Leeham News and Analysis
There's more to real news than a news release.
David Calhoun’s first and last addresses to Boeing shareholders have common themes, four years apart
David Calhoun, president and CEO of The Boeing Co.
May 21, 2024, © Leeham News: David Calhoun was named CEO of The Boeing Co. in December 2019. He assumed office in January 2020. He had been on the Board of Directors since 2009. His first annual shareholders meeting as CEO was the 2020 AGM, for the financial year 2019.
When Calhoun was named CEO, the 737 MAX had been grounded for nine months, following the crashes in October 2018 and March 2019 of the Lion Air and Ethiopian Airlines MAX 8s. There was no end in sight for the grounding—which ultimately lasted 21 months.
Three months after Calhoun assumed office, the global COVID-19 pandemic erupted. Global passenger traffic collapsed and so did deliveries of the widebody aircraft prevalent on international routes. Boeing Commercial Airplanes (BCA) revenues and cash flow, already emasculated by the MAX grounding, was put under further strain. Then, in October 2020, Boeing suspended all deliveries of new 787s after finding production flaws. This suspension lasted 20 months.
Following the January 5, 2024, accident involving Alaska Airlines Flight 1282, a 737-9 MAX, Boeing’s safety record which came under fire in 2018-19 was again called into question. Calhoun announced his retirement effective the end of this year. Other Board-level and executive changes were also announced.
The May 17, 2024, Boeing AGM was Calhoun’s last as CEO. His prepared statement was reminiscent of his first as CEO. Some of the themes—notably about safety—expressed last week were eerily similar to those articulated in 2020 during his first address to shareholders.
LNA has assembled Calhoun’s first and last addresses to shareholders. We’ve highlighted common themes between the two addresses, made four years apart.
Southwest, the “legacy LCC,” part 2: Bloated labor expense, difficult fleet strategy result in uncompetitive cost structure
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By Judson Rollins
Introduction
May 20, 2024, © Leeham News: Southwest Airlines was founded on the principles of high employee productivity and low labor costs. But 53 years after beginning operations, its labor cost as a percentage of expenses — and per seat-mile — is now the highest among US airlines.
Boeing 737 MAXes parked after the 2019 MAX grounding. Source: Getty Images via AFP.
LNA studied Southwest’s and its US competitors’ 2023 annual reports to comprehensively understand their relative profitability. The resulting picture is less than flattering to the Dallas-based carrier. Southwest is increasingly a “legacy LCC,” with LCC-like unit revenue but a legacy cost structure.
Summary
- Labor costs are dramatically worse than legacy or LCC competitors.
- Fleet and route strategy are crimped by overreliance on the Boeing 737.
- Southwest’s insular management team and culture may be its greatest obstacle to business model innovation and continued profitability.
Boeing’s safety, labor battles heat up while CEO will walk with $34m payout
By Scott Hamilton
May 16, 2024, © Leeham News: Even as Boeing is under fire for safety issues, the company’s battles heat up.
- Boeing remains at an impasse with its engineers and technicians union over creating a new safety program. The company has doubled down, the union says. SPEEA has turned to lawyers for legal advice.
- The US Department of Justice on Tuesday notified Boeing that it concluded the company failed to live up to terms of a 2021 Deferred Prosecution Agreement (DPA) intended to put to rest all criminal liabilities stemming from the 2018-19 737 MAX crashes that killed 346 people. DOJ may go ahead with criminal prosecutions now.
- The firefighters union was locked out by Boeing over contract negotiations, bringing in replacement workers. The union says Boeing’s actions threaten safety at its plants. SPEEA and its powerful touch labor union, the IAM 751, are picketing with the firefighters in support.
- IAM 751 apparently is using the firefighters’ strike as a training ground in anticipation of its own possible strike in September when its current contract expires.
A350-1000 or 777-8? Part 2
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By Bjorn Fehrm
May 16, 2024, © Leeham News: We are doing an article series comparing the capabilities of the Airbus A350-1000 and the Boeing 777X. We have looked at the A350-1000 versus the 777-9 and started comparing the history and capabilities of the 777-8 versus the A350-1000 last week.
Now, we use our Aircraft Performance and Cost Model (APCM) to fly the aircraft on a typical route and compare their performance.
Summary:
- The A350-1000 and the latest 777-8 definition is a closer payload-range match than the A350-1000 and 777-9.
- Passenger and cargo capabilities are similar. The economic comparison will be determined by maintenance costs for the engines.
Airbus’ A350-1000 or Boeing’s 777-8? Part 1
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By Bjorn Fehrm
May 9, 2024, © Leeham News: We are doing an article series comparing the capabilities of the Airbus A350-1000 and the Boeing 777X series. We started with the 777-9, the larger model. Now, we continue with the shorter 777-8, an aircraft closer in size to the A350-1000.
The 777-8 was originally launched in a shorter version together with the 777-9. Then, it went very quiet around the 777-8, with some analysts speculating that the passenger version would not be done. The 777X freighter, the 777-8F, was launched in January 2022. It became a bit longer than the 777-8. This now forms the final definition of the 777-8.
Summary:
- The comparison of the A350-1000 and the 777-8 is comparing the longer-narrower versus the shorter-wider.
- Which is the best? We use Leeham’s Aircraft Performance and Cost Model (APCM) to find out.
Southwest could solve its MAX 7 woes … by buying Breeze?
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By Judson Rollins
Introduction
May 6, 2024, © Leeham News: Southwest Airlines, still awaiting the certification and delivery of the Boeing 737 MAX 7 as a replacement for its aging 737-700s, might have an unorthodox alternative: acquire startup Breeze Airways for its Airbus A220 fleet – and, more importantly, its order book.
