European Union banned it from flying to Europe—was considered a one-off.
Boeing’s profits and cash flow, once the 787 turned cash positive in 2015, made the company flush with cash. The stock price soared.
But there were signs of trouble.
The 737-9 MAX was selling poorly, as did the 737-900ER before it.
Boeing had to really become creative to stretch the 737 yet again into the -10 MAX. The -10 will do what it’s intended to do well, but like the -9 MAX, it is inferior to the A321neo and especially the LR and XLR versions.
The KC-46A tanker was late and billions of dollars over budget.
The Queen of the Skies, the 747, had become a dowdy old maid.
And the 777X, heralded as the natural follow on to the highly successful 777-300ER, proved to be a slow-seller, with the 777-8 ultra long haul airplane occupying too small a niche and considered uncompetitive to the Airbus A350-1000.
Nevertheless, with the top three priorities being shareholder value, shareholder value and shareholder value, the Chicago executives and Board of Directors kept drinking their own Kool Aid.
The wake up calls were obvious, plentiful and there for all to see.
But Boeing kept hitting the Snooze button.
To shift metaphors, there is a saying in the US that to get a mule’s attention, you have to whap it upside the head with a 2 x 4 piece of wood.
United’s order for the A321XLR is the metaphorical 2 x 4.
United’s endorsement of the airplane is a major boost as a former, all-Boeing single-aisle customer. (Ever since Continental and United merged, it’s bought only Boeing for the single-aisle airplanes.)
This makes the business case for the NMA more difficult than it already is. It also further sets back the MAX family, irrespective of the grounding.
A supplier to Boeing (and to Airbus) told me last week, “Boeing has to do something.” It needs to proceed with a new airplane.
We at Leeham couldn’t agree more.
It’s understandable that Boeing’s first priority is to recertify the MAX and return it to service. But the MAX family truly rests on the back of the 737-8. The 737-7 has less than 2% of the backlog and the 737-9 isn’t much better. The 737-10 has about 12% of the backlog, but at least half of this came at the expense of swapping -8/9 orders to the -10.
Shareholder value is all well and good, but it’s time Boeing reinvested in the company and came up with new airplanes. If it doesn’t, as I wrote before, the name may as well be changed to McDonnell Douglas and watch it fade away.