Nov. 7, 2022, © Leeham News: With the firm declaration that Boeing won’t launch a new airplane program until the next decade, CEO David Calhoun is signaling he’s content to see the company shrivel into a distant number two position after Airbus.
Amazingly, one Boeing executive told one of the attendees of the investors day event that he (the executive) was okay with that for now.
It’s a recipe for Boeing to follow the path of McDonnell Douglas Corp. (MDC) in its long decline into commercial oblivion. MDC merged into Boeing in 1997. Boeing hasn’t been the same since. Its legacy as an engineering company shifted into one focused on shareholder value. McDonnell Douglas had become a company where Derivatives-R-Us prevailed. Boeing long ago shifted to this mode as well.
Calhoun is a creature of Jack Welch’s GE mantra. Cut costs. Emphasize profits and shareholder value. And while Welch’s philosophy that GE should always be No. 1 or No. 2 in any industrial sector it played in, Welch’s vision of No. 2 was a close No. 2. Boeing’s decline into a distant No. 2, with only a 40% market share against Airbus (and less when looking only at the total single-aisle sector) began long before Calhoun became CEO in January 2020.
Calhoun told his audience of investors and aerospace analysts that he’d like nothing more than to return cash to shareholders. Knowing who your audience is is part of any speaker’s requirement, so in isolation, I’m not going to chop Calhoun up for this statement. The trick is to balance shareholder return against the future of the company.
As I’ve written in the past, returning 100% of free cash flow to shareholders isn’t necessary. Before suspending the dividends and stock buybacks after the MAX grounding, Boeing returned more than $62bn to shareholders over a decade. Using part of this for new airplanes would have been a good approach.
Calhoun declared that even if all the advanced design and manufacturing is ready this decade, he won’t support a new airplane until the next decade when a new engine that can reduce fuel consumption by at least 20% is ready. Any new airplane must hit this target to benefit airlines and the environment, he said.
Well, there are other ways to hit this target. LNA discusses this behind today’s paywall.
In the meantime, Boeing is content to rest on the past.
Three weeks before last week’s investors event, Boeing held another for “influencers.” This included advisors, consultants, and other people identified as key influencers. It was a small and select crowd. They got much of the same pitch that the investors received last week. (To clarify, this does not refer to financial information provided the investment community but rather non-financial data such as eco-aviation, product lines, etc.)
While both events focused on today’s Boeing, both events included statements by executives and displays that demonstrate Boeing continues to be rooted in the past. Absent a new airplane program, Boeing has little choice. But clearly, Boeing is fighting the last war with Airbus. And this combat is already lost.
The itinerary for the advisors event included a visit to the commercial airplanes Customer Experience Center in Renton. Among other things, the group was shown a display comparing the windows of the 777 vs the Airbus A330. This has been a display since the 1990s. For the most part, this comparison is no longer relevant. The 777 Classic is now produced only as the 777-200LRF. There are only 273 orders for the A330neo, rendering this a niche airplane with little future.
Parenthetically and unrelated to this meeting, an advisor who represents airlines in evaluating competing bids from Airbus and Boeing, told me months ago that Boeing still touts larger windows in its presentations. “I’ve never seen a buying decision made on the basis of who has the bigger windows,” he remarked.
Boeing officials also touted the development of the Boeing Sky Interior for the 737. This was developed for the 737 NG in 2009—13 years ago.
Indeed, Boeing has every reason to be proud of the Sky Interior. An offshoot of the cabin design for the 787, the Sky Interior was a real step change in passenger experience—from its changing lighting to enormous overhead bins to the swooping shape of these bins to give a spacious look and a new feel to the 1960s cabin of the 737.
Airbus redesigned its A320 cabin shortly before the rollout of the Sky Interior. While there were advances in the size of the overhead bin and offering a clean, crisp look, the lighting was the standard white and the enlarged bins were traditionally shaped. The Sky Interior, which had not yet been installed on production airplanes, would blow away the redesign of the A320’s new cabin. (Airbus officials were visibly annoyed when I shared this observation.)
An anecdotal story followed years later. Passengers were boarding a 737 with the Sky Interior. The lighting was set to rotate through its cycle. A lap-child baby was staring up, enthralled (it’s very cool to watch young children and babies discover the world). I’d never seen that reaction on an Airbus interior, nor a standard Boeing one.
A decade later, Virgin America had very cool interiors for its A319s and A320s. It’s too bad Alaska didn’t adopt this design for its fleet. The Virgin America cabin was cooler than the Sky Interior.
During the investors day social hour, an executive claimed Boeing will recapture market share with the 737-7 and 737-10. Given that the Airbus A321neo outsells the MAX 10 by four or five to one and the Airbus A220-300 so far outsells the 737-7 by about 2.5:1, the claim seems a stretch. The 737-7 is virtually a Southwest Airlines plane—it has 240 of the 274 orders. Southwest has 442 737-700s in its fleet, limiting the upside potential for the MAX 7.
The MAX 10 now has around 600 firm orders and other 300 or so announced orders which haven’t been converted to firm contracts. The 600 firm represents 14% of the 737 backlog (17% after ASC 606 accounting adjustments). The A321neo represents more than 60% of the A320 family backlog.
The distances between the MAX 7 to the A220-300 and the MAX 10 to the A321neo are steep hills to climb. How does Boeing see this happening? The “value proposition” of the -7 and -10 is how, it says.
All this assumes that the MAX 7 and MAX 10 will be certified next year and not canceled, as Boeing’s 3Q2022 10Q suggests may happen if the cockpit monitoring system EICAS is required. Boeing hasn’t released a cost estimate for installing EICAS. Officials told investors they don’t have an estimate; LNA has been told the cost is in the low billions of dollars, but this is a moving target.
The “value proposition” is a Boeing message that is now decades old. It’s out of date. Frankly, the customers—airlines and lessors—voted with their checkbooks long ago whether they see a better value proposition from Boeing or Airbus aircraft.
While Boeing remains in recovery mode, touting window size, a 13-year-old cabin design, and value proposition, Airbus is outselling Boeing by multiples and aggressively pursuing ecoAviation technology. My book, Air Wars, The Global Combat Between Airbus and Boeing, examines 35 years of intense competition between the two companies. It details how Airbus overcame Boeing’s dominance and the decline of Boeing into the abyss it’s in today.
Royal Aeronautical Society
Named to the Top 10 List of Aerospace Books for Christmas Choices, 2021
Puget Sound Business Journal
(Seattle area.) No. 1 on the Christmas list of aerospace books for 2021.
No. 1 on its list of Best New Aerospace eBooks to read in 2022.
Chris Sloan, The Airchive
“A worthy successor to ‘The Sporty Game,’” the 1982 book by John Newhouse, considered at the time to be the definitive book about the competition between Boeing, McDonnell Douglas and the emerging Airbus.
Jim Sheehan, Aviation Industry Consultant
There is so much model and OEM information that it is for sure going to become required reading for anyone who wants to understand the last fifty or so years of commercial aviation.
Loved all of the quotes and stories.
Dan Catchpole, Aviation Writer
Air Wars is a tour de force look behind the curtain of Boeing and Airbus’ global competition and, in part, a biography of Airbus’ head salesman, John Leahy, the man who forced Boeing’s hand to re-engine the 737. Longtime aerospace analyst and journalist Scott Hamilton takes readers through the twists and turns of the decades-long battle between the two companies.
Dan Reed, Aviation Writer
Using John Leahy’s long and monumental career as a vehicle for telling readers about the 51-year battle between Airbus and Boeing is both an interesting and inspired choice by the author.