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After 4 tough years, can Boeing break through the clouds?

By Dominic Gates, The Seattle Times
Published: April 9, 2023, 6:02am

SEATTLE — After a glitch in February, Boeing is finally delivering again its two most important jets, the 737 MAX and the long-haul 787 Dreamliner.

Yes, production rates are low. But, after four years that saw Boeing’s business decimated, its reputation sullied and its historic engineering culture tested as never before, demand for jetliners is high and sales of both jets have taken off.

Production is slowly rising to meet that demand, and Boeing is hiring 300 to 400 machinists a month to gear up. It recently reopened its third MAX assembly line in Renton and is preparing a fourth in Everett.

Is there at last some light shining through the clouds?

In his foreword to Boeing’s annual report, released in March, CEO Dave Calhoun acknowledged the “existential challenges in our company’s recent history.”

After two Boeing jets tragically crashed in 2019, the 737 MAX was grounded worldwide for nearly two years. In a matter of days in March 2020, the pandemic shut down global air travel. Later that year, quality defects forced a prolonged halt to 787 deliveries.

Now, Calhoun declared: “I am incredibly proud of the progress we have made. … I am confident we are on the right path.”

Boeing has certainly progressed since 2020. At this pivot point, the local workforce wants evidence that Boeing will reach again for its lost glory, epitomized by the last 747 jumbo jet celebrated in January.

One central strategic decision is whether Boeing should get to work on an all-new airplane or instead keep a head-down focus on churning out existing jet models.

Longtime aviation analyst Adam Pilarski of consulting firm Avitas said that, though Boeing “major-league screwed up” in the past few years, it is “slowly moving out of the biggest disaster.”

And key airline customers are exhibiting faith in Boeing’s future. Local carrier Alaska Airlines has placed a big bet on the jetmaker’s recovery.

In the depths of Boeing’s troubles, Alaska — which inherited Airbus jets when it acquired Virgin America in 2016 — decided to return to flying only Boeing airplanes.

Alaska’s last Airbus jets, the 10 large A321neos it flies today, are expected to be gone by the end of the year and Alaska pilots will then fly only 737s.

Alaska took delivery of its 41st MAX in February and is scheduled to take 33 more this year, and then 25 or more every year through 2030.

“We have cast our die with The Boeing Company,” said Nat Pieper, Alaska’s senior vice president in charge of its aircraft fleet planning.

“We need a healthy Boeing. We need a good-performing Boeing. I’m comfortable with where they sit,” he added. “The engineering heritage of the company remains super strong.”

Still, Boeing’s upward path is steep.

With many tiers of its supply chain still shattered by the pandemic, parts shortages are delaying Boeing’s planned ramp-up. Engine parts are a major concern.

And besides assembling new jets, Boeing is distracted by a massive parallel production task: reworking and delivering about 250 MAXs and 100 Dreamliners still parked since the delivery stoppages. Some have been sitting for years.

Boeing must drive these labor-intensive efforts without many experienced workers who retired during the pandemic, and provide extensive training for their new-hire replacements.

And if Boeing is to rise again, it must do so carrying a heavy debt load. Net debt, swollen to nearly eight times what it was at the end of 2018, stands at $40 billion.

Steve Udvar-Hazy, chair of Air Lease Corp. and a preeminent figure in the aviation world, said Boeing’s recovery will take considerable time.

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“We’d certainly like to see Boeing become more aggressive and look further down the road strategically. But they’ve got their immediate issues,” said Udvar-Hazy. “They have to get through this period of uncertainty, setbacks and challenges.”

Grinding toward recovery

Boeing landed a huge order from United in December and announced big sales deals with Air India in February and Saudi Arabia in March.

That’s encouraging for the future. But right now, what matters is the quality of the jets built and the pace of delivery.

Pilarski of Avitas succinctly summed up the focus of Boeing’s leadership: “Resolve the problems that we have right now. Deliver the freaking planes. Get our act together.”

At an investor conference in late March, Boeing Chief Financial Officer Brian West laid out the plan to go “from what was a crisis to a turnaround to recovery.”

As West explained, for the next two years it means slogging through the grindingly slow work of fixing past mistakes — moving out and delivering those 350 MAXs and Dreamliners in inventory — while at the same time gearing up toward previous production levels at the assembly plants in Renton, Everett and North Charleston, S.C.

