The top brass at Boeing hasn’t had much to crow about over the past two years as company executives served investors with one grim quarterly update after another.
Their tone could turn slightly more upbeat this week, when the planemaker holds its first earnings call of 2021. But it certainly won’t be giddy.
Boeing — one of the Charleston area’s biggest employers and one of South Carolina’s marquee manufacturing businesses — has been on a punishing journey since March 2019, when aviation regulators around the world grounded the 737 Max after a pair of crashes claimed the lives of 346 passengers and crew members.
Another unexpected gut punch landed about a year later, when the fast-moving COVID-19 pandemic brought global air travel — and demand for new commercial aircraft — to a grinding halt.
But heading into 2021, a case can be made that some of the storm clouds that have buffeted the once-indomitable Boeing brand are starting to clear.
The company’s partial reversal of fortune is tied mostly to the revival of the 737 Max, which was cleared to resume commercial flights in the U.S. in November after Boeing made numerous fixes to an automated flight control system that brought the planes down. Canada and much of Europe announced last week they’re following suit.
Boeing then removed a financial and legal uncertainty from its radar screen by agreeing this month to pay $2.5 billion to settle a Department of Justice criminal investigation and admit that some employees deliberately misled federal regulators during the 737 safety probe.
Also, the rollout of multiple COVID-19 vaccines is certain to restore at least some confidence in the global air-travel system, even if a full-blown recovery could be years away.
All the moving parts caught the eye of at least one Boeing bear. Berenberg analyst Andrew Gollan, who estimates the “deeply wounded” aerospace giant has amassed $60 billion in debt from the Max crisis and the COVID-19 downturn, upgraded the stock last week to a hold rating from sell. He said in a note to investors that the resumption of 737 deliveries “marks a turning point” in what promises to be a long financial turnaround.
Richard Aboulafia, an aviation analyst with Fairfax, Va.-based Teal Group, said he wouldn’t be surprised if Boeing CEO Dave Calhoun and finance chief Greg Smith sound a bit more chipper on their earnings call Wednesday morning, assuming they feel “that the end is in sight — in a good way.”
But they’ll be kidding themselves if they don’t temper the recent run of “short- and medium-term” upswings by discussing Boeing‘s unresolved long-term challenges, he added.
“I think they’re not addressing the serious issues they have in terms of market-share and sales and product development,” Aboulafia said last week.
Exhibit A is the long-awaited “middle-of-the-market” airplane that Calhoun shelved last year under a plan to reboot the project from scratch.
“It’s just become overwhelmingly important,” Aboulafia said.
The new single-aisle jet was a hot topic during a webinar that the Seattle chapter of the International Association of Machinists and Aerospace Workers sponsored last month. Aboulafia was among the participants.
He and other aviation experts have maintained the future jet, if it’s approved, would fill a gap in the market and give Boeing a direct competitor to the Airbus A321neo. At the same time, it would offer an alternative for airlines that worry whether passengers will want to fly on the 737 Max. An estimated 1,000 orders for the jet have been scratched since the grounding order took effect 21 months ago.
“It’s … that the Max is just vulnerable to people who say, ‘Why go with Boeing? They’re not offering anything new. Might as well go with Airbus,'” Aboulafia said.
Boeing hasn’t provided much in the way of details, but outsiders predict its next plane will be smaller than the original 270-passenger concept, with as many as 70 fewer cabin seats.
As it turns out, the company’s 787 campus in North Charleston is a factor in the downsized design. The concern is that a new jet in the 270-passenger category would cannibalize the Dreamliner program, which remains a critical revenue source for Boeing.
“That would come in direct competition with the 787,” AIR analyst Michel Merluzeau said during a late 2020 webcast that was reported by FlightGlobal.com. “The 787 must be protected. Otherwise, financially, we are heading for trouble.”
It’s no secret that demand for the Dreamliner and other jets built for marathon international flights has plummeted during the COVID-19 pandemic. Last year, 787 deliveries were off by about 66 percent from 2019 and no new orders have been booked since March.
In response to the new reality, Boeing is shutting a Puget Sound plant and consolidating the Dreamliner program in South Carolina. It’s also shedding thousands of jobs and taking the knife to its 787 production rate by whittling output to five a month. By comparison, 14 were rolling off the assembly line every four weeks or so in 2019.
It doesn’t help Boeing‘s cause that the aftermarket is suddenly awash in a surplus of idled jets, dashing hopes of a quick sales snapback and stirring speculation about future production cuts.
All told, beyond the recent Max developments, the immediate outlook isn’t exactly optimistic, either for management or the Dreamliner program.
“It’s not that the 787 isn’t best in its class. It is best in its class,” Aboulafia said. “But in the short- and medium-term, they have a lot of planes and not much demand.”
Contact John McDermott at 843-937-5572 or follow him on Twitter at @byjohnmcdermott