Podcast: Did Boeing Turn The Corner In 2023?

As Boeing elevates a possible successor to CEO Dave Calhoun, industry guru Richard Aboulafia joins our editors to discuss the company's 2023 and its path forward. 

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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, and editor-in-chief of Aviation Week & Space Technology magazine.

Boeing dropped some big news this week. It is promoting Stephanie Pope, the leader of its highly profitable services business, to chief operating officer. The move catapults Pope to the short list of potential successors to CEO Dave Calhoun. The leaders of Boeing's three divisions, commercial, defense and space, and services will report to her, as will the company's chief engineer and the president of Boeing Global.

Meanwhile, orders for the company's airplanes are picking up, as it seeks to put the 737 MAX crisis in the rearview mirror, smooth out production problems with the 787, and get the new 777X widebody closer to certification.

So has Boeing turned the corner? Here with us to discuss this, are Aviation Week editors Guy Norris and Sean Broderick. And joining them, perhaps to throw some cold water on our thesis, is Richard Aboulafia, Managing Director at Aerodynamic Advisory and an Aviation Week regular guest columnist.

Guy, let's start with you. Let's get to the point. Has Boeing turned the corner?

Guy Norris:        

Well, until probably last month at the Dubai Airshow, the jury was still out for me. But being at that show, I just got the vibe there that maybe Boeing had got its mojo back. Part of this was down to the fact that obviously the order and delivery side of it sort of speaks for itself, certainly in terms of the orders which were coming through at the show.

But there was a sort of feeling of renewed confidence, certainly on the Boeing commercial side, which simply wasn't there at any of the big shows over the past two or three years, for obvious reasons I think.

But what really struck me was the fact that on virtually every commercial program that they had still active or in development, there was a fresh influx of orders coming in. And there was a feeling of getting back to business as usual sort of thing. It's not there yet, obviously. There's so much to do. But it was just that feeling.

Joe Anselmo:         

Sean, you cover Boeing on the regulatory front. What do you think?

Sean Broderick:     

Well, I think that when you talk about something as large as Boeing turning the corner, it's going to take a while, even when that corner is being turned. And so while I think they have probably turned the corner in terms of selling new airplanes, it remains to be seen whether they've turned the corner in terms of producing them in anywhere close to the timeframes that they communicate, anywhere close to the budgets that they lay out, and they can get a new airplane certified or even a derivative airplane certified in anything close to the timeframes that they lay out at the beginning of a program.

I mean, the last three new programs, the 787, and the MAX, both were grounded. The 777-9 was having issues before the certification reforms in 2020. Now, the ones that have not been certified, the derivatives, and of course the entire 777-9, the baseline aircraft for that family, they're being certified under new and very emerging certification requirements that both Boeing and the FAA, and others, such as Gulfstream, are learning.

Until we know what those new parameters are and what the expectations are on the applicant side, so on Boeing's side, it's going to be very hard to say with any certainty that yes, they're going to be able to do what they say they're going to do. Because before they knew what they needed to do, and now they know less what they need to do. And that's really before we get into the supply chain stuff that is none of the 78s and none of the 73s they've produced, the MAXs, have been to their design specs. Not a single one.

So hard to say they've turned the corner until some of those supply chain and certification questions are answerable with more certainty.

Joe Anselmo:            

Richard, you put out a monthly newsletter that's always engaging. You recently lamented Boeing's dissolving of its strategy department. You called CEO Dave Calhoun, "A perpetrator of a dysfunctional culture." You noted the company's share price hasn't budged in three years, its defense and space business is bleeding cash and it hasn't launched a new clean sheet commercial airplane since 2004. So I'm guessing I know what your answer to the question is going to be. Why don't you take the stage?

Richard Aboulafia:    

Well, yeah. First of all, let's back up a bit and talk about what we talk about when we discuss whether Boeing is back. There's two forms of back, I think, broadly. One is, is this a functioning enterprise that can deliver cash to its shareholders because its two main cash generating programs are back getting orders and building according to the rate that they've established for themselves? Yeah, I guess. They're heading back. The orders are coming in. There's an ever so slow ramp with all of the production issues and supplier relations issues that Sean talked about. On the defense side, hell no. They'll just simply be hemorrhaging cash for a few years more to come.

But really the other thing we're talking about when we talk about Boeing being back is whether or not this is a company with the future. That is to say whether it can generate new products with new programs. And the answer is no, they're actually moving away from that towards more of a harvest and sustainment business model. They haven't launched a new clean sheet program on the jetliner front in 18 years. 777X might be a partial, but it's not clean sheet. And by Dave Calhoun's own admission, they won't even talk about doing one this decade, which means they've got massive problems in terms of getting back into the new design game in terms of demographics, engineering workforce, all those other things. That's definitely not back.