That challenge is made difficult by parts shortages. To minimize that disruption, which also afflicts Airbus, West said Boeing is injecting money into supporting suppliers and buying more inventory to create buffers in parts supply.

Still, repeated delays have frustrated airlines and lessors desperate for stability and predictability.

Udvar-Hazy’s Air Lease Corp. took delivery of a 787 recently after nearly an 18-month hiatus as Boeing developed a fix for quality defects. The lessor is scheduled to take seven or eight more this year but, Udvar-Hazy said, “It’s too early to be able to predict how many they’ll actually deliver.”

Boeing’s delivery targets also depend crucially on obtaining certification from the Federal Aviation Administration for the final two MAX models, the smallest MAX 7 and the largest MAX 10, as well as the giant 777X.

But with FAA oversight much more rigorous after the two deadly MAX crashes, that’s been a glacial process.

“The level of regulatory scrutiny on both sides of the Atlantic is far greater than it was before,” said Udvar-Hazy.

“The MAX 10 has slipped multiple times and who knows when that’s going to get certified, not only by the FAA, but also you’ve got to deal with the European regulator and the Chinese,” he added.

About 30 of the MAXs stored in inventory are MAX 7s and MAX 10s awaiting certification. The MAX 7 is projected to be certified late this year and the MAX 10 not until next year.

And as Udvar-Hazy suggests, Boeing’s access to China’s huge jetliner market is uncertain.

As relations between China and the U.S. have deteriorated, the Chinese government has kept the door closed on Boeing even as it announced late last year an order for 140 Airbus jets.

The inventory of stored MAXs includes 138 jets built for Chinese airlines.

Many of those are lined up at Moses Lake in Central Washington, and Boeing needs a political breakthrough in U.S.-China relations for approval to fix and deliver them.

Lost parity with Airbus

Boeing has a lot of ground to make up to claw its way back to the market share parity it enjoyed with rival Airbus before the MAX crashes.

Last year, Airbus delivered 661 commercial airplanes to Boeing’s 480. And the Airbus backlog of unfilled orders stands at more than 7,000 jets against about 4,500 for Boeing.

Udvar-Hazy said both airlines and lessors want “stability and a relative equilibrium” between Airbus and Boeing but don’t expect to see it for years.

He estimates that Airbus now holds “probably north of 60%” of the single-aisle market in which its A320neo and A321neo compete head-to-head with Boeing’s 737 MAX variants.

Boeing has set a goal of increasing MAX production in Renton from about 31 jets a month now to 50 a month by 2026. Meanwhile, Airbus is racing toward monthly production of 75 competing A320s and A321s by 2026.

That means Airbus in the next few years will crank out between 200 and 300 more A320s/A321s than the Boeing output of MAXs.

And that’s not counting the smaller single-aisle Airbus A220 jet, which has no Boeing competition. Udvar-Hazy expects that will add an additional 120 to 150 jets per year advantage to Airbus.

Meanwhile, in the larger widebody jet sector that Boeing has long dominated, production of the hot-selling 787 remains low and FAA certification of the large 777X is delayed so that it won’t enter service until 2025.

That’s given Airbus an opening to sell more of its bigger jets. Boeing’s rival is currently building about nine A350 and A330neo widebody jets per month and aims for 13 per month by 2025.

That will come close to matching Boeing’s planned 2026 production of Dreamliners in North Charleston and 767s in Everett.

Boeing maintaining its leadership in the widebody jet segment will then rest upon the as-yet-uncertain success of the 777X.

And yet, even where the market imbalance in Airbus’ favor is most acute — the runaway sales success of its largest and longest-range single-aisle model, the A321neo, which has a massive backlog of about 3,700 orders — Boeing has some prospect of progress.

Airlines are buying the Airbus plane to fly trans-Atlantic and similar routes just beyond the range of Boeing’s largest MAX model, the MAX 10.

But provided there are no further certification delays, the MAX 10 should still sell well.

Alaska’s Pieper believes it will be attractive to airlines flying slightly shorter routes such as transcontinental U.S., where the MAX 10 could have better operating economics.

Even before its certification, United and Delta have already placed MAX 10 orders. Alaska favors this version of the MAX for its extra seating capacity.

“When that airplane is available, it would not surprise me if nearly all of the MAXs we take going forward are MAX 10s,” said Pieper. “That’s the airplane that makes the most sense for Alaska.”

