Why Boeing’s future still rests on the 737 Max’s recovery

There was a time not long ago when the 737 Max held the promise of fuelling several more decades of profitability for Boeing.

After all, before two crashes and an 18-month grounding, the Chicago-based airframer held some 4,700 737 orders and was eyeing production rates exceeding 52 jets monthly.

For those reasons, the Max holds outsize importance for Boeing, both financially and competitively. Which is precisely why the grounding left the US aerospace behemoth in such a competitive pickle, and why the Max’s rebound is key to Boeing’s recovery, aerospace analysts say.

“The Max is going to be an enabler of many things,” says Michel Merluzeau, analyst with consultancy AIR. Boeing needs “the Max to succeed to jump further with [a] new airplane.”

The Max had been the jet that would carry Boeing into the 2020s and beyond, helping it retain customers and market share and generate the profits that would fund its next commercial aircraft.

Before the grounding and the pandemic, Max sales generated 30% of Boeing’s revenue, notes Teal Group aerospace analyst Richard Aboulafia.

“When production halted, it became a very big cash drain, due to inventories, supplier payments, customer compensation, idled factories and workers,” he adds. “Thus, Boeing’s future plans are closely tied with this programme.”

When all is said and done, Boeing will likely spend $25-30 billion on the Max programme, including penalties paid to customers, estimates Ron Epstein, financial analyst with BofA Securities.

Precisely how much Boeing initially budgeted for Max development is unknown, though a range a $2-$3 billion has been reported by FlightGlobal.

Asked if Boeing can ever recoup its Max investment, Epstein is not positive: “No, they probably won’t… It will be a failure from that point of view.”

But the Max debacle set Boeing back more than financially: fixing the jet’s issues also consumed the company when it might otherwise have been developing and launching a new commercial aircraft.

“Instead of working on new products, [Boeing] took [its] best and brightest and put them on the Max,” Epstein says. “Had the Max not gotten grounded, they would have been developing something already.”

“Your competitors, they keep moving forward,” Epstein adds.

In the context of Boeing, “competitors” means one company: Airbus.

While the Max was grounded, the European airframer launched the A321XLR, a wildly popular 4,700nm (8,700km)-range jet with capabilities that no current or in-development Max variant can match.

“Airbus doesn’t have this over-extended balance sheet… They are in better shape. They’ve been developing this new product,” Epstein says.

Boeing also faces pressure from Airbus at the other end of the narrowbody market from the 110-130-seat A220. Designed specifically for that segment, the A220 economically outperforms the smallest 737 – the Max 7, analysts say.

So how will Boeing respond to such threats? Analysts can only speculate. They suspect Boeing will eventually launch a 757-sized mid-market jet, or a 737 successor (known informally as the Future Single Aisle), or both.

Whatever jet comes next, its success will depend at least partly, if not significantly, on the Max’s recovery.

For starters, Max deliveries will generate badly needed revenue and enable Boeing to begin repairing its debt-heavy balance sheet.

A succcessful Max programme can also give Boeing breathing room to focus on its next project.

“The more the Max re-establishes itself and gets additional orders, the more time Boeing will have to really think very carefully about the Future Single Aisle,” says Merluzeau. “You really need the Max to succeed to jump further with the new airplane.”

Analysts broadly suspect Boeing will, in the end, deliver most of the roughly 3,200 737s in its diminished backlog, which slipped by more than 1,400 units in recent years due to cancellations and accounting adjustments. Analysts also describe the Max 8 as an incredibly capable aircraft that stacks up excellently against Airbus’ A320neo.

But if, for whatever reason, the Max programme hits additional hiccups, or if the industry downturn continues longer than anticipated – then Boeing’s troubles mount significantly.

“This would put additional pressure on Boeing to perhaps do something too early,” possibly before sufficiently maturing its next production system, Merluzeau says. “If the Max doesn’t happen the way it should happen, Boeing is faced with a very a serious crisis.”