Podcast: Boeing’s Latest NMA Plan—No More Aircraft

Aviation Week editors are skeptical of CEO Dave Calhoun’s new commercial airliner timeline. Read Guy Norris' story here.

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Rush transcript

Joe Anselmo:

Welcome to this week's edition of the Check 6 Podcast. I'm Joe Anselmo, Aviation Week's editorial director.

Is Boeing frittering away its future in the commercial airliner business? That question is being asked after CEO Dave Calhoun firmly quashed any notion that the company will develop an all- new model before the 2030s. Boeing hasn't launched a new clean sheet airliner since the 787, nearly 19 years ago.

Last summer, Calhoun's said the launch of a new airplane, was at least quote, "a couple of years off.”  But he appears to have moved the goalposts, and now says that Boeing will need at least a 20% gain in fuel efficiency before it moves ahead with its next model. That target is nowhere in sight.

And if Boeing takes a pause, will Airbus also sit pat? That would effectively usher in an air of stagnation in the commercial aircraft industry and open the door wider to new entrants.

Joining me are three Aviation Week editors who are closely following this story. Michael Bruno is our senior business editor. Jens Flottau is our executive editor for commercial aviation and Guy Norris is our senior propulsion editor and has followed Boeing for decades.

Michael, let's start with you. The Boeing 707 entered service in 1958 at the beginning of the jet age. The 727 followed in 1964, the 737, 1968, 747, 1970, 757, and 767, 1982-83, the 777 in 1995 and the 787 in 2011, albeit, three years late. There's a certain cadence there. What's the earliest now that the next model will come along?

Michael Bruno:

In reality, the next model from Boeing at least isn't going to come until early to mid 2030s and that's basically because with Mr. Calhoun announcing that they're certainly not going to announce the start of any new program until the second half of this decade. You're not going to get a new program until eight to 10 years later. One of the unfortunate trends this century has been that major aircraft programs are taking longer and costing more, an average about a decade to deliver it and so if you start a new aircraft in, I don't know, 2028, you look eight to 10 years later on, you're looking well into 2030s for a new aircraft.

Joe Anselmo:

Jens Flottau, the timeline Michael just laid out, that's 25 years plus between airplanes. You're not buying it, are you? You don't think that Boeing can afford to just do nothing for 25 years?

Jens Flottau:

Yeah, I just think that it is not sustainable for Boeing. Look, if you look at the backlogs, the firm order backlogs for Boeing and Airbus in the narrowbody market, Boeing's market share is currently at 38%, so it's already down a lot. It will go down further with the arrival of the long-range versions of the A321 neo, the XLR, and as the neo in general proliferates the 321 neo, so I mean one could argue it's a big market, 38% is not bad, you can survive, but that's actually not true for several reasons. One, suppliers. Suppliers will charge you more when you produce smaller volumes than your competitor. So, Boeing will be at a permanent competitive disadvantage vis a vis Airbus if that spread becomes too wide.

Secondly, incumbency is huge. It's highly important for an aircraft OEM to be the incumbent manufacturer at a given airline. And if you're looking at a market spread of two-thirds for Airbus, one third for Boeing, it'll be extremely hard for Boeing to claim that back. It'll be impossible with the current generation of aircraft, but it will also be very, very hard with the next generation. So, it's in their own interest to come up with something quick just to start off a higher market share base.

And one thing Boeing completely forgets is its customers, the airlines. The airlines are under huge pressure to come up with a more sustainable way of flying. They've set their own environmental parts for as soon as 2030. If you look over here in Europe, Air France, Lufthansa, they come up with absolute reductions in carbon dioxide emissions of like 12% for Air France-KLM, for example. They can only achieve that with more efficient aircraft that will replace the current fleets. But it seems that Boeing isn't taking that into account at all.

