Boeing is F%$#ed

Richard Aboulafia has an essay on Boeing's chances to continue to manufacture civil airliners, and his characterization is very grim.

He calls the upcoming year, "Crucial," for Boeing, but what he describes is a course of action that the embattled aviation conglomerate has neither the will nor the technical resources to execute.

Boeing has become McDonnell, a company run by financial types into the ground, before McDonnell took over Boeing with Boeing's money in 1997:

Perhaps the biggest question in the aviation industry today is whether Boeing will create a new jet, specifically a midmarket one. The market clearly wants a new product in this class, and the company clearly needs one to compete against Airbus. But an examination of both the company and the market indicates that time is of the essence.

First, the market. The middle of the market—200-250-seat jets with 4,000-5,000-nm range—is easily the healthiest part of the industry in terms of orders. The orderbook for the Airbus A321neo—4,079 jets—is now the same size as Boeing’s entire MAX orderbook (686 delivered plus 3,405 on backlog, after ASC606 accounting adjustments). Notably, Airbus received 667 A321neo orders in 2020-21, when orders otherwise collapsed, and more than 1,000 in the last three years. While Boeing’s MAX 10 had a few good orders in 2021, the A321neo appears to be ahead of Boeing’s largest single-aisle jet by at least seven to one.

………

Second, there is Boeing’s ability to create a new jet and the broader context of workforce trends. Boeing last launched an all-new jet, the 787, in 2004. This 18-year gap is a record in Boeing’s history. Boeing Commercial Airplanes’ (BCA) independent R&D funding fell 30% in 2020 from 2019, and it fell 21% in 2021 from 2020 (see chart). Boeing says this key metric will start to grow again this year.

But if they spend more on R&D, then the return on investment drops, which means that bonuses and stock options for senior management drops, so management will not engage in a meaningful increase in R&D.

While engineering headcount did not fall precisely in line with these cuts, it has fallen markedly. Between early 2020 and mid-2021, BCA lost roughly 18% of its engineering and technical workforce, according to Bloomberg, following serious cuts in the previous decade. Here again, Boeing says it is starting to hire engineers; this is another measure to watch in 2022.

When, or if, Boeing does launch a new jet, it will be difficult to restore its engineering staff, thanks to inflationary salary trends. A very strong tech sector is paying very high salaries. SpaceX and other new space ventures are hiring aggressively, as are many well-funded advanced air mobility startups.

Boeing has been eating its seed corn for years, cutting its engineering capabilities, its manufacturing capabilities, etc.

As I have said before, they can no longer build aircraft.

The good news for Boeing is that the very same airlines and lessors that are eagerly ordering A321neos—and other financiers—would cheer a new Boeing midmarket jet and provide hundreds of up-front orders. Boeing also has a history of arriving late to a segment with a winning jet, as with the 777 (after the MD-11 and A330/340) and 787 (after the A330-200). With the right jet, Boeing could even recover its lost position as the world’s biggest jetliner company.

Mitigating against a new Boeing airliner is the company’s difficult financial state: It has $16.2 billion in cash but $58.1 billion in debt. There are few doubts about Boeing’s ability to access additional cash through debt or equity, though. And in the broader context, starting a new program with $500 million per year, say, in incremental spending would not make a serious difference to the company’s financial position.

Only, regulatory officials now know that Boeing lied to them with the 737MAX, that the 787 is still coming off the line needing extensive rework, and there are not many people at the company who could execute the development of a new aircraft. 

They are screwed.