With increasing evidence that the Boeing 737 has reached the end of its life, even with upgrades, but Boeing is slow-walking the development of a successor, because investing in research and development doesn't juice the stock price, and the management is all about financial engineering, not aeronautical engineering: (Paid Subscription Required)
Signs of life are returning to the commercial aerospace sector: Airlines are placing orders, profits are back, and aircraft builders and suppliers are once again arguing about how quickly production rates can be ramped up. But hanging over these positive indicators is a cloud of uncertainty about the industry’s long-term future.
The outlook for when the next generation of commercial aircraft and engines will arrive—and what they will look like—is even less clear today than before the COVID-19 crisis. Boeing has been talking for years about a potential new aircraft program roughly in the 757 niche and continues to study the business case. Airbus is holding derivatives for its A320 and A220 families in its back pocket—even as it eyes a big leap to hydrogen-powered aircraft. GE Aviation and Safran have launched the Revolutionary Innovation for Sustainable Engines (RISE) technology development program. But at this point, figuring out how such programs will evolve requires a reading of the tea leaves.
Boeing’s first profitable quarter in almost two years may have been a pleasant surprise for Wall Street, but between the lines the numbers hint at a further slowdown for any all-new aircraft and a near-term doubling down on derivatives and deliveries. Airbus, which already has a large lead over its U.S. rival in the narrowbody market, has no incentive to go first. And some industry veterans are interpreting the RISE project as GE/Safran playing catch-up on much-needed technologies.
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“My view is we are fully funded on the important [R&D] efforts that will support Boeing Commercial Airplanes (BCA) broadly,” he says. “I want to separate that from development funding, which is the ongoing certification work associated with the 737-10 and 777X, and I hope, and in the relatively near term, a freighter version of that airplane.
“So we are going to be very busy and have been very busy on the development front and spending a fair amount of money on it,” he adds. “I don’t expect that number to go up significantly at any point in time in the relatively near term, not because we’re not going to take on new stuff—just because.”
But while money continues to be spent on current and near-horizon efforts, there is no disguising the general decrease in Boeing’s overall R&D outlay. In 2020, it was around $2.5 billion, down about 20% from 2019. The downward trend is continuing in 2021, with the company spending only $996 million net on R&D in the first six months of the year, of which a mere $524 million was allotted to BCA.
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But the question remains: Can Boeing really afford not to launch a new program when Airbus continues to grow its single-aisle production at the suggested pace? That could take Airbus far beyond 60% market share in the segment over the next few years and make Boeing’s position untenable. Combining the A220 and A320neo-family plans, Airbus could produce close to 90 single-aisle aircraft per month by mid-decade, provided it gets buy-in from the supply chain. “Boeing does need to build a new aircraft, a 737 or 757 replacement, but it is becoming increasingly clear that they cannot [afford] that,” says a senior industry source.
Boeing cannot afford that? But the can flush billions down the toilet with stock buybacks.
Their priorities are f%$#ed up and sh%$.
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