As it crosses the century mark, the world’s biggest plane maker faces serious headwinds.
In 1952, Boeing’s then-CEO Bill Allen convinced the company’s board to sink $16 million into a single, untested idea. At the time Boeing ba primarily built military planes, sophisticated jet-powered aircraft like the venerable B-52 bomber. Such costly, complex aircraft didn’t translate well to the passenger air travel market. The switch from propellor-driven airplanes would simply cost too much, and airlines wouldn’t take the risk.
But Allen had a vision. Convinced that both travelers and airlines would come around to the speed and convenience of jet-powered air travel, he staked Boeing’s financial future on what would become the Boeing 707, the first transatlantic commercial jetliner and soon-to-be cultural icon. The 707 remade air travel for the post-war world. It also remade Boeing into the 20th century’s premier builder of passenger jets.
Fortune has called Allen’s gamble one of the greatest business decisions ever made. But as the aviation giant marks its 100th birthday this year, Boeing is far from the same company it was 60 years ago—a fact perhaps best crystallized in former-CEO Jim McNerney’s declaration in 2014 that Boeing will no longer pursue “moonshots” when developing new aircraft. Facing formidable headwinds in both the commercial and military markets as well as a fickle Wall Street that demands margins remains strong, Boeing’s appetite for risk has tapered.
Figuring out exactly how to innovate like the Boeing of old while operating under a range of difficult market conditions could prove current CEO Dennis Muilenberg’s biggest challenge as the company hits the century mark. In just his second year at the helm, Muilenberg finds himself juggling three different big commercial aircraft programs (and weighing the launch of another) while shaking up a defense unit that’s short on new business and behind schedule on its its biggest existing program.
As it crosses the century mark, the company faces some of the more daunting challenges in its history, prompting some to wonder whether a 100-year-old Boeing can still conjure the kind of Bill Allen swagger that might produce its next 707 moment.
Staying aloft amid downward pressure
There’s no singular issue facing Boeing, and no singular twist of the corporate dials that might make things easier for Muilenberg. On the commercial side, a six-year boom in passenger aircraft orders appears to be slowing, particularly in the long-haul market where Boeing generally dominates. Meanwhile, European rival Airbus eadsy is gaining ground in the short-haul market, where most of the aircraft volume lives.
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Though Boeing has managed to move past several early headaches in the production of its new 787 Dreamliner, it’s still unclear if the jet—which cost the company more than $30 billion to develop—will ever turn an overall profit. Boeing still loses several million dollars per aircraft for every 787 delivered, though that number continues to shrink. That $30 billion in deferred development costs related to the Dreamliner still loom over the company like a specter. (For more, read about Fortune‘s inside look at how the 787 was made.)
Even as management juggles the development of the new 737 Max narrow-body, the new 777X (slated to enter production next year) and the 787 Dreamliner, market demand is growing for a so-called “middle-of-the-market” medium-haul jetliner. Seating up to 260 passengers and filling the gap between Boeing’s largest 737 short-haul jet and its smallest long-haul airliners like the 787, such an aircraft would come to market in the middle of the next decade should Boeing choose to pursue it. Its development and engineering would start burning through financial resources much sooner than that.
On the defense side, which accounts for roughly a third of the company’s $96 billion in revenues, Boeing faces different anxieties—not enough new aircraft rather than too many. Boeing still does a brisk business selling and sustaining its current aircraft offerings—which range from CH-47 Chinook heavy-lift helicopters Apache apa gunships to the F/A-18 and F-15 families of fighter jets. But the company lost competitions to build both the Pentagon’s next generation of fighter jets (won by Lockheed Martin lmt and the F-35) and, more recently, a new fleet of stealth bombers won by smaller rival Northrop Grumman noc .
With no major combat aircraft programs on the horizon and its current aircraft running out of orders to fill, Boeing could soon find itself shuttering its current fighter jet production lines, cut out of a market that has long been a core part of its defense business. “There’s a good chance the F-15 dies in 2019, with the F-18 winding down at about the same time,” says Richard Aboulafia, senior vice president for research at defense and aerospace consultancy The Teal Group. “So in the background of all of this, you’ve got the end of their most profitable defense platforms too.”
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Boeing plans to remain competitive in the tactical jet space by focusing on both the sustainment of its current fleets of F-15s and F-18s around the world as well as by competing for a multi-billion-dollar U.S. Air Force program that will replace its current fleet of trainer jets, says Steve Nordlund, vice president of strategy for Boeing’s defense unit.
