Boeing’s Renton plant may close from 2033: Analysis

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Introduction

Aug. 10, 2020, © Leeham News: With Boeing likely to consolidate 787 production in Charleston (SC), reflecting a rate of 6/mo, the future of assembly in Puget Sound rears its head again.

LNA outlined Aug. 3 why Everett is the ideal location to assemble the Next Boeing Airplane (NBA).

Boeing’s product line also requires a new airplane in the 100-150 seat sector. Airbus’ A220-100/300 and, nominally, the A320neo (but not the A319neo) fill this sector. (The A320neo was originally designed as a 150-seat airplane. It now is commonly configured in the 150-180 seat size.)

Airbus has a design for an A220-500, which could replace the A320.

Boeing’s Renton (WA) 737/757 plant footprint in 1990. Source: Google Earth.

Boeing needs an efficient competitor to the current A220 plus a replacement for the 737-7 and, eventually, the -8.

And it probably won’t be assembled at the Boeing 737 plant in Renton.

Summary
  • Boeing-Embraer JV was to focus on 100-150 seat airplane.
  • Canceled deal could be revived.
  • Or Boeing could choose a new partner.
  • Moonshot would be two roughly concurrent new airplane programs.

Discussion
Next Boeing Airplane

LNA outlined Boeing’s Big Opportunity Aug. 3 for an NBA to be assembled at Everett.

Boeing needs a new airplane EIS 2030-2033. That means launch 5-7 years before, depending on how advanced production appears to work (and, of course, engines drive everything). This NMA Lite would be a dual-aisle aircraft cover the 180-250 seat sector.

This means Boeing needs to launch the NMA Lite in 2023-2026 for an EIS in 2030-2033. The Aug. 3 post detailed some of the challenges for this timeline and how it may be compressed to five years vs the standard seven.

Future Small Airplane

A single-aisle Future Small Airplane (FSA) covering the 100-150 seat sector (or up to 160 seats in airline standard configuration) slots below the NMA Lite. It provides a director competitor to the A220 and replaces the 737-8 in seating capacity.

Source: Leeham News.

Boeing will have to decide how important to its product line and long-term strategy it is to address the 100-150 seat sector.

One key executive in the industry doesn’t believe there is a future for Airbus or Boeing to produce the A220-100 or a competitor. This is better served by Embraer and, if it proceeds, Mitsubishi with an “M300” 120 seat SpaceJet.

Embraer was to be responsible for the 100-150 seat sector in the proposed Boeing-Embraer joint venture.

Boeing walked from the JV in April. Boeing claimed Embraer failed to meet all the required terms and conditions. Embraer says it did. Whether the Ts&Cs were met is grist for the lawyers. More importantly, the world changed between signing the JV and termination while awaiting regulatory approval.

The agreed purchase price by Boeing for 80% of Embraer Commercial Aviation was $4.2m. By April, the market value of ECA declined to about 25% of the agreed price. It’s hard to justify paying four times market value for a company.

COVID-19 became a global pandemic. Production by Boeing, Embraer and Airbus was suspended for short periods and drastically reduced once production resumed. Boeing’s cash flow and cash, already under pressure due to the MAX grounding, took another hit. Boeing had to arrange $27bn in new debt financing to see its way through the virus crisis.

Embraer’s deliveries likewise took a major hit. It arranged $600m in new financing to survive.

Partnering for Success

Recasting the scorned name Partnering for Success into something better received by the industry, Boeing and Embraer could resurrect the JV once the virus crisis passes.

Or, as LNA suggested when Mitsubishi Heavy Industries suspended development of the M100 SpaceJet, Boeing and MHI could broaden the decades-long partnership into a quasi-Embraer deal.

There is nothing to say MHI couldn’t step into the 100-150 seat sector assignment previously held by Embraer in the JV, provided Boeing personnel lead the effort while MHI executes under Boeing’s tutelage.

In many ways, partnering for success with Mitsubishi makes more sense than with Embraer.

Moonshot

Boeing always has the option of launching the NMA Lite and an FSA under its own corporate structure.

After the experiences with the concurrent programs of the 787 and 747-8, officials made it clear they don’t want to run concurrent new airplane programs again.

Both ran billions of dollars over budget and were racked with delays. Pain was exacerbated by launching the MAX and KC-46A tanker programs at the same time.

MAX came in on schedule but over budget. As we now know, the pressures to meet schedule and budget led to shortcuts and the MAX crisis.

The tanker program is a black hole from which Boeing has yet to climb out of. It, too, is billions of dollars over budget and about two years behind schedule.