One thing I'd like to highlight: that 20%, My understanding of how things have traditionally played out is that half of that is engine, and if you ask around the engine manufacturers, then they're saying that they could well develop an engine based on the current technology that is about 10% better within that timeframe, until about 2030 or so. And then I just don't believe that it is not possible for Boeing to build a new air frame, new wings that are 10% better than a design that's been developed in the '60s. It's 50 years. Come on guys, you got to be being better than that.

Joe Anselmo:

Well, speaking of propulsion, Guy Norris, how far off are the engine makers from meeting the benchmarks that Calhoun has just laid out?

Guy Norris:

First of all, I think just looking at where Boeing is coming from here, I mean, yeah, I get it. Steadying the ship, getting everything back to a level where they can actually consider a new airplane is a huge undertaking for them right now. So yeah, I understand that, but it no way is sort of a legitimate reason to push off development of an all-new platform for the rest of this decade. I just can't see that being a reasonable course of action given what both my colleagues have said there. There's a massive amount of pressure from the market and from the environmental pressures alone to do something,  which frankly haven't been even market pressures, anything like that in the past decade. So I think it's a different ballgame.

So let's look at the engine makers. The trouble is that all the engine makers at the moment have been dealing with this efficiency issue where you can only get so much more out of gas turbine. So, they're now trying to squeeze this sort of the last few percentage out of the engines. This is the problem that all the engine makers have faced, particularly over the past few years as they've had to go to sort of slightly optimized new cycles.

Pratt and Whitney, of course, changed the game with its introduction of the geared fan. CFM has pursued the classic two-spool architecture and is now beginning to look at what's next to its Rise program, which targets a 20% reduction in fuel consumption. Pratt is looking to go beyond this by novel architectures like the high site hydrogen steam injection system, a 35% improvement in mission fuel burn. And of course Rolls-Royce is looking at the UltraFan, which is introducing gear technology to much bigger engines. That's a 25% improvement over the Trent 700, the Trent XWB, which of course powers the A350 is 10% better than the Trent 700.

So, you can see the way that there are these step changes. But for Dave Calhoun to say, I think, that they need a 20%, 15% change in engine efficiency before they move, I don't think that's reasonable. If you look back at history, even the introduction of the GEnx and the Trent 1000 on the 787, that wasn't the sort of magnitude leap that they needed there. Sorry, I'm getting on a bit here but okay, the GEnx, the GEnx 2B engine was theoretically a 20% improvement in fuel burn over the PW 4000 say. That was the thing which made the 747 go into this next phase. The PW 4000 was a seven to 10% improvement over the JT9D, but that is not the sort of leap which you're going to get in the next decade from engines.

You're going to talk about improving airframe technology, as Jens has mentioned, and a little bit from the engines. So you've got to look at both of those together, and if you combine them, I think that you could easily get to the stage where you could advance the state of the art and introduce a new airframe into the marketplace.

And the last thing I just want to quickly say is, we have to remember also that where this market really wants to go is this new middle size sector. We're pretty well stuck with the MAX and the neo for the rest of this decade, that's fine. But the market is calling for something a little bit larger and there is a substantial replacement market there and whatever engine is going to be used there is not going to be hybrid electric, it's not going to be hydrogen, it's going to be a gas turbine powered by sustainable aviation fuel and that's where you're going to see the market go.

Michael Bruno:

Joe, I want to jump in and just say that first of all, I think what Guy and Jens are saying is incredibly correct, and I agree with them. But there's one caveat to all of this, and the real reason -- and this isn't actually some insight that Michael Bruno or Aviation Week has on its own -- but the real reason that Dave Calhoun is making this announcement comes down to one word, and that's money, it's cash. Boeing has promised that it needs to uphold to its shareholders and to its debt holders--  and they've laid out these metrics just recently in these major investor briefings in early November and late October where they've set a marker. Wall Street's been waiting for years, they've been wanting to know forecasts from Boeing, which used to be this global industrial champion that created $10 billion of free cash flow in any given year and had a target of $20 billion. It was going to return 105% of what it was making to the shareholders and it was just a money generator.