Others are not so optimistic that will be enough. Without a major Pentagon tactical jet program to fund research and development, Boeing’s long-term presence in the lucrative but competitive combat aircraft market will depend on how much the company wants to invest in keeping its fighter jet shop up to speed, says Byron Callan, a defense analyst for Capital Alpha Partners.
“If you have a really good idea, maybe it is worth it to start pushing it and taking some of that risk,” Callan says. “Otherwise, I don’t know how you survive in the fighter market five or six years after the F-15 and the F-18 are out of production.”
‘We know our future’s not guaranteed.’
In the immediate future, however, fighter jets are not Muilenberg’s key concern. Moving into Boeing’s second century, the larger battle will be managing the tension between shareholder growth and plateauing profits.
“It is a competitive marketplace,” Muilenberg told the Financial Times earlier this month. “We know our future’s not guaranteed, so every day we have to relentlessly pursue additional actions to drive our competitiveness.”
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Thus far, those actions have included job cuts within Boeing’s commercial unit (as many as 8,000 jobs could be cut this year), a management shakeup in the defense unit, and adjustments to its supply chain unlikely to be popular with suppliers. (For instance, Boeing will now take up to three times as long to pay its bills). In the relentless pursuit of shareholder value, Boeing’s employees have felt the pain as well, and relations between the company and labor remain somewhat strained.
Meanwhile, though the aerospace market is famously cyclical, the downward pressure on profits won’t necessarily be relieved during the next market upswing. Looking toward the long-term, the ruling Boeing/Airbus duopoly that has served the vast majority of the commercial jetliner market likely won’t last. Canada’s Bombardier bdraf recently shocked market onlookers by inking a deal with Delta Air Lines dal for 75 of its C-series narrow-body jets, stealing a piece of business from the market served by Boeing 737 and Airbus’s A320.
While both Boeing and Airbus benefitted from a number narrow-body jet orders from Asian carriers at the Farnborough Air Show in the U.K. this week, it’s only a matter of time before China leaps into the fray.
“If you think about the forces shaping the global aerospace market, over the next 100 years there’s bound to be a more robust Asian aviation industry,” Callan says. “How is Boeing going to deal with that, or participate in that—that’s an open question.”
But it’s not all headwinds for Boeing. At its back, the company has an order backlog of roughly 5,800 aircraft valued at $400 billion and—according to Boeing’s most recent 20-year commercial jet market outlook released earlier this week—a demand for 39,620 new planes worth $5.9 trillion over the next two decades. (Rival Airbus released a similar though slightly-less-rosy market projection this week as well.)
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“We’re in a position where growing that backlog is difficult, but it’s something we can do,” says Randy Tinseth, vice president of marketing for Boeing Commercial Airplanes. “More importantly we’re in a position where we have to deliver that backlog, and that’s where our focus is.”
Indeed, the bulk of Boeing’s revenue is collected when planes are delivered rather than when they’re sold, allowing Boeing the opportunity to boost profits without necessarily boosting sales if it can successfully ramp up deliveries, cut costs, or—ideally—both.
Boeing’s Nordlund acknowledges the challenges posed by shrinking defense budgets (particularly in the U.S.) and the loss of Pentagon combat jet business over the past 15 years, but sees a bright future for Boeing as it evolves into an even more global aerospace company. A pending $3 billion sale of 24 F-18s to Kuwait and a similar $4 billion deal with Qatar for 36 F-15E jets could help sustain Boeing’s existing fighter jet production lines for a few more years (both deals are currently on hold pending approval by the U.S. government).
But beyond foreign military sales, Nordlund points to a recently-inked joint venture with India’s Tata to produce aerospace components in that country as well as business units Boeing has planted in the U.K. and Australia. “It really is about evolving Boeing in the next 100 years to be that truly global company,” he says—not just an exporter of aircraft, but a company with footprints across the world.
There’s still the looming question of innovation and how much Boeing is willing to risk on breakthrough ideas that might—once again—change the course of history and the company. Can a company be both a massive international conglomerate, a product of decades of mergers and acquisitions, as well as the kind of ambitious, risk-taking enterprise that produced the 707? In one future aerospace market—one that remains ripe for 707 moments—Elon Musk’s SpaceX has already seized the initiative, much to the dismay of legacy aerospace companies like Boeing and Lockheed Martin.
“If I were Muilenberg my biggest concern is: How many more SpaceX’s are there out there?” Callan says. “That’s a 100-year issue.”