Feb. 22, 2021, © Leeham News: Tunnel-vision pundits, analysts, and even some experts say Boeing shouldn’t launch a new airplane program within the next few years.
Why? They say doing so will cannibalize the 737 MAX 9 and MAX 10. They say it will undermine sales of the entire MAX family.
I say, poppycock.
Boeing has a MAX problem. It’s not the grounding, although the issues from this are obvious. LNA has written about this ad nauseam, but it’s necessary to remind these new airplane-naysayers. The MAX 7 is a sales dud. The MAX 9 isn’t far behind. And the MAX 10 is uncompetitive with the Airbus A321neo family.
The only MAX that has a bright future is the MAX 8. Boeing can’t rely on the MAX 8 for its future in the 125-240 seat sector.
The MAX backlog represents only a 39% market share vis-à-vis Airbus, excluding adjustments for iffy sales under the ASC 606 accounting rule. (Airbus doesn’t segregate iffy sales from its monthly report. For purposes of this discussion, neither will we.)
Including all competing aircraft in the 125-240 sector, the MAX’s backlog is down to 35% market share. This low market share is pitiful for Boeing.
Playing the status quo, as the new airplane-naysayers suggest, sends Boeing down the path of the 30-year decline of McDonnell Douglas.
Richard Aboulafia, the highly regarded aerospace consultant for The Teal Group, wrote last week, “It has been nearly 25 years since Boeing and McDonnell Douglas merged. Given Boeingʼs significant engineering cuts, program execution problems, clear prioritization of shareholder returns, extremely uncertain product development road map, and deteriorating market share outlook, it is time to consider whether Boeing Commercial Airplanes (BCA) is destined to share Douglasʼ fate.”
For years, Aboulafia noted Boeing’s Research and Development spending trailed Airbus’. “Much of this BCA R&D budget was spent on rectifying problems with the 787 and 737 MAX. The rest was spent on derivatives. Boeing has not launched a clean-sheet jetliner since 2004 when the 787 began. Douglas went 30 years without a new jet launch; Boeing is at the 17-year mark.”
McDonnell Douglas’ last new airplane was the DC-10. MDC’s next aircraft, the MD-11, was a derivative. The MD-90 was merely a re-engined MD-80. The MD-95 essentially reinvented the DC-9-30, albeit with new engines and MD-90 systems.
Boeing’s decision to launch the MAX instead of a new airplane was a reluctant move deftly choreographed by Airbus. The outcome, however, was flawed from the start.
The MAX 7 originally was merely a re-engined 737-700. Dismal sales prompted Boeing to abandon this effort. Instead, Boeing revamped the MAX into a simple shrink of the MAX 8. Shrinks typically aren’t the right solution. (The A319ceo and A330-200 are two notable exceptions.) Sales haven’t improved.
The MAX 9 was a straight-forward re-engining of the 737-900ER. The -900ER sales weren’t anything to write home about, and the plane was inferior to the A321ceo. The MAX 9 proved to be similar.
Development of the MAX 10 was a feeble attempt to finally have a plane directly competitive to the A321neo’s size. But range and field performance are inferior. And the market made it clear the A321neo family is the preferred choice.
Boeing first discussed the MAX 10 in 2016. I remarked at the February 2017 conference of the Pacific Northwest Aerospace Alliance that the MAX 10 was only a band-aid solution and a poor band-aid at that. (For my straight-forward assessment, I was blackballed. I haven’t spoken at the conference since.)
Sales of the MAX 10 were between 500-600 pre-grounding, pre-COVID. (Boeing doesn’t break sub-type sales out.) An estimated 200 of these were swaps from the MAX 8 and 9.
For those who say “protect” the 737-9/10? Forget it. These are the Blackberry of commercial aviation.
Boeing must be bold and launch a new airplane.
Boeing’s future is a new airplane. It’s not the status quo. It’s not the past. One looks no farther than McDonnell Douglas to see how this strategy worked.
The GE business model doesn’t work either.
This model emphasized finances above all else. Stock price. Shareholder value. Dividends. Margins.
These shareholder-oriented goals are necessary, of course. But these emphasize short-term goals rather than the long-term health of the company. The decades-long GE influence in the CEO suite and on the Board of Directors is the second-worst thing to hurt Boeing. (The McDonnell Douglas merger was the first.)
Boeing’s future is that of an engineering-based company—not a financial powerhouse. One looks no further than at today’s GE to see how this strategy worked.
While Boeing was building shareholder value, Airbus was overtaking it in its product strategy.
Reversing this trend will take at least a decade and probably two. This assumes that Airbus will rest on its laurels—which it won’t.
Boeing must begin the turnaround with a new airplane entering service before this decade is out.
Otherwise, it may as well change its name to McDonnell Douglas. Richard Aboulafia may be right.