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In a vast shed near Seattle, Boeing is ramping up production of its bestselling plane, the 737 Max. Rows of trolleys marked with team names such as “Mario Bros” and “Wildcat” wait for technicians to complete a daily dance of tools and parts. Getting the choreography right pays: production stoppages at the Renton factory can filter through to US GDP figures.
Never has the value of smooth operation been more apparent to the jetmaker than in the past three years. The factory lines were stopped for more than a year following two fatal crashes of the 737 Max. In 2018 and 2019, a total of 346 people died when hardware malfunctions and badly designed software caused the planes to override pilots and plunge from the sky.
Boeing, one of America’s manufacturing champions, is now hoping to show that it is ready to move on from the Max disaster, even as it continues to struggle with the fallout from Covid-19 – which rocked the entire industry – and tries to work out the uncertain future for aviation technology.
On the first visit by journalists this month to Boeing’s factories in Seattle since before the Max crashes, executives sought to portray a company that is ready for recovery and growth once more. Greg Hyslop, Boeing’s design boss, said there were “reasons for optimism” about the planemaker’s technological abilities.
Optimism is coming from the top. Dave Calhoun, promoted to chief executive in early 2020 after his predecessor’s botched handling of the Max scandal, last week said “demand for airplanes is as robust as I’ve ever seen it – I think it will get more robust”. He has previously described 2022 as a “turning-point year”, even if he warned that supply chain problems could last to the end of 2023.
On the financial front at least, that turning point appears imminent. Cashflow should turn positive in the second half of the year, according to investment bank analysts, bringing to an end a string of eye-watering losses, with a cumulative cash burn of $34bn (£28bn) since the Max was grounded. Most of those analysts believe Boeing can become profitable and increase its share price over the coming years.
However, Airbus, with which Boeing shares a bitter rivalry, is pulling further ahead as the world’s biggest planemaker. Airbus’s annual plane deliveries first overtook Boeing in 2003, but competition was close until 2019 after the Max grounding. Now Boeing is far behind, with 340 deliveries to Airbus’s 611 last year. Airbus is preparing to build 70 of its bestselling A320 family every month, compared with the 31-a-month rate for the 737 Max.
Over the sound of riveting, Dennis Eng, director of business operations at Renton, said the factory would achieve that target “later this year”. “We assess our ability to increase rate continually,” he added, but the focus was “stability” of production for now.
Nick Cunningham, an aerospace analyst at Agency Partners, said of the gap between the two planemakers: “It gives Airbus an insuperable benefit in terms of unit costs and their ability to buy from suppliers.”
Another potential problem hanging over Boeing’s programme is the recertification of the shorter 737 Max 7 and longer 737 Max 10 variants. Boeing is racing to complete the process before the end of the year, but if it misses that deadline it will be forced to develop a new flightdeck under rules brought in by US Congress following the Max crashes. That could cost the company hundreds of millions of dollars.
Boeing is throwing staff at the problem. It has hired “hundreds” of extra engineers to work on certification in the face of an unprecedented level of scrutiny from the Federal Aviation Administration (FAA), according to Mike Fleming, Boeing’s senior vice-president in charge of the Max return.
The FAA’s own credibility was also deeply damaged by the Max disasters and accusations that it had been played by Boeing. In one internal email a Boeing engineer boasted of using “Jedi mind tricks” to get the potentially dangerous software in the Max past regulators without changes to flight manuals that might have informed pilots of what was going wrong.
Fleming acknowledged that it was the regulators who would determine whether Boeing reached the end-of-year deadline, and that regulation in general was “quite a bit more rigorous than what we’ve had in the past”.
“We’re working to certify the airplane to the regulations that are in place,” he said. “I don’t think either side is going to try to rush anything forward.”
It is not only the Max presenting Boeing with challenges. The company’s 787 Dreamliner was made of carbon composite rather than metal, but has not lived up to its name: deliveries have been stalled for more than a year after it suffered quality control problems at another facility in Charleston, South Carolina.
The investment bank Jefferies has cut its forecasts for deliveries of the 787 this year from 45 to only 12, which would mean millions of dollars in lost earnings.
At Everett, a factory half an hour’s drive north of Seattle that lost the 787 work to Charleston, sits a symbol of a different, more glorious era. In the largest building by volume in the world, workers on the third-last 747 jumbo jet are making a (hopefully temporary) fix with duct tape to the aircraft’s nose, which swings open to allow in freight. However, activity is winding down.
Production will stop by the end of the year, after 1,574 deliveries of the plane – “the Queen of the Skies” – that became the symbol of the jet age. There is no plan yet for the factory space in Everett; it could soon become the “world’s largest empty cupboard”, said one expert.
It is also unclear what direction the company itself will take. Calhoun’s decision last month to move Boeing’s headquarters from Chicago to Arlington, Virginia, within easy reach of the Pentagon’s procurement officials, suggests its defence business – where more predictable revenues have weathered the pandemic – could be in the ascendant.
That will mark an end of a period this millennium during which Boeing has moved away from its historical roots in Seattle. Journalist Peter Robison, in Flying Blind, a recent book about the 737 Max disaster, characterised the Chicago period by its focus on cost-cutting and $30bn in share buybacks in the mould of Jack Welch, the corporate celebrity who led General Electric. Calhoun was a Welch employee and golfing partner.