Source: Orlando International Airport via Simple Flying.
Launched in 2021 by serial airline entrepreneur David Neeleman, Breeze operates 23 A220-300s, 10 Embraer E190s, and six E195s to 47 airports across the US. It focuses on connecting larger airports to smaller cities, including a handful of transcontinental routes.
Ironically, the Utah-based airline achieved its first-ever monthly operating profit in March. It recently announced plans to operate the A220 exclusively by the end of this year.
According to a January update from database provider Cirium, Breeze has between 11 and 13 A220s scheduled for delivery each year through 2028. No options are listed.
Market intelligence says Airbus Commercial Aircraft CEO Christian Scherer visited with Southwest executives in Dallas and Breeze leadership near Salt Lake City in mid-April. This was well after Breeze’s February order for 10 additional A220s.
Summary
- To deliver or not to deliver the MAX 7?
- Southwest’s aging 737-700 fleet has few replacement options
- How a Breeze acquisition might play out
- Azorra Aviation is likely a key partner in helping Southwest get A220s
A350-1000 or 777-9? Part 4
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By Bjorn Fehrm
May 2, 2024, © Leeham News: We are doing an article series comparing the capabilities of the Airbus A350-1000 and the Boeing 777-9. We looked at the development history of the aircraft and then their capability and fuel economics.
We could see that the 777-9 is trailing the A350-1000 in payload range, partly because we compare the base version of the 777-9 with a further developed A350-1000. Now, we investigate what the 777-9 performance would be should we include a typical future development of the Maximum TakeOff Weight (MTOW).
Summary:
- The A350-1000 has a clear payload-range advantage over the standard 777-9.
- With an in-service Maximum TakeOff Weight (MTOW) development like the A350-1000, the difference is reduced.
Pontifications: Tombstone mentalities and Fantasy Land
By Scott Hamilton
Analysis
By Scott Hamilton
April 30, 2024, © Leeham News: David Calhoun, the CEO of The Boeing Co., put this right at the top of an employee message and the 1Q2024 earnings call last Wednesday:
“Since Jan. 5, more than 70,000 of you have participated in Quality Stand Downs across more than a dozen Boeing sites. From those, we’ve received more than 30,000 ideas on how we can improve. And this year, we’ve seen more than a 500% increase in employee Speak Up submissions compared to 2023. We are taking all ideas collected and prioritizing them as we further enhance our factory disciplines and overall quality standards. Our people know better than anyone the actions we must take to improve, and we are listening and acting on their feedback.”
It’s obviously a statement intended to assure everyone interested in Boeing that it’s taking positive steps to increase safety protocol and listen to employees.
I had two reactions.
First: Why was this necessary? Supposedly after the 2018-19 737 MA X crisis, Boeing upped its safety protocols, its employee Speak Up program, and it was forced into a new relationship with the Federal Aviation Administration (FAA).
The Jan. 5, 2024, accident involving Alaska Airlines flight 1282 made it crystal clear that the post-2019 MAX crisis changes were largely window dressing.
Second: Reading Calhoun’s statement reminded me of a long-held axiom in commercial aviation of what’s derisively called the Tombstone mentality. This is tied to the belief that the FAA doesn’t take drastic safety action until after someone dies in an accident.
Unfortunately, recent history renders this parallel to The Boeing Co.
Sadly, failure to assure safety is indeed Boeing’s No. 1 priority will go down as David Calhoun’s legacy as CEO of The Boeing Co.
Related articles:
- SPEEA, Boeing at impasses over safety proposal
- Boeing unlikely to meet the FAA’s 90-day deadline on safety plan
- Boeing defends against whistleblower allegations
- Boeing must meet FAA quality plan before raising production rates (Reuters)
Boeing Financial Analysis – Inventory Q1 2024
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By the Leeham News team
April 29, 2024, © Leeham News: The Boeing Co (BA) released its financial results on April 24 for the first quarter of this year. BA relies heavily on Program Accounting to determine what amount of expenses are to be deducted against income, which is a major feature of the system.
The company also reveals the latest information about deferred program balances. This is closely related to Program Accounting.
A Quick Primer
Boeing describes program accounting in its financial statements:
Boeing Commercial Airplanes (BCA) develops, produces, and markets commercial jet aircraft principally to the commercial airline industry worldwide. Revenue on commercial aircraft contracts is recognized at the point in time when an aircraft is completed and accepted by the customer.
With respect to each of our commercial aircraft programs, inventoriable production costs (including overhead), program tooling and other nonrecurring costs, and routine warranty costs are accumulated and charged as cost of sales by program instead of by individual units or contracts.
Source: Boeing Financial Statements
As such, expenses reported for the sale of aircraft during the reporting period are not what was paid, but what BA estimates the average cost will be over the remaining orders and aircraft to be sold. Any overages are noted as an increase in Deferred Production Costs and are held in Inventory.
A350-1000 or 777-9? Part 3
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By Bjorn Fehrm
April 25, 2024, © Leeham News: We are doing an article series comparing the capabilities of the Airbus A350-1000 and the Boeing 777-9. We looked at the development history of the aircraft and compared their size and payload capacity.
Now, we use our Aircraft Performance and Cost Model (APCM) to fly the aircraft on a typical route and compare their performance. We also look at their stage of development and the potential for future upgrades inherent in the design.
Summary:
- The A350-1000 has got its Maximum TakeOff Weight (MTOW) increased four times since entry into service.
- The latest MTOW hike to 322t gives the A350 a clear payload-range advantage over the 777-9. Any increase in the 777-9’s MTOW will have to come after type certification.