Feb. 3, 2020, © Leeham News: Boeing has said very little about how the MAX certification review will affect the 777X.
The Federal Aviation Administration has said nothing at all.
But David Calhoun, the new CEO of The Boeing Co., gave a hint in a recent call shortly after assuming office Jan. 13.
“The certification process is a new one and it’s going to get applied to every next airplane,” Calhoun said. “We have a lot of planning to do around the 777X, et cetera, to make sure that we can accommodate a really thorough review and investigation. It’s just the way it’s going to be.”
Calhoun didn’t elaborate.
Neither would 777X marketing official Wendy Sowers, when asked at the briefing in advance of the 777-9’s first flight.
LNA identified the certification process of the 777X as a big hurdle in this Jan. 16 post.
Regulators in Europe and the United Arab Emirates said they plan their own certification review. Lufthansa Airlines in Europe and Emirates Airline in the UAE are the first operators of the 777-9.
Tim Clark, the president of Emirates, said he wants a 16 month flight testing program to be sure bugs are worked out of the engines. The 777X is already a year late, in part to a flaw discovered in the giant GE9X.
The first flight of the 777-9 was Jan. 25, after two previous attempts were scrubbed due to bad weather.
On the Jan. 29 earnings call, Calhoun was asked whether Boeing has any “deficiencies” with its narrow-body program (ie, the 737).
Calhoun replied he doesn’t think so:
“I know that in airplane, type by type, sometimes you’ve got a lead, sometimes you don’t. But in the family, and ultimately, the performance of this MAX and the feedback I get from our customers, I’m not actually worried about that.
“All that said, we’re in the airplane development business, and we’re going to stay in the airplane development business. So we’re going to keep looking at what the next one needs to be. I want to make sure everyone understands that me not immediately signing up to the NMA is not me not wanting to do new airplanes; we’ll do one. And I don’t want to even suggest or convey to you that it’s anywhere near the narrow-body fleet we have today. I don’t see big deficiencies there.
“On the other hand, I’m just simply going to listen to customers and markets. It’s been over two years since we started that whole discussion. I’m going to refresh it every way I can think of, along with my new commercial airplane leader, and then we’ll get out with new news. But honestly, right now, it’s all about the MAX, getting it up. And yes, I believe in the product.”
The market, however, has a different view.
The A321neo is far out-selling the 737-9/10—by a factor of three to five, depending on the point-in-time the comparison is made.
The A321LR and XLR come closest to being a like replacement for the Boeing 757. Neither the MAX 9 or 10 come close to the flexibility of performance of the iconic 757.
The A320neo family has about 57% of the sales vs the MAX family. If the other single-aisle aircraft with 100 seats or more are included, the 737 MAX is reduced to a global market share of just 39%.
Whether it’s 43% or 39%, this is a poor market share for what is the largest airplane market in the world, the single-aisle airplane.
Which leads to Calhoun’s decision to terminate the New Midmarket Airplane study as it was constituted.
In an Oct. 21 report, LNA concluded that the New Midmarket Airplane was off the table in 2020 and potentially altogether. After it was announced Dec. 23 that Calhoun would become CEO Jan. 13, it was a given that product development would be paused.
Calhoun’s first media press call, a week later, confirmed it. He reiterated this on the Jan. 29 earnings call and the subsequent media call. But, these statements were anti-climactic by this time.
What LNA has been told (subsequent to the earnings call) is that the NMA isn’t truly off the table. Neither is pursuing a single-aisle future small airplane (FSA). The restart, with, as Calhoun put it, a clean sheet obviously will look at all options.
This is what Boeing does. It’s what Boeing was doing leading up to the 2011 launch of the re-engined 737. It looked at the re-engine option. It looked at a new single-aisle airplane, which is what Airbus was the option it feared most. It looked at a twin-aisle, composite elliptical airplane, which is what was favored internally.
Airbus was on the verge of winning a huge order from American Airlines for the A320ceo-neo family. This was what forced Boeing’s hand to launch the MAX instead of the new twin-aisle airplane then.
So, for those who think the NMA is truly dead and the FSA is the next new airplane, the odds may favor this outcome. But it’s too early to place this bet.
So far, I find Calhoun’s approach and style to be a welcome change to that of ousted CEO Dennis Muilenburg. The latter was stiff, wooden and absent of emotion and visible enthusiasm, even when things were going well. Muilenburg seemed rehearsed and always scripted.
Calhoun is animated, quick with an answer, unafraid to say, “I don’t know,” or “I’m not going to tell you.” These are straight-forward replies that always seemed missing in Muilenburg’s earnings calls and interviews.
When Calhoun claims that he is not a Boeing insider, this strains credibility.
He spent 10 years on the Board of Directors. He was lead director for years. He was on the Compensation Committee for years, which (among other things) set goals for Muilenburg. He voted on policies setting shareholder value as priorities and returning 100% of free cash flow to shareholders.
“I said in a recent discussion that I think everybody in the media and some of the press I’ve read unfairly from you suggest that as a board member I’m an insider,” Calhoun said in response to a question from The Seattle Times’ Dominic Gates. “I think I watched the same movie you did. I think I was in the front row seat….”
In response to another media question, Calhoun said, “the role of the board [is] governance, and in fact, it is to supervise, as you suggest. It is to get involved in aspects of the company when it wonders whether they’re being done as well as they could be done. Our board was a pretty active board. It spooled up quickly after the Ethiopian accident to get involved in all of the safety processes that exist inside the company. We’re not there to operate the company. We don’t become insiders in the process of doing so, but we learn a lot in those processes and when we recommend actions, and we add a whole bunch of recommended actions that were put in place really at the beginning of the fall.”
Yet, let’s remember that the Securities and Exchange Commission considers directors to be insiders. Calhoun touted his knowledge of Boeing, from his position with GE Aviation, before being named a director. His leadership position on the Board, as a first among equals (so-to-speak) elevates his insider position.
Calhoun would be much better dropping his defense he was merely watching a movie from the front row. He can be Boeing’s Nixon-to-China and make dramatic changes because he’s an insider. This is one of the arguments made by sympathetic Wall Street analysts.
But claiming he only had a front row seat hurts his credibility. I’ve already heard from Wall Street analysts that the “front-row” defense isn’t playing well. To continue Calhoun’s movie analogy, he gets one star on this one.