737-7 is a niche airplane

Boeing needs an FSA in the same timeline as the NMA Lite. The 737-7 is a niche airplane that, as a shrink from the 8 MAX, is not an optimized design. Pre-COVID, there were only about 70 7 MAX orders from a half dozen customers.

Boeing recognizes the problem but says it has some ideas up its sleeve, which it won’t disclosed.

“The market moved up” from the 737-700/7 to the 737-800/8, a Boeing official told LNA recently. “Now is the market still going to be up or is it going to move down where we are right now? How do you place [the 737-7]? How do you sell it as a family? There are a few things you can do. I’m not saying it’s going to be a gang buster of a product. I’m not saying that. It can fill a need. It can definitely fill a need, there’s no question about it. There are some things we can do with the MAX 7 that we’re not doing right now.”

With the termination of the Embraer JV, Boeing no longer has the E-Jet E2 family to fill this space.

This leaves revitalizing the 737-7 or creating a new airplane to compete with the A220.

Boeing’s 737/757 plant footprint in 2002. Source: Google Earth.

It would be a moonshot for Boeing to launch the NMA Lite and FSA more or less concurrently. But Boeing is dire need of revitalizing its commercial airplane program. A moonshot may be what is required.

Timing for the FSA

Then the question arises, when Boeing might launch an FSA?

Assuming the same 5-7 year timeline to EIS, concepts need to be shown and decisions need to be made by mid-decade or a little later.

Spirit Aerosystems builds the 737 fuselages. This contract with Boeing for the 737 extends to 2033. Contracts may be extended, but how much life is left in the MAX? Pre-grounding, Boeing figured the program was good through 2035. This may not be the case now.

Once again, there is typically a two-year overlap between new airplane and airplane to be replaced. If one assumes the end of the Spirit contract coincides with the end of the 737 program, this is 2033. This means an FSA EIS of 2030-2031 is required.

This means a program launch is roughly the same timeline as the launch of the NMA Lite.

Will Boeing, with the painful experience of the concurrent 787/747-8 programs, have the risk genes to do two programs at once? Or will it want to get the NMA Lite into flight testing before launching the FSA?

When the Embraer JV was on the table, Boeing was to own 80% of the JV. This meant Boeing would fund 80% of the FSA.

If Boeing enters a business partnership with Mitsubishi, is there more money available from Mitsubishi and Japan than from Embraer and Brazil? The answer seems self-evident.

And then there’s Boeing’s preoccupation with Shareholder Value.

The ink is hardly dry on the $27bn COVID-related loan. Yet analysts are asking how soon dividends and shareholder buybacks will resume. Don’t underestimate the influence of this factor in decisions.

Closing Renton

Whatever the timing of a new single-aisle airplane, it is almost certain the days of the Renton factory are numbered.

Boeing’s 737 plant footprint in 2020. The commercial/retail.residential development, “The Landing,” is to the right of the 737 FAL building. The P8 FAL is the white roofed building on the upper left. Source: Google Earth.

When the 737 program terminates, LNA believes the Renton factory will close. Doing so enables Boeing to establish new production in a lower-cost, right-to-work state vs Washington.

Once more, we point to the 2033 contract term with Spirit as the best indicator when the 737 program is over.

Boeing has been shrinking the Renton factor footprint since 2001, if not before.

The 2001 Nisqually earthquake red-tagged some Renton buildings. These were not replaced.

Termination of the 757 program in 2004 rendered surplus more buildings.

In what was called by Boeing the “Move to the Lake” (Lake Washington, at the north end of Renton Airport), Boeing sold off surplus land. It has been redeveloped into the commercial/residential/retail project called The Landing.

Once the 737 commercial plant is closed, LNA expects Boeing to sell land to developers.

(The future of the P8 assembly line might be the remaining facility. Or it could close if the Navy needs no more P8s and international sales dry up.)

The Bottom Line

While Puget Sound and Washington politicians are already fretting over consolidating 787 production in Charleston, the longer term worry is Renton.

One Comment on “Boeing’s Renton plant may close from 2033: Analysis

  1. This post is basically reads like a withdrawal strategy or harvest strategy.

    For decades Boeing took chances, and mitigated risk by focusing on performance. Prior to the 787, new airplane programs took 4 years – even the 757/767 concurrent programs – and outperformed rivals.

    Now we seem to be thinking, “What is the least we can do to get by, while still generating cash flow for repurchasing stock?”

    At one time, Phil Condit talked about “being in the phone book” 20 years in the future. The point was that he had a vision. … Well, maybe not, but at least he thought Boeing needed a vision. At the time, the cynical side of me thought he might be thinking that Boeing would be in the Los Angeles phone book as a sales or leasing office on Wilshire Blvd, having long since given up on manufacturing.

    This is an identity crisis for Boeing.

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