And similarly on the military front, again, in addition to losing lots of cash on six or seven programs that have proven to be massively underpriced. Okay, there's the likelihood of an AWACS order from the US. That's really good. But in terms of actually winning new programs, we will find out in a year or two whether they've succeeded in getting any meaningful part of NGAD or FAXX or CCA. I'm betting it's not looking good, which means they're losing both their future and their even market share for the foreseeable future to competitors both on the commercial jetliner front and on the military side.

 So they're definitely nowhere near back, nor are they even heading in the right direction by that criteria. But again, in terms of getting that cash machine turned on from existing programs, yeah, they seem to have made progress.

Joe Anselmo:   

Guy, Richard's saying the company isn't even heading in the right direction. Do you agree with that from what you see?

Guy Norris:     

It's a difficult question really to answer in very simple terms. But I would say they are turning this corner in one particular way, and that is re-establishing their credentials really with not only the certification authorities, to reference what Sean was saying. They had to basically find a new relationship with the FAA and EASA. And that is finally happening as we speak.

But also on the production front as well, like Richard mentioned, that's the bread and butter stuff. If you look back at where they were in 2018, for example. We produce this aerospace defense forecast edition or review edition, and I was looking at what I wrote for Boeing this time in 2018. And it really does to me indicate that we've lost five years. Five years of production and development and probably profit. Everything you look at is four to five years now behind the program's time scales that they were outlining then.

For example, 737-7 certification expected early '20. Well, actually probably more early '24 now. 737-10, flight testing was due to begin in earnest in 2020. Well, actually TIA was granted just a few weeks ago. You know what I'm saying. Basically you can run through all of these programs. 777X that Richard mentioned, first flight 2019, entry into service early 2020. Well, no, actually October 2025. So it kind of gives you a good sliding scale.

But what's most telling is that the three big things on the agenda were could they ramp up the 737 to 57 a month in 2019, could they get the 777 on track for its delivery, and were they going to launch NMA? Do you remember NMA, the new midsize airplane? Well, guess what? That was due to be launched in 2019. As we all know, of course, everything stopped. Covid hit, the 737 accidents happened, and the market basically vanished overnight for everything. So as a result, we've got five-year sort of black hole, into which Boeing sort of disappeared.

I think they're back on the event horizon. I think they're starting to re-emerge out of this. And the priority has really been to get what they already built back into solid production. And I think with the Spirit [Aerosystems]boost earlier this year, I think that's where they've been putting all of their priorities. They just need to get stable, get the cash coming back in from the programs they already deliver. And I see that's where they are right now.

And I would love to talk to Richard a little bit more about where he thinks they're going in the future. Because I think obviously they had to reprioritize around a market sector which they think probably is the most active. And they've taken a massive hammering on the single aisles, particularly from the 321neo, and they've lost that market essentially in the big picture terms. Yes, the -10 is coming and that's all fine. But they've lost years of worth and advantage, and they know it. Which is why I think they're shifting priorities to the X-66, and I think that it has legitimate legs as an avenue towards a new program in the 2030s.

So anyway, sorry, long answer.

Joe Anselmo:           

Tell everybody what the X-66 is, for our listeners that don't know. And then maybe Richard can respond.

Guy Norris:    

 No, absolutely. Well I mean, let's face it, this is not a new program per se. It's a technology demonstrator of a transonic truss-braced wing configuration, which is basically a way of opening up aerodynamics back again as a means of bringing back your 10-20% SFC advantage over the current products. In this case, 737 line, which has been going since the 1960s, brilliantly evolved, but it's come to the end of its evolutionary path, let's face it.

So this brand new, thin-wing design, coupled with advanced propulsion systems, and this is the key really, they see that as a way of getting potentially up to 30% advantage over the current 737. Of course, really more than half of that is down to whatever engines are coming out next. So you have to look, it's a new airframe, it's a new engine combination. Those two things rarely work from the get-go in one fell swoop.

So a lot of it's going to be down to whether the CFM RISE program is going to be a viable development path with an open fan, or whether even say Pratt & Whitney can get back into the market, goodness knows. But with the advanced versions of the GTF that it's been talking about with hybrid and other advances within its architecture. And hey, even Rolls-Royce, it's looking for new UltraFan partners. In some world, maybe that's a possibility for the 2030s. There's a lot to go out.

But the point is, the X-66, which is what NASA has designated the program under this new development plan, it's a technology demonstrator that's going to fly at the end of this decade. It's being treated by Boeing as a new product as well as a technology demonstrator. They have people from their product development organization working on it as if it was a new program. And that's really to help train up a new generation of engineers, just as much as it is to actually say it's a new product.

So it provides ample room under the wing for larger high bypass engines, as well as even an open-fan configuration. There's tons of questions over whether it's the right approach. Big rotors, who wants to see those back on your single-aisle airplane? But hey, it's a new decade, it's a new era, and there's new pressures which we've never seen before on the industry.

