Boeing Is Totally Screwed as Orders Plunge and Customers Switch to Airbus

Clive Irving

Amid a cluster of shocking emails written by Boeing staff about the grounded 737-MAX jet, one complained that the airplane had been “designed by clowns and supervised by monkeys.”

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Even that barely serves to describe the condition of what was once the world’s unchallenged leader in aviation. New figures for Boeing’s sales in 2019 show an unprecedented plunge from 893 airplanes ordered in 2018 to just 54.

In 2019 rival Airbus sold 768 airplanes.

This means that essentially Boeing has ceded world dominance to Airbus. But behind these dismal numbers is a much more serious failure: By allowing short-term financial returns to dominate its airplane program Boeing has made the wrong bet on the future, and that means that its recovery will be long in coming.

Airbus tore past Boeing in 2019 because it had the right airplane at the right time. The world’s airlines have put their money on that winning bet—the driver of Airbus profits is one airplane, the A320 single-aisle jet and its variants. For the latest version alone, with new and far more efficient engines, Airbus has a backlog of more than 3,200 orders.

The 737 MAX was Boeing’s last effort to get one more life cycle out of its greatest ever cash cow, a design that dates from the 1960s. And, at first, it looked like a good bet. More than 5,000 orders came in.

Then, with two crashes that cost the lives of 346 people, the MAX was grounded and that has been followed by a steady and toxic stream of revelations about a seriously broken engineering culture put under unrelenting pressure by cost-cutting accountants.

In another of the dismaying emails released last week an engineer working at the MAX plant wrote: “Would you put your family on a MAX simulator-trained airplane? I wouldn’t.”

This refers to a decision forced on Boeing by regulators to give all pilots headed for a MAX cockpit for the first time training in a flight simulator that equips them to handle new features in the flight controls, including the Maneuvering Characteristics Augmentation System, MCAS, a software program designed to intervene in certain flight conditions, which is implicated in the two fatal crashes and that has to be fixed before the airplane is certified as safe to fly again.

Long ago, one of Boeing’s greatest airplane designers, Joe Sutter, the father of the 747 Jumbo, told me that two decisions about a new airplane rose above all others in their critical importance: the size and the timing.

By committing to the MAX back in 2011, it now seems clear that Boeing got both wrong. The decision to prolong the old design rather than invest in a new state-of-the-art jet (which senior engineers in Seattle were recommending), was a reaction to news that Airbus was upgrading to new engines on the A320.

Boeing put new engines on the 737 believing that by doing so it had checkmated Airbus.

However, because the new engines were heavier and more powerful they altered the flight characteristics of the MAX and, to deal with that, Boeing introduced the flawed MCAS—with disastrous consequences.

Moreover, when it came to the other crucial decision, size, the 737 was unable to evolve, as the A320 has done, to deliver a jet that happened to hit a new sweet spot that airlines are demanding—for a single-aisle jet that can fly intercontinental routes of up to 4,700 miles.

This reflects a significant shift in what airline passengers want and what airlines also see as better economics and efficiency: many more direct international flights between cities of every size instead of having to fly to hubs and then change to a smaller airplane connecting to smaller cities.

Airbus met this demand by tweaking the larger model of the A320, the A321, to meet the increased range with a version named the XLR—Extra Long Range.

In December Boeing was stunned when United Airlines ordered 50 XLRs to fly these long routes—until that moment United had resisted buying any of the re-engined Airbus jets, although American Airlines had ordered 120 of them and Delta 100.

Airbus CEO Guillaume Faury admitted late last year that even he had underestimated the demand for all versions of the A321. So, with dire consequences, had the then Boeing CEO, Dennis Muilenburg, later fired for his handling of the MAX crisis.

Even more scary for Boeing are murmurings that Southwest Airlines, which for nearly 50 years has built its whole business model around the 737 as the only airplane in its fleet, is considering a move to Airbus.

The Southwest CEO, Gary Kelly, told financial analysts on an earnings call last October, “I feel we are obligated to debate the wisdom, strategically, of having a sole-source vendor and one fleet type. I don’t know that we have ever focused on it with this kind of intensity.”

Southwest has 34 737 MAX-8s, the basic MAX model, sitting grounded and had ordered 264 more to be delivered over the next few years. Now that pilots moving to the MAX require simulator training, Boeing has agreed to cut the price of every MAX going to Southwest by $1 million. Apart from the concerns of passengers over the jet’s safety, Southwest is thinking about launching into longer routes that the MAX would be unable to serve.

If Boeing’s new chief, David Calhoun, chose to launch a new airplane to match the XLR it would probably be too late. The United order indicated that the major airline chiefs believe Airbus has met exactly the right moment in the airplane replacement cycle with a design that will be good for decades to come.

Calhoun is committed not only to getting the MAX back in the air in a way that will restore passenger confidence in Boeing—given the stigma now attached to the jet, that will be tough—but also to re-establishing Boeing’s reputation for engineering integrity.

But Calhoun is not a new broom. His background is in finance, not engineering. He sat on Boeing’s board during the decade in which the MAX program was given the green light and is, therefore, implicated in all Muilenburg’s decisions, as was the whole board.

It might well seem that the Boeing crisis raises questions about the company’s standards of corporate governance.

The old Boeing culture gave priority to engineering quality and safety above all other issues; the present culture, as directed from the top, was driven by how much money went to stockholders.

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Richard Abaloufia, an industry analyst at the Teal Group, has estimated that over the last 15 years, partly by doing stock buybacks rather than investing in new airplanes, Boeing has delivered $78 billion to shareholders.

Nobody thought that was out of line because, like many other corporations, Boeing was answering to the interests of Wall Street, rather than to its own reputation and the safety of airline passengers. That may be egregious, but Boeing is far from alone in behaving in this way.

And when it comes to corporate ethics, Boeing seems still to be shameless: Muilenburg is walking away with compensation worth $80 million.

Michael Stumo, who lost his 24-year-old daughter in the second of the MAX crashes in Ethiopia, reacted to this by telling the Financial Times: “He was fired for poor performance, and he should be treated like any other production employee who gets fired for poor performance.”

The idea that, in the short term, Calhoun or any other corporate chief can turn around the culture of Boeing to reach the standard that made it once such a paragon of the industry is fanciful. That kind of culture takes a lot of re-education at every level and would require the emergence of a new generation of managers to complete.

The current culture could never have produced the world’s first wide-body jet, the 747. That project came close to bankrupting the company and tanking the economy of Seattle. But that generation of managers and engineers would rather have gone bust than cut corners on safety. Their nerves held and their integrity changed the world—and produced a line of jets that made billions of dollars.

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