And in order to get back to those days of being a reliable money generator, they've got to sacrifice a couple of things, one of which is they're not going to build a new aircraft because a new aircraft can take $20 -$30 billion, and as I said earlier, it can take an average of 10 years. But if you're Boeing, and you've just laid out these markers where they've said they're going to supply $1.5-$3 billion in cash this year, free cash flow, maybe $3-$5 billion next year, and then ultimately they got to get back to 10 billion in free cash flow by 2025, 2026, you're just not going to be setting aside billions for a new aircraft.

Guy Norris:

Michael, this is just to add to something that Joe observed early on in the beginning of this podcast. I remember as a young, foolish, naive journalist covering McDonnell Douglas in the '90s, I was amazed when the Wall Street Journal gave McDonnell Douglas full marks for not launching the MD-12. Their share price rocketed up and everybody seemed delighted and I was thinking, “What's going on? It's the beginning of the end,” or the end had already been coming for a long time before that, the last all-new airplane having been launched in the '60s with the DC-10 really.

But I didn't understand it, and of course you're absolutely right. It's all about Wall Street. And that was the moment where I realized that this game wasn't just about new air planes. It's a much bigger picture than that. Of course what they were doing is they were fattening the turkey for the Christmas sale where Boeing came in and the merger was completed. But anyway, that was a very good observation.

Joe Anselmo:

Guy, you preempted me. That was actually going to be my next question to you, because you and I have been around long enough to remember McDonnell Douglas and I think our younger listeners might be surprised to hear that McDonnell Douglas had a huge lead on Airbus. Airbus was a distant third in this market, and then McDonnell Douglas seemed to focus on shareholders and stopped investing in the future. By 1997 it was gone. Just gone.

Guy Norris:

Absolutely. And I think that's one of the things that are Richard Aboulafia, who's a friend of the podcast, has observed quite rightly, that if you look at the trajectory in history, that's exactly what happened. McDonnell Douglas really stopped investing in all new designs and it withered on the vine. Airbus came in, an aggressive competitor, and it was able to bite away mostly at McDonnell Douglas's market share before of course it became a duopoly.

And I don't for a minute buy the argument that this is the beginning of the end of Boeing as we know it. I don't see that myself. What I do see is this combination of, “Okay, steady the ship, look out for Wall Street, make sure they're on our side.” But thirdly, I think underneath it all, secretly, I really do think that there will be a new Boeing and that it'll be launched a lot sooner than we're getting the signal from Calhoun. I think there is a program and I think within four years we'll see something happening.

Michael Bruno:

I really, really hope so and I want to go back to a point that Jens made earlier because there's otherwise a couple of major ramifications here that I don't think people have really thought out, and they will only become apparent as we get halfway into this decade. One of which, as Jens pointed out, you're going to have a shifting of the supply base toward Airbus in big ways and small ways. Airbus will be able to set the terms strategically. They'll be able to demand priority. You're going to supply Airbus first. You're going to go for the R&D projects that Airbus wants. If you're a U.S. supplier, especially down in the tier two, tier three, you're going to start having to allocate some major money to try to get on Airbus programs. And that's going to take one of two ways, either you're going to innovate your way there, you're going to have to spend a lot of money on R&D, or you're going to do M&A, mergers and acquisitions like the Spirit AeroSystems, where you go to buy your way into Airbus programs.

But either way, you're going to have to spend money to get on those programs that you didn't. The other thing I want to just mention is that stagnation, Joe, you mentioned at the beginning, what happens when you don't have a big bright marker out there for all of industry to work toward, for new suppliers or for current suppliers to say, "Okay, we're going to supply today's programs but we're all working on that next big object." If you don't have that, that really changes people's priorities about how they're going to chase after programs now. I haven't even fathomed how this is all going to play out yet and I don't think Boeing's executives have done it as well.