Joe Anselmo:          

Richard, do you want to respond to that? Are you buying any of that?

Richard Aboulafia:  

Well, with nothing but fondness and respect for Guy. Guy, would they be doing this if NASA weren't paying them to do it? I mean, at the end of the day, they're taking an MD-90, good to give them an old MD-90 at home, that's nice. Taking a high-aspect ratio wing, which I think we know a lot about these things. And they're being paid by NASA to do it.

Are they treating this as a possible new program launch? I have no doubt that you're right. Isn't that weird? I mean, they're getting money from NASA to experiment with an old MD-90. This isn't a new program to be launched.

I mean, look, let's look at the facts on the ground. I mean, here's my confident prediction for where they're going now, 10 years. Yes, they'll get the free cash flow machine turned back on with MAX deliveries getting to 50-something and 78s getting to 8 or 9 something. But in 10 years, they'll have a 25% market share, and it won't be as profitable because the 321 will be turned into this monster cash generator because there's really nothing to compete with it and volume will rule the day. Boeing will still be thinking about next steps as long as they're paid to do it, because IRAD will have fallen precipitously, even more than it's falling now.

 Maybe there'll be a new market entrant, in conjunction with the US defense contractor, imagine JetZero working with Northrop Grumman, but there are plenty of other options. And Boeing will simply be much, much less relevant.

But again, shareholders in the next few years will be sated by the resumption of returns from getting that cash machine turned back on. It's hard to think of a different outcome here given what's happening.

Guy Norris:              

 Richard, to your point on where the X-66 sits in the big overall scheme of things, I think it's a highly unusual set of circumstances that are happening here. One is, admittedly, this is an NASA program. It's a technology demonstrator. But Boeing is pitching in a lot of money into this program. As much as they can at this moment. You remember, this is 2023. It's frankly a miracle that they're even looking at a new technology demonstrator, I think given where they've been at for the past couple of years. And the MD-90, it's a joke. Yes, of course it's an old airplane, sort of thing. But it just happens to be the right size airframe at the right time to make this possible with the limited amount of resources they can throw at it.

 And so I think they're being very pragmatic in their approach. It's a big gesture to try and launch a full-scale X plane coming from where they've come from. And I think really it's a sort of testament to the faith that they've put in and over a decade's worth of research into this Transonic wing. Yes, it is a high aspect ratio wing, but it's also incredibly slender, and it's also swept. Those are two difficult things to achieve. And I think this will be potentially a bit of a game changer, particularly because it gives you the option of putting these new propulsion systems under the wing.

Anyway, I'm sorry. I just felt like I had to explain it as a pragmatic thing. I see the realism there, whereas MD-90 is a good little platform and it was there at the right place.

Joe Anselmo:           

Guys, we're running short on time, but I wanted to get to the point of, who is Stephanie Pope? When she was appointed earlier this week, Jefferies put out a note noting that Boeing Global Services has, "been a superstar in terms of operational excellence." But I also got a note from a longtime industry leader this week who said, "Can Boeing really think that yet another pure finance person is the right call for the next CEO? I thought they might've learned their lesson. Where's the engineer? Where's the operating guy? What on earth are they thinking?" Who wants to touch that one?

Sean Broderick:   

Well, the only thing I'll say is if you can't make money in services in this environment, then you're not very good at making money.

Richard Aboulafia.:     

 Yeah, how could sustainment not be a superstar? They deliberately hived off the most profitable part of all their enterprises and created a high profit business division. I mean, I agree completely with Sean.

Stephanie Pope is well regarded. She's clearly got a lot of experience. But no, she's not an engineer, she's not a technical person, she's not a program manager. This is the CEO you would appoint if this was a company that was, again, transitioning towards or doubling down on harvesting existing businesses and sustainment and everything like that, rather than looking to the future and trying to think of creating new products or capturing new DoD platforms.

Joe Anselmo:        

 And Sean, I did some research this week, and it appears that she has never given Aviation Week a one-on-one interview. She apparently doesn't like to talk much with the press. So if she does indeed get this job, we'll have to try to get her on this podcast, right, like we got Dave Calhoun?

Sean Broderick:     

Right. And I mean, no knock on Stephanie or anybody that's led Boeing Global Services specifically when I make that comment about making money in services. And yes, I think I speak for the entire Aviation Week Network when I say that Stephanie has an open invitation immediately to come talk to us about what it's like to be that high in Boeing.

Joe Anselmo:       

Okay. Well, unfortunately, we are just about out of time. But Richard Aboulafia, thanks as always for your insights. Guy, Sean, always great to have you back on Check 6.

That is a wrap for this week's Check 6 Podcast. Special thanks to our podcast producer in London, Guy Ferneyhough. And join us again next week for our last Check 6 of the year. In the meantime, stay safe and have a great week.