Some analysts question whether the planemaker will return to aerospace dominance in this new era. Boeing’s longer-term prospects will be dependent on future models, but it has dithered. It abandoned one plan for a “new midsize airplane” (NMA), a twin-aisle aircraft that would have sat between the 737 Max and the larger 787, and it is unclear what its next step will be.
Perhaps the larger question hanging over Boeing’s production plans is how it will cope with a world of net zero carbon emissions. Even if many in the industry are sceptical about the extent of its commitment, Airbus has announced several research projects looking at alternative fuels, including electric/gas hybrids and hydrogen, to be used either in a gas turbine or in a fuel cell.
Boeing has also carried out tests on storing hydrogen safely in flight, and it has a stake in an electric vertical takeoff and landing (eVTOL) start-up, but it is otherwise betting the farm on “sustainable aviation fuel”, or SAF. Chemically near-identical to the standard kerosene used in planes, SAF comes from non-oil sources such as plants or through chemical processes using electricity.
“Whatever you believe about electric and hydrogen, we’re going to need a lot of SAF,” Boeing’s chief sustainability officer, Chris Raymond, told reporters.
The NMA was in part a victim of Calhoun’s decision to cut Boeing’s global workforce from 160,000 employees to 140,000. Industry observers are concerned that engineering and cutting-edge technology, including on reducing carbon emissions, has suffered. Boeing’s research and development investment has fallen every year since 2016, according to Richard Aboulafia, a consultant at Aerodynamic Advisory.
At the same time Boeing must compete with software tech companies (including former Seattle area start-ups Amazon and Microsoft) for workers. Competition was intense, Hyslop acknowledged, but engineers were drawn to Boeing because “you can build an airplane that can change the world”.
However, it has been some time since that has happened. Having abandoned the NMA project, Boeing has now gone nearly two decades without building a “clean-sheet” plane that was not an update of an older model. Planes going through certification at the moment are all updates, albeit with notable upgrades such as a folding wingtip on the wide body 777X, allowing it to squeeze into standard airport slots.
Hyslop bristled at the suggestion that the company might not be capable of coming up with groundbreaking planes in the spirit of previous generations, including the “Incredibles” design team of Boeing lore, who rapidly developed the 747.
“If you ever see a 777X wing you’d see that as groundbreaking,” he said when asked if the company still had the ability to build a cutting-edge plane. “Because when you talk about a 90ft single-part wing spar made out of composites, I count that as groundbreaking. So yes, I have no lack of confidence in that at all.”
Hyslop is hiring 3,000 new engineers, and is hopeful that building “digital twins”, or virtual-world replicas, of aircraft will allow the company to make advances more quickly and bring in “revolutionary” improvements that could give it back a manufacturing edge. “It’s an extremely hard problem, but it’s got extreme benefit,” he said.
Boeing and Calhoun will have to show some improvements fast, with clients and investors waiting for answers to existential questions. Ryanair chief executive Michael O’Leary last month said bosses were “not up to the job” – although his Lufthansa counterpart, Carsten Spohr, backed the company.
Aboulafia said: “What’s needed is leadership to get out of this, to say, we’ve got to move forward or we’ll get marginalised in the jetliner industry.”
A next-generation replacement of the Max could cost more than $25bn. On top of paying down the $45bn net debt it has built up during the crises and giving itself a cash buffer, Boeing might be in need of $75bn, Cunningham said. Boeing had done everything possible to avoid raising equity investment, which would hurt existing shareholders, but the analyst argued that new leaders with a long-term vision could pull it off, and set the company on course for the next generation of air travel.
“You either fully commit or you eventually go out of business,” Cunningham said. “Eventually can happen very quickly.”
Years of turmoil
29 October 2018 Lion Air flight JT610, a Boeing 737 Max travelling in Indonesia from Jakarta to Pangkal Pinang, crashes, killing 189 people. Questions quickly emerge over previous control problems.
1 March 2019 Boeing’s share price reaches $446, an all-time record, after it reports $100bn in annual revenues for the first time.
10 March Ethiopian Airlines flight ET302, another 737 Max, on its way from Addis Ababa to Nairobi, crashes, killing 157 people.
14 March US president Donald Trump grounds the entire 737 Max fleet, following the lead of regulators in several other countries.
29 October Boeing boss Dennis Muilenburg is accused of supplying “flying coffins” to airlines in angry questioning by US senators.
23 December Boeing fires Muilenburg, appointing chairman Dave Calhoun to step in as chief executive.
6 March 2020 A US congressional report blames Boeing and regulators for the “tragic and avoidable” 737 Max crashes.
11 March Boeing borrows $14bn from US banks to see it through the Covid-19 pandemic, later supplemented by another $25bn in debt – but no equity.
18 March Boeing shares hit $89, the lowest since early 2013.
29 April Boeing announces first wave of job cuts to reduce workforce by 10% in response to the pandemic-induced drop in air travel.
September Manufacturing flaws found in the 787 Dreamliner lead to some jets being grounded.
18 November The US regulator approves some 737 Max planes to fly again.
8 January 2021 Boeing agrees to pay $2.5bn to resolve a criminal charge of misleading federal aviation regulators over the 737 Max.
11 November Boeing admits full responsibility for the second Max crash, in a legal agreement with victims’ families.
21 March 2022 A Boeing 737-800 (not a Max) flying from Kunming to Guangzhou in China crashes, killing 132 people.
April Boeing announces first deliveries of the 777X will not take place until 2025.
24 June The company’s shares close at $141, as investors await clarity on production problems.