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The $ 15 Billion Jet Dilemma Facing Boeing CEO By Reuters

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© Reuters. FILE PHOTO: A Boeing 737 MAX aircraft lands after a test flight at Boeing Field in Seattle, Washington, US on June 29, 2020. REUTERS / Karen Ducey

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By Eric M. Johnson and Tim Hepher

SEATTLE / PARIS (Reuters) – Boeing (NYSE 🙂 Co CEO Dave Calhoun faces a multi-million dollar dilemma over how to rebuild sales at his core airliner business that has sparked internal debate and put the Future of America’s Largest Exporter, Industry Insiders Say.

Boeing is recovering from a safety scandal following the crashes of its 737 MAX plane and a collapse in air travel caused by the pandemic. Those crises have overshadowed a deeper, longer-term risk to the company’s commercial airliner business.

Boeing’s share of the single-aisle aircraft market, where it competes in a global duopoly with Airbus, has faded from 50% a decade ago to about 35% after the prolonged grounding of the 737 MAX, according to the Agency. Partners and other analysts.

Airbus’ single-aisle A321neo has garnered billions of dollars in orders in a booming market segment recently as larger MAX variants struggled to block it.

Without a perfectly timed new addition to its portfolio, analysts warn that the United States risks giving Europe a large chunk of that market, valued by aircraft manufacturers at about $ 3.5 trillion over 20 years.

But Boeing is not yet ready to establish a plan to develop a new aircraft to counter the A321neo, and two main options – go ahead now or wait until later – carry financial and strategic risks, several people briefed on the discussions said.

“I am confident that over a longer period of time, we will get back to where we need to be and I am confident in the product line,” Calhoun said in April when Boeing won new orders from MAX.

When asked about the company’s discussions and options on a possible new plane, a Boeing spokesperson said it had no immediate comment beyond Calhoun’s comments to investors.

OPTIONS

A weakened Boeing has little room for error, especially as it tackles industrial problems that hamper other aircraft.

Boeing’s first choice is to strike relatively quickly, launching a 5,000-mile single-aisle jet with 10% more fuel efficiency around 2029. That could potentially launch for orders in 2023.

“There is no better way to fix your image than to invest in the future now, pure and simple,” said Teal Group analyst Richard Aboulafia.

A new single-aisle aircraft would replace the out-of-production 757 and fill a gap between the MAX and the larger 787, confirming a turn to previous mid-market plans as reported by Reuters https: //www.reuters. com / article / planes-projects-idUSL5N2CF5PN in April of last year. The idea took a back seat early in the pandemic, before regaining attention.

It would also be an anchor for an eventual 737 family clean blade replacement.

An alternative option is to wait for the next leap in motor technology, which isn’t expected until the early 2030s. That could involve open-rotor motors with visible blades that use a mix of traditional turbines and electric propulsion.

Wary of allowing short-term product decisions to drive strategy, Boeing is also prioritizing a deeper dive into investments or business changes needed to regain the number one spot, analysts say.

TIME DILEMMA

Both approaches carry risks. If it moves too fast, Boeing may face a relatively easy counterattack.

Airbus’s preference is to do nothing and maintain a favorable status quo, European sources say. But for years https://reut.rs/3vET9jk has housed studios codenamed “A321neo-plus-plus” or “A321 Ultimate” with more seats and composite wings to repel any commercial attack.

Such an upgrade could cost Airbus between $ 2 billion and $ 3 billion, but far less than the $ 15 billion that Boeing would spend on a new aircraft.

For Boeing, a premature tit-for-tat movement runs the risk of simply replicating the vantage point it is in now.

However, if it moves too slowly, investors may have to endure a decade of dangerously low market share in the single-aisle category, the industry’s profit engine.

Those urging restraint, including soon-to-be-depart finance chief Greg Smith, have a simple argument, insiders say.

Boeing has racked up a mountain of debt and burned $ 20 billion in cash lurching from crisis to crisis.

“It’s a different world,” said a source. “How could he possibly be thinking of a new plane?”

Yet some engineers at Boeing’s Seattle trading house are crying out for a bold move to reassert their engineering dominance after the worst period in its 105-year history.

“That should be a priority for Boeing right now,” said Tom McCarty, a former veteran Boeing avionics engineer. “To once again have clear leadership in the advancement of technology.”

MOTOR CONVERSATIONS

While weighing when to act, Boeing has sought initial technical data from engine makers Rolls-Royce (OTC :), Pratt & Whitney and General Electric-Safran’s CFM International, according to industry sources.

Strong competition is not expected for a year or more, they add, a delay that illustrates Boeing’s bond. Rolls, which has the most to gain in trying to re-enter the lucrative single-aisle market, said last month that it would be ready for any new product.

China is watching Boeing’s decision from the guidelines, where state-owned manufacturer COMAC is working on a narrow body C919 in a potential challenge for the 737 and A320 families of the cash cow.

With $ 7 billion in net cash and a second-player advantage, analysts say Airbus appears to be more comfortable, although it also faces its share of industrial headaches.

A wild card in the deliberations is mounting environmental pressure, reflected in the priorities of each aircraft manufacturer.

Airbus has committed to introducing the first hydrogen-powered small commercial aircraft in 2035.

The “zero emissions” agenda reflects its CEO’s belief that disruptive technology will play a role in next-generation aircraft. But industry sources say it is no coincidence that such rhetoric also alienates Boeing from launching an interim jet.

Boeing has emphasized faster profits from sustainable aviation fuel (SAF). Any new 757-style aircraft would be capable of 100% SAF operation, people familiar with the plan said.

While backing direct fuel for technical reasons, Boeing has left itself enough room to argue that a relatively early new jet still fits the industry’s environmental goals.

Meanwhile, Airbus has kept up the pressure with proposals last week to nearly double single-aisle production in four years.

While some vendors questioned how quickly the plan could be achieved https://www.reuters.com/business/aerospace-defense/airbus-sets-higher-jet-output-targets-recovery-looms-2021-05-27 , an industry executive noted that it sent a “message that Airbus comes out of the crisis as No. 1 and intends to stay there.”

One risk is that anything that looks like a market share grab could unleash the very Boeing jet Airbus hopes to avoid.

When asked if he thought Airbus expansion plans could lead to Boeing launching a new aircraft, Airbus CEO Guillaume Faury downplayed the prospect of a new arms race in the industry.

“If they trust the MAX with the pent-up demand they see from single aisle, I don’t see why they would be in a rush to replace the MAX. If they are in a different situation, they could come to other conclusions,” Faury told Reuters.

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