The world’s airlines still need Boeing
Revenues at Boeing Co., invariably described these days as a “troubled company,” jumped by almost 17 per cent last year, to $77.8 billion (U.S.).
And Boeing’s defence and space division has an immense $59-billion order backlog.
That includes the order Canada placed in November for up to 16 Boeing P-8A Poseidon “multi-mission” planes. The Poseidon is among the defence sector’s leading aircraft for warfare, reconnaissance and disaster relief.
Early this month, American Airlines expressed its continued confidence in Boeing by placing orders for 85 of the company’s 737 Max 10 jetliners.
More surprising, perhaps, was Ethiopian Airlines’ order the following day for eight Boeing 777-9 wide-body jets in a deal that could see Ethiopian buy an additional dozen 777s.
On Mar. 10, 2019, a 737 Max 8 operated by Ethiopian crashed soon after takeoff, killing all aboard. The tragedy occurred just months after a Max 8 flown by Indonesia’s Lion Air crashed with all lives lost.
A total of 346 fatalities from the two crashes were caused by a faulty Boeing flight control system.
More recently, on Jan. 5, an unused exit door on a 737 Max 9 operated by Alaska Airlines detached from the fuselage a few minutes after takeoff.
The plane was able to land safely and there were no major injuries.
The improperly installed door has triggered ongoing investigations of suspected Boeing production deficiencies by the U.S. Federal Aviation Administration (FAA), the U.S. Justice Department and other agencies.
But Ethiopian and the rest of the world’s major airlines still need Boeing planes.
Case in point: The 777 is the industry’s largest twin-engine jet. Boeing has orders for hundreds of the wide-body long-range planes.
Boeing has orders for thousands of its upgraded narrow-body 737 Max airplanes.
And Boeing’s 787 Dreamliner, arguably the most technologically advanced commercial airliner in the skies, is essential in serving intercontinental routes.
Dreamliners are priced at about $300 million a copy. Air Canada and WestJet each have several of them.
So, Boeing’s big problem isn’t, as commonly said, that it has lost the confidence of airlines and regulators.
Boeing’s big problem is that it cannot deliver flawless airplanes fast enough to satisfy demand from the world’s airlines.
Global airlines are in a race to cater to a boom in international air travel.
And they’re also counting on Boeing’s latest planes to reduce their operating costs per passenger, notably fuel.
Many airlines have been forced to delay planned expansions because of Boeing’s inability to fill all its orders for state-of-the art planes.
Where is Boeing’s duopoly rival Airbus to take up the slack?
Airbus CEO Guillaume Faury has said he won’t ramp up production and risk the same manufacturing breakdowns that have hobbled Boeing.
Boeing’s troubles can be traced to its mid-2010s accelerated production, which put undue pressure on its engineers and assembly workers.
Airbus doesn’t have a counterpart to the Dreamliner, having bet instead on its ill-fated A380 superjumbo, which was discontinued in 2021.
And it won’t be until the mid-2030s that Airbus has a replacement for its flagship A320, Airbus’ answer to the 737 and now in its fourth decade of service.
For all the highly publicized problems with the 737 Max, it is a fuelefficient leader in the narrow-body segment that accounts for about three-quarters of sales to airlines.
Boeing can expand its current estimated 40 per cent share of that market once it restores the manufacturing excellence for which it was renowned until a few years ago.
In the aftermath of the Alaska Airlines incident, Boeing has paused a worrisome plan to boost production further. It is overhauling its Renton, Wash. 737 plant. And Boeing can implement next-generation assembly methods from scratch at its new narrow-body plant north of Seattle.
And Boeing has been read the riot act.
Michael Whitaker, head of the FAA, testified to Congress last month that Boeing’s current production system “is not delivering safe aircraft.”
That was an extraordinary condemnation coming from an FAA whose mandate includes promoting the civilian aviation industry, not raising doubts about it.
And Tim Clark, CEO of Emirates Airline, one of Boeing’s biggest customers, said earlier this month that Boeing must fix its production weaknesses or “your company will go out of existence.”
Yet Clark has also said Boeing is “salvageable” with “the right people doing the right things.”
At least for investors, it’s getting a bit late to bet against Boeing, which has lost fully half of its shareholder value in the past five years.
That brought its market cap down to a current $117 billion to Airbus’ $135 billion.
But Boeing is the bigger company by revenues, and its revenues have grown twice as fast as Airbus’ in the past four years.
So, what will Boeing’s market cap look like when Boeing has recovered?
And it will recover. Unrelenting pressure from Boeing’s regulators and airline customers will see to that.