The question of exactly when Boeing should launch its next new commercial aircraft programme has industry and financial analysts spilt.
Some make the case that Boeing should act immediately – taking a bold step that will energise the company and help it claw back business lost to Airbus.
But others insist the right approach is to wait several years, by which time Boeing’s balance sheet and supply chain will be prepared for its next big project.
What is clear is that Boeing’s decision rests on complex and interwoven factors involving finances, supply chain, workforce, competition and technology.
There is risk on all sides. If Boeing moves too fast, its next new aircraft might steal orders from the 737 Max programme, on which Boeing’s cash-flow depends. Move too slowly, and Boeing could fall further behind Airbus.
“They shouldn’t announce a new airplane until after 2025, [or] maybe 2027,” says Morgan Stanley equity analyst Kristine Liwag.
Launching a programme sooner could “take a company that is distressed and put it in even more distress,” adds Liwag, who spoke on 8 February during the Pacific Northwest Aerospace Alliance’s annual supplier event near Seattle.
But BofA Securities financial analyst Ron Epstein and industry analyst Richard Aboulafia, also at the event, think Boeing should strike sooner.
Aboulafia calls Boeing’s inaction a “complete abdication of leadership” by chief executive David Calhoun.
Analysts widely think Boeing’s next aircraft should be a “mid-market” jet – one with seats for 220-240 passengers and 5,000-5,500nm (9,260-10,186km) of range. After that, they anticipate Boeing would roll out a 737 replacement.
A mid-market aircraft could counter Airbus’s fast-selling A321neo, an aircraft analysts say has enabled the European manufacturer to gobble up market share once held by Boeing.
A321neos can carry 180-230 passengers in two classes. Airlines have had success deploying the type on both short-distance higher-capacity routes and on longer-haul – including transatlantic – flights. Airbus holds orders for nearly 3,700 A321neos and is developing the longer-range (4,700nm) A321XLR variant, with service entry expected in 2024.
Analysts say Boeing has no jet that directly matches the A321neo. Boeing challenges that point, saying its still uncertificated 737 Max 10 compares well. In performance terms that is broadly correct – it features 3,300nm of range and capcity for 188-204 passengers in two classes – but it trails significantly on the commercial front: the airframer holds orders for 775 Max 10s, according to Cirium data.
“It seems that people are just getting in line to get an A321neo,” Aboulafia says.
Boeing had in recent years studied a new mid-market aircraft to give airlines an A321neo alternative. But in November 2022, Calhoun insisted nothing new is coming soon. “I don’t think we are even going to get to the drawing board this decade,” he said, citing a need for more efficient engines before contemplating any launch.
Despite that comment, rumours abound that Boeing is still quietly continuing to develop the mid-market aircraft. Such a jet could have a composite fuselage, folding wing-tips like the 777-9, and come to market in the early 2030s, some analysts suspect.
But analysts with an eye on Boeing’s bottom line think that is too soon. “Financially, it doesn’t make sense to announce something right now,” says RBC Capital Markets aerospace and defence financial analyst Ken Herbert.
He views Calhoun’s delay strategy as the right move, noting Boeing wants to sell as many 737 Max in the coming years as possible, and keep production of the type humming into the 2030s.
“A new airplane [in the early 2030s] is a direct risk to that cash thesis” – it would cause “cannibalisation” of orders for 737 Max, including for the Max 10, says Herbert. “Who is going to want to buy a [737 Max] slot in 2031 when you can get something significantly better two or three years later.”
Herbert thinks Boeing should launch a new aircraft in three to five years.
Morgan Stanley’s Liwag agrees, noting many Boeing suppliers are already struggling to keep up with a relatively modest 737 production rate. Some suppliers are scrambling to hire skilled workers while others are facing a cash crunch, seeking to secure loans at newly higher interest rates to fund production ramp ups.
Dropping a new aircraft programme on them now would be ”a little too much to ask,” Liwag says.
She also thinks launching a new aircraft programme in the near-term could strain Boeing’s finances. The company should spend the next several years paying off its more than $50 billion debts, and launch something new by 2025 or 2027.
But BofA’s Epstein does not think Boeing’s current financial situation need preclude it from moving forward. He notes that Embraer – a company with a fraction of Boeing’s revenue – has managed to develop about a dozen new aircraft in the last 15 or so years.
“I don’t believe for one minute that The Boeing Company would have a problem financing a new airplane, either on their own balance sheet or in the public market. They just don’t want to do it,” Epstein says.
Developing a new narrowbody jet would likely cost Boeing $10-12 billion, analysts estimate.
Epstein thinks Boeing could shoulder that burden even while retaining an investment-grade credit rating. It just cannot do so and also continue prioritising returning to cash to shareholders.
“[Boeing] can’t stay investment grade and do an airplane and return $10 billion in cash to shareholders. That you can’t do,” Epstein says. “And right now it’s cash to shareholders.”
