Boeing on edge as a reeling commercial jet industry limps into 2021

Boeing faces 2021 in bad shape, its reputation tarnished and its commercial jet business shrunken – yet with a glimmer of hope for a turnaround after its bleakest year in many decades.

At this pivot point, the commercial airplane workforce in the Pacific Northwest is on edge. Ray Goforth, executive director of the engineering union, says employees feel “a sense of frustration and precariousness.”

Laid low first by the 737 Max 8 crashes and then by the dramatic pandemic downturn, the U.S. commercial jet champion has this year been piling up debt and bleeding cash. It had to sharply reduce production and slashed about 13,000 jobs in the state.

In the single-aisle jet market – which five years ago was split evenly with Airbus but has steadily swung toward the European rival – the Max 8 crisis has floored Boeing and allowed its rival to grab about 60% of that high-volume business.

As for the bigger, most profitable jets, final assembly of Boeing’s most popular widebody plane, the 787, will be gone from Everett by March, that work consolidated in South Carolina.

Talk of Boeing leaving the Pacific Northwest is “too simplistic and exaggerated,” said Goforth, but he thinks it should be a priority for company leaders “to reassure people in the Puget Sound region that this is a place to make a career with Boeing.”

Boeing declined to make any executive available for a year-end interview.

Aviation experts on a panel convened by the Machinists union this month broadly agreed that Boeing can only hunker down for the next couple of years and roll out the limited number of planes the downsized market can take.

With Washington losing the 787 and the 777X production rate very low, it’s likely that Boeing will cut local jobs further, warned Ron Epstein, aerospace industry analyst with Bank of America.

“The bad news is, it’s not a rich environment for work for a few years,” Epstein said.

And the $1 billion composite wing facility Boeing built in Everett for the 777X “will basically spend a couple of years idle,” said Richard Aboulafia, industry analyst with the Teal Group.

Looking further ahead, the panel concluded that Boeing can recover its former glory only if it launches a new airplane around 2023.

With Boeing’s debt swollen and its cash draining away, however, investment in a new airplane seems a long way off. Chief executive Dave Calhoun in January shelved the New Mid-market Airplane, the only new jet project Boeing had going.

Yet former Airbus executive John Leahy – the now-retired super-salesman who lifted Airbus from nowhere to strategic parity with the U.S. giant – said in an interview that to protect its competitive position, Boeing must plan now for an all-new jet.

“They don’t have to talk about it,” Leahy said. “They have to be working on it.”

A slow rebuilding ahead

New hope for Boeing arrived late in 2020, when U.S. regulators after 20 months finally ungrounded the 737 Max 8.

The aviation authorities in Europe and Canada have said they will follow in January. And the arrival of coronavirus vaccines at least offers a chance that air travel will rise above the rock-bottom level that devastated demand for airplanes this year.

Boeing’s first priority in 2021 will be clearing its inventory of hundreds of parked and undelivered Max 8s, while smoothly ramping up production inside the Renton factory.

Ryanair and Alaska Airlines, each taking advantage of Boeing discounts to be ready to grow when the pandemic recedes, were the first airlines to place new orders for the Max 8.

“For now, it’s all hands on deck to get the Max out the door,” said Leahy. “The cash it brings in is important … They cannot afford to stumble on the Max.”

He added that he’d have “no qualms about flying on a Max or taking my wife and grandchildren on one.”

Even in the pandemic, some airlines will want the Max 8 for its fuel-efficiency. And when long-haul flying resumes, larger carriers are expected to want the 787 Dreamliner because of its relatively small size for a widebody jet.

Scott Hamilton, industry analyst with Leeham.net, said those are the only two jets in Boeing’s lineup likely to have healthy sales in the near term. The 747 and 767 are no longer offered as passenger planes, and the 777X is too large to sell with international passenger flights almost empty.

“The future of Boeing right now revolves around the Max and then the 787,” he said.

Unfortunately, Boeing in the summer discovered serious quality control problems in its 787 manufacturing processes that delayed deliveries for intensive inspections, so that it hasn’t been able to meet even the severely depressed demand for that airplane.

November saw zero 787 deliveries, and a buildup of the jets not yet ready for delivery may take most of next year to clear.

Boeing projected in October that by the end of next year it will employ 31,000 fewer people companywide than at the beginning of this year.

Airbus has been hit hard by the pandemic too. But with no parallel to the Max 8 crisis to contend with, it’s faring better than Boeing.

This year, the European planemaker cut about 15,000 jobs worldwide, mostly through attrition and employee buyouts. In the U.S. and Canada, it cut 550 jobs out of 5,400.

U.S. job losses were minimized by opening a second A220 assembly line in Mobile, Alabama.

Though Boeing’s 737 Max 8 backlog has shrunk by more than 1,000 aircraft this year due to cancellations or removals because customers no longer had the money, Airbus’s backlog for the rival A320neo family has largely held.

In an interview, Jeff Knittel, chief executive of Airbus Americas, said the European manufacturer has had deferrals in the downturn but “not a ton of cancellations.”

At the end of November, the Airbus A320neo order backlog stood at 5,904 jets while Boeing’s Max 8 backlog was just 3,290 jets.

Boeing has said it’s aiming to ramp up Max 8 production to 31 jets per month by early 2022. Meanwhile, Airbus has been producing A320neos at a rate of 40 per month – down from 60 per month pre-COVID – and has asked its suppliers to be ready next year to raise that to 47 jets per month if demand rebounds.