A new vision for the future?

Ray Goforth, executive director of Boeing’s white-collar union, the Society of Professional Engineering Employees in Aerospace, said the company leadership’s near-term, nose-to-the-grindstone recovery strategy is solid, necessary work that will provide a good living for the local workforce.

Still, he added, it’s not enough.

“Our members would like to see a bolder vision,” he said.

“People who’ve been around through a design cycle or two … sense that the company is just settling into second place,” Goforth added. “There’s a fair amount of disappointment in the direction that the company is going.”

Boeing’s blue-collar workers, too, are looking for “vision and leadership, someone who can inspire the workforce,” said Jon Holden, District 751 president at the International Association of Machinists.

This discontent with the lack of vision arises from CEO Calhoun’s declaration to investors in November that Boeing won’t launch another all-new airplane until late this decade at the earliest, with entry into service no sooner than the mid-2030s.

That’s a high-stakes decision, with the future of the 60,000-strong local labor force resting on when and where Boeing will build its next new jet.

Holden believes Boeing should move soon to launch a new jet roughly the size and range of the old 757 with modern technology that would kill the A321neo — and it should be built in Everett.

“We have the space, the capacity, the people. It’s critical for Boeing to do that,” said Holden. “I want to ensure Boeing has the right airplane to sell. We’ll build it.”

Respected aviation analyst Richard Aboulafia of AeroDynamic Advisory sees the announcement that there won’t be a new Boeing airplane anytime soon as management abandoning the future.

“Calhoun’s decision not to launch a new jet is a way of telling customers they should go get in line for an A321neo,” he said. “It’s a wonderful gift to the competition.”

Others in the industry are less certain that launching a new jet soon would work.

Pieper of Alaska Airlines said new fuel-efficiency technology won’t be available before the mid-2030s.

“There’s a time and a place to make that bet. And I think the Boeing team is being prudent on it,” said Pieper. “As a customer, I don’t see a tangible and sufficient economic improvement” to warrant launching an airplane soon.

Looming large for the Boeing board, which would have to pull the trigger on a new airplane, are the sizable investment needed and the impact on shareholders.

At a local suppliers conference in February, Morgan Stanley financial analyst Kristine Liwag argued that, with Boeing heavily in debt, it needs to generate cash by pumping out MAXs and 787s and not spend billions of dollars on a project that would cannibalize sales of the MAX 10.

“You’re going to take a company that’s distressed and put it in even more distress,” she said.

Liwag pointed to the financial risk as illustrated by the latest two new Boeing airplanes to enter service.

Two decades after the 787 was launched, Boeing still has not recouped its investment. And the grounding of the 737 MAX cost Boeing $20 billion more on top of that jet’s development costs.

In any case, Liwag said, asking major suppliers to invest in a new Boeing airplane anytime soon isn’t realistic.

“To encourage a supply chain that’s already struggling with labor constraints, with raw material costs … and really fighting tooth-and-nail to be profitable … to invest for a new airplane program,” she said, “it’s a little too much to ask.”

Udvar-Hazy, considered an expert on the market and the time to make a move, said there’s no easy answer.

He agrees that Boeing not doing a new plane will hand market share to Airbus.

But like Pieper, he doesn’t see new technology that would make it economically viable. And he thinks the newly intense regulatory scrutiny will inevitably extend development of a new jet and make it even more expensive.

“Developing an all-new airplane is going to consume a lot of capital and it’s going to take longer,” Udvar-Hazy said.

“Those are tough decisions the Boeing board has to consider,” he added. “They’re committed to reduce the debt load. … So that kind of conflicts with spending $15 to $20 billion on a new program.”

Aboulafia concedes the risks but counters that doing nothing new makes sense “only if you are exiting the jetliner business in 20 years.”

Boeing CFO West denies that’s the intention. He insisted that management, despite its intense near-term focus on production, is also preparing for the future.

West pointed to the hiring of thousands of new engineers. He also said Boeing will increase spending on research and development.

“We can shape the future of aerospace just the way we always have done,” he said.

But if R&D spending is a gauge of commitment to the future, Boeing has some catching up to do there too.

Financial filings show that last year Boeing Commercial Airplanes spent $1.5 billion on research and development. Airbus spent $2.8 billion.