Joe Anselmo:

I wanted to ask Jens that very question because you cover Airbus Jens. You just talked about this market share shift. It used to be a 50/50 market, roughly, and you're talking about Boeing is down at 38%. Is there any incentive for Airbus to do anything? I mean, what is the incentive of Boeing's not doing anything?

Jens Flottau:

That;s an important point and that's what makes this Boeing strategy so relevant for the entire market. If Boeing doesn't move, Airbus won't move. So, we'll just forget about innovation big time. What Airbus will do if Boeing doesn't move is they'll build the XLR of course, they'll probably build an A321 neo freighter. They'll probably do an A220-500 that will hurt Boeing even more specifically with 737-8. They may do what we call the A322, which will be the A321 with a new wing with a slight stretch. That'll make it even worse for Boeing. But that's all incremental, doesn't really move the needle a lot in terms of the environment. But that's what the industry as a whole needs to do and that's why this Boeing decision is so crucial beyond Boeing.

Guy Norris:

I think we should also remember, there's a couple of other aspects here. Boeing does have a pretty full product development pipeline as we speak. We mustn't forget that. It's probably easy to play it down, but the 777-8, 9 families, the 777 freighter based on that, the 787 freighter potentially, and not forgetting the rollout, whatever happens with the MAX family in the next couple of years.

So it's not as if they don't have a lot actually going on right now. We're not saying that. And also we mustn't forget that here in America, in the United States, NASA is and Boeing are looking to work together towards the subsonic flight demonstrator program, which is targeted at the sort of things that Jens was alluding to, sustainability targets, much lower carbon dioxide emissions, much better efficiency numbers and that will drive, almost certainly, Boeing and NASA together to do the subsonic flight demonstrator, which is the Transonic Truss-Braced Wing.

So, there is technology on the horizon and there are plans to use it and to develop it be it all aimed towards the 2030s, as opposed to the late 2020s. So, it's what's going to happen in this canyon, the canyon of death kind of thing that we're all worried about. What about the youngsters coming into the business now? Do they have to wait for a decade before anything happens? And the answer is no, they don't, because obviously some will be able to work on these new programs and they will be applicable to the new propulsion systems that we've already talked about earlier in the podcast.

But what we are thinking about here is something that has to keep the programs moving forward in the late 2020s and to me that has to be this new something, it's not NMA anymore, we can't call it that, but it has to be something in that sector, because to me it's the most obvious area where Boeing can move the needle forward.

And don't forget, it can be a conventional airliner, it doesn't have to be a hydrogen fueled or anything like that. It can embrace all of the things that everybody's learned on composite structures, advanced aerodynamics, new, improved, more electric systems, for example. As long as it can take new generations of engines and have room to put those new generation engines moving forward, as new ones are invented and new generations come through, that will be the key. Something that's capable of spiral development. And of course that's something that the 737 was never able to do beyond the MAX. I don't think Boeing will ever repeat that. It's going to be more like a 757, 767 architecture, and I think that would be the way to go.

Joe Anselmo:

Okay, we're just about out of time, but let me end this by putting all three of you on the spot so we can get you on the record. Guy, when do you predict Boeing is going to launch its next airplane?

Guy Norris:

I think they'll launch in 2026 with entry into service in 2032.

Joe Anselmo:

Michael Bruno?

Michael Bruno:

I don't think they're launching anything toward closer to the end of the decade, with the real entry into service in mid 2030s.

Joe Anselmo:

Jens?

Jens Flottau:

2025, entry into service, 2033.

Joe Anselmo:

Okay, so we have that. Tthat's our benchmark for your predictions. We'll see how you guys do. Jens, Guy, Michael, thanks as always for your time and especially your insights. Unfortunately, that's all the time we've got for today, but you can read Guy Norris' article about this topic on aviationweek.com by clicking on the link in the description of this episode. It's available for free to all of our listeners.

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