On Tuesday, after months of being on the back foot over the worldwide grounding of its best-selling 737 MAX, the Chicago planemaker revealed a secret deal to supply 200 of the troubled aircraft to International Airlines Group (IAG), the sixth-largest airline group in the world. Boeing stock rose more than 5% on the news.
Traditionally, IAG has mainly flown Airbus on short-haul routes and favored Boeing for long-haul, but in this instance CEO Willie Walsh decided to make a change. The deal—currently based on a signed letter of intent—involves supplying the 737 MAX to British Airways, Iberia, Vueling, Aer Lingus, and Level, and is estimated to be worth over $24 billion at list prices.
In terms of publicity, however, it’s priceless.
“That order was like manna from heaven for Boeing,” says aviation expert John Strickland from JLS Consulting. “The Air Show got off to a subdued start and people pretty much expected it to continue in a low-profile way for Boeing, as they’d said before it began that they would be engaging customers and discussing all the issues surrounding the grounding of the MAX.”
“I don’t think anyone expected a big order from IAG,” he said. “It’s a big confidence boost to Boeing at a time when they are under considerable scrutiny and pressure.”
Question is, does it also represent a change in fortunes for Boeing?
An urgent fix
Since the 737 MAX was grounded in March following two disasters in four months, the planemaker has tried desperately to fix the problematic flight control software that is thought to have contributed to the deaths of 346 people in Ethiopia and Indonesia—crashes that retired airline captain Chesley “Sully” Sullenberger told Congress on Wednesday “should never have happened.”
Speaking in Paris on Monday, Boeing’s head of commercial aircraft Kevin McAllister apologized for the accidents. “I’ve been in this industry for 30-plus years, and this is the most trying of times,” he said. “It’s a time to capture learning. It’s a time to be introspective, and it’s a time for us to make sure that accidents like this never happen again.”
To help achieve this Boeing has reduced 737 MAX production from 52 to 42 planes per month, to allow its engineers to prioritize software certification. As of April 11, Boeing had also made 96 flights to test its software update and, according to Boeing CEO Dennis Muilenburg, the aircraft functioned as designed in all of them.
Yet the planemaker hasn’t convinced the Federal Aviation Authority (FAA) to allow the 737 MAX to return to the skies. On June 2, the FAA also identified further problems with both the 737 MAX and the 737 NG that preceded it, citing improperly manufactured parts. This led to the postponement of a $1 billion order from Azerbaijan airline AZAL for 10 planes.
The simple truth is that despite Boeing’s round-the-clock efforts, nobody knows quite when the 737 MAX will be seen taxiing towards a commercial terminal. “If it is in the air by Christmas, I’ll be surprised,” Tim Clark, the president of Emirates, told reporters in Seoul on June 2.
Extra-long range competition
Boeing’s problems don’t end there either. The shock IAG announcement followed Monday’s high-profile launch of the new Airbus A321XLR (literally, Extra Long Range)—a versatile, narrow-body jet that’s capable of flying 4,600 to 5,400 miles with a 30% less fuel-burn per seat, giving it the range to economically hop the Atlantic or fly non-stop from New York to Los Angeles.
Since Monday, the XLR has won over 200 orders, including 50 from American Airlines and 13 from New York-based JetBlue. Other customers include International Leasing Corp, Middle East Airlines, and Qantas.
A computer rendering of the A321XLR that Airbus unveiled at the Paris Air Show on Monday. (Photo courtesy of Airbus)
On Thursday, Airbus commercial chief, Christian Scherer, said the European air giant would use the XLR in a counter bid to Boeing’s surprise IAG deal. “We are taking the position that we would like to bid for this business,” Scherer told a press conference in Paris.
Deepening the problem, Boeing currently has no feasible response to the XLR either. It’s much-vaunted New Mid-market Airplane (NMA), is yet to be revealed, while it hasn’t developed a successor to the capable and versatile 757, which is directly threatened by the XLR.
Add to this the fact that Boeing is also suffering teething problems with its long-haul 777X, which hasn’t flown because of difficulties with its GE Aviation engines, and it’s easy to see that Boeing has a lot on its plate. To say the least.
“There had been an expectation that the 777X might have flown at the Paris Air Show and maybe new orders would have been announced, but neither thing happened,” says Strickland.
Aviation analyst Chris Tarry adds, “You are going to hear loads of comment saying ‘Wait until we bring in the NMA. It will do everything you want.’ But if you’re an airline and you need the capacity now, or you want the capacity now, then the Airbus is already available.
“Put simply: Airbus has a plane to replace the Boeing 757. Boeing doesn’t,” he said.
A likely comeback
Yet it’s not all doom and gloom for Boeing. While IAG is likely to have picked up their 200 airlines at a knockdown price, the simple fact is that Boeing remains one of the world’s two big aero-manufacturers and has a huge backlog of orders—the long-haul 787 Dreamliner alone recorded 1,440 orders through May 2019.
“The reality is that Boeing will get it fixed. There’s no doubt,” said Tarry. “The 737 MAX will come back into service, it will successfully operate across the globe and people will ultimately forget all about this.”
That still doesn’t minimize the importance of the Paris announcement, however.
“We’re partnering with the Boeing brand,” IAG’s Walsh said in support of the deal. “That’s the brand that I’m doing business with. That’s the brand that I’ve worked with for years. And it’s a brand that I trust.”
Sitting beside him, a beaming McAllister said, “We can’t thank you enough for the confidence you place in the 737 MAX family, and in all of us.”
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