“This industry will survive,” said Knittel. “It’ll be a smaller industry when it comes out of this, but it will grow again.”

First, a brutal winter

For now, the ongoing destruction in the airline world has left most of Boeing’s customers reluctant to take new aircraft.

This month Alexandre de Juniac, director general of the International Air Transport Association (IATA) called the impact of the coronavirus pandemic on air travel “the greatest deconnecting of the world since the Second World War.”

“Borders are effectively closed, freedom of movement has been severely restricted, and the impact on aviation has been catastrophic,” de Juniac said at a CAPA Center for Aviation conference.

At the same conference – which of course was virtual because no one could travel – Angus Clarke, chief commercial officer at Air France, conveyed the blow COVID-19 has delivered to long-haul international flying for airlines such as his.

“North America is always hugely profitable for Air France, and it’s gone down to next to nothing. And Asia has gone negative,” Clarke said. “There’s no heartbeat.”

Closer to home, American Airlines has accelerated the retirement of all of its Boeing 767s and 757s, its Airbus A330s and its Embraer E190s.

American started 2020 with 13,800 pilots and was hiring 100 new pilots per month. By early December, almost 1,000 had taken early retirement, 1,000 more were working half schedules or less, an additional 6,400 had taken short term leaves of absence, and more than 1,200 had been furloughed. (This past week, American announced it would recall those furloughed as a result of the expected extension of the Payroll Support Program.)

IATA projects airlines globally will lose $118 billion this year and a further $38 billion in 2021.

This catastrophe in the aviation industry has also hit Boeing’s suppliers.

Kevin Michaels of consultancy Aerodynamic Advisory – another of the experts on the International Association of Machinists (IAM) “Future of Boeing” panel – said up to 20% of the small suppliers to the industry “could disappear, consolidate or fail,” damaging Boeing’s supply chain.

Boeing had already “burned bridges with many of its suppliers” before the current crisis, Michaels said, by squeezing them for years with demands for unilateral price concessions and insisting on stretching out payments for goods delivered.

The suppliers to Boeing’s 737 Max 8 program are particularly hard hit. Boeing in 2018 had asked all of them to invest heavily in equipment to get ready for a big production ramp-up to about 60 aircraft per month.

“Then the Max shut down. And now COVID,” said Michaels.

For the airlines, the suppliers and Boeing, he said, “this winter will be absolutely brutal.”

Boeing’s new airplane decision

Over the next couple of years, as Boeing struggles to survive the pandemic, it will have to contend with the damage to its reputation from the two Max 8 crashes in 2018 and 2019 that killed 346 people.

Company leaders have never fully acknowledged the flaws in the original design. The final report on the Ethiopian crash in March 2019 is not yet complete. Multiple civil lawsuits by families of the victims remain open. And a Department of Justice criminal investigation continues.

Meanwhile, it must also find a way to hold onto both its manufacturing capacity and its talent.

Michaels said a decision to build its next new jet here would help Boeing retain critical airplane design talent.

“It’s maintaining your engineering corps,” said Michaels. “After 777X, what will Boeing’s engineers work on?”

Goforth, who leads the Society of Professional Engineering Employees in Aerospace (SPEEA), said that to meet the dire challenges ahead, Boeing’s leaders “need a workforce that is engaged and excited; they need employees to feel they have a stake and a collective future.”

He said that to mitigate the blow to morale when Boeing announced the loss of the 787 work, its leadership should have offered a commitment then to build its next new jet here.

But Wall Street’s Epstein said management remains too focused on Boeing’s financial performance to consider such a gesture.

“Sadly, no,” said Epstein. “It’s simply dollars and cents.”

Still, if not to ease the worries of employees then only to secure its future, Boeing must eventually make a move.

The problem it confronts is what Leahy calls a “total mismatch” in the single-aisle jet market, where Boeing has just one truly competitive plane, the 737 Max 8, which holds its own against the A320neo in the 150-seat segment.

At the smaller end of that market, Airbus has the new A220 jet it acquired for free from struggling planemaker Bombardier. After Boeing’s failed attempt to block U.S. sales of the Canadian jet, Airbus is now building the A220 in Mobile, and Boeing has no competitive product.

Likewise, at the large end of around 200 seats, the Max 9 and Max 10 lack the range and capacity to compete effectively with the Airbus A321neo, which has racked up nearly 3,500 orders.

Leahy, Hamilton, Epstein, Michaels and Aboulafia all envisage the same solution for Boeing: A new plane the size of the 757 that the company discontinued in 2005, seating 220 to 260 passengers and made from new advanced materials with the latest aerodynamic technology and scaled-up versions of the latest jet engines.

Though Boeing doesn’t have the cash to launch it now, Epstein said doing so in 2023 could be perfect timing, riding on a tide of recovery after the pandemic, just “when the market is hot again.”

Jon Holden, IAM district 751 president, said that with the giant Everett plant emptying out of work, the rationale for putting a new plane there is so obvious Boeing hardly need hesitate to commit to building it here.

“We have the capacity now and we need to fill it,” he said. “We should mirror what we’ve accomplished on the 737 in Renton, one of the most efficient manufacturing programs in history. I would look at repeating that in Everett.”

Holden said if Boeing made the commitment, the workforce and the broader community would marshal resources to get the company through this crisis.

“The cities, the counties, the state, the higher education colleges, all the unions, all the workers – we’d be instantly looking for ways to make Boeing successful,” he said.