Podcast: Behind The Headlines At Boeing And Airbus
Listen in as Aviation Week editors discuss why Boeing’s next clean sheet airplane may be a long way off and why Airbus’ CEO is mad at a key supplier.
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Welcome to this week's Check 6 Podcast. I'm Joe Anselmo, Aviation Week's editorial director. Boeing last week wowed Wall Street with its first profitable quarter in a long time, but CEO, Dave Calhoun seemed less excited about when the company might launch its next clean sheet airplane. In fact, some believe he was signaling it could be a long ways off. For its part, Airbus is looking to aggressively ramp up production to cement its formidable lead over Boeing in the narrowbody market, while embarking on a long and expensive R&D effort to develop a hydrogen-powered aircraft by 2035.
Aviation Week editors listened in on the earnings calls and tried to make sense of where the two companies are heading. It was truly an exercise in reading the tea leaves. Joining me to discuss that are two of them. Senior Editor Guy Norris and Executive Editor Jen's Flottau.
Guy, let's start with you. Dave Calhoun had been saying for a long time, if Boeing launched a new clean sheet aircraft, they couldn't wait for the propulsion makers. The propulsion wouldn't be ready, it would have to be other advances to make the business case. Now, he's talking about the importance of propulsion advances. Is that a signal that this next airplane, which originally was called NMA, is not going to be coming for a long time? Is that what he's gently telling us?
Well, so a really good question, Joe. I mean, the point is, is that we simply are in the dark. So, we should admit that up front to start with. So we are, as you say, having to look at the tea leaves along with everybody else. So what do we know? We do know that as of June, as you mentioned, Dave Calhoun told us, he said, "Look, we're sticking to this message. Whatever comes next, we're not talking about big leaps in propulsion. All the savings are going to be made through the air frame then the technologies like that." Which was fine, that made sense.
But something has changed that, of course, the big news from the propulsion side is the emergence of the CFM RISE program, the open rotor technology demonstrator. So, if you look at what's changed between June when he talked to us, and just a few days ago when he spoke on that earnings call, that was the big change. And sure enough, he mentioned it in the statements. So, I think you don't have to be a rocket scientist in that case to figure out that maybe the emergence of this forcing function in propulsion technology, he may be seeing that as a catalyst and also as an excuse.
I mean, let's be honest, as the analysts have said to us, Boeing is not in a position to do anything like launch new airplane right now. They have to get back into the business of selling and producing those aircraft, and delivering on the huge backlog which they still have. So, it's a convenient time to sort of say, "Let's just pause what we're doing right now on the talking about new airplanes, and focus in on selling those airplanes and getting the money back in, and building back up.”
Jens, you've written that it’s your opinion that this RISE open rotor project was sort of a message from GE and Safran to Boeing not to move forward with a new airplane in the next few years. Is this further validation of your belief?
Yeah, I mean, I've since talked to a lot of people and again, we're in the dark, right. I mean, one school of thought is saying exactly what you just said. That GE is trying to dictate Boeing's product policy, telling them gently and nicely and politely that, "Please don't launch a new aircraft." But, that kind of hinges on the assumption that GE itself can afford to not produce a new engine, and then not fit RISE advances back into the Leap for many years.
The two questions are obviously tied, and once Boeing feels forced to do something new ahead of 2035, another 737 MAX derivative or a new aircraft like the ones that have been discussed, then of course, GE is under pressure as well because they then have to decide what to do. And the big question that I have is, can GE and Safran use parts of the RISE project and feed that into whatever interim engine comes out of this. And I talked to a number of people who think that that is actually going to be a likely scenario.
Guy, one of the things Mr. Calhoun did show a lot of enthusiasm for on the earnings call was a 777X freighter. You want to tell us a little bit about that?
Yeah, well, that's right. I mean, all along in fact for this whole of this year so far, Dave Calhoun has, as you say, kind of shown enthusiasm for this as probably the focus for Boeing's next product development. It's a derivative, of course, so you've already done a lot of the spadework. But, it makes a lot of sense when you think about what's been going on with the freighter market, particularly from Boeing's perspective.
They're sunsetting the 747 which leaves a huge capacity gap at the top end of the market. But on the other hand, the 747 freighter, that's been one of their best sellers in the past couple of years. For example, from January 2020 through July this year, Boeing had 58 orders for production freighters. 23, and 20, and 35, and 21 and of all of those 26 were 777 freighters. So, you can see it's a very buoyant market, it's a great time probably to be looking at that as an investment, getting that into the market itself. And of course, it does bring a whole new capability. It kind of bridges the gap between what exists with a 777 freighter and what you're losing with the absence of the 747 and the sunsetting of that, so definitely a good time.
And, just one thing I should quickly mention before we go any further, you mentioned about a new product and why would Boeing be showing reluctance also. One of the other reasons I forgot to mention is that the 737-10, the MAX 10, of course, in flight tests now, I think they're doing a good job of getting the message out there that this does cover 90% plus of what the A321XLR is going to be able to do. And the order book, frankly, is showing some signs of life. We had that United order just the other month, so I think that's another reason for Boeing's reluctance to go all new right now. They're going to give the time to flesh out the MAX backlog, and give themselves more time.
Jens, we were talking about freighters. Airbus is certainly on top of the world these days. But as you've noted, freighters is one area that it's still trails Boeing in by a good bit. What is Airbus going to try to do about that to close that gap?
Yeah I mean, if you look back, the one big gap in an Airbus' portfolio has always been freighter. And for some strange reasons I've never really understood they have not really taken the freighter market very seriously. The only freighter aircraft they have on offer right now is the A3200 freighter which clearly that the market didn't like. They just sold 38 of them. So, what happened now is that the board of directors approved plans for Airbus to launch a freighter variant of the A350. We don't have a lot of details yet, technical details. We don't know the range, we don't know what the payload. CEO, Guillaume Faury said, "It'll be in excess of 90 tons."
The current 777F has, I think, 102 tons so it'll be a little less capable if that's the case. And if Boeing does launch the freighter version of the X, then that would have probably more payload. So, we'll have to wait and see what the capability comparison there is. The timeline is aggressive. The new A350 is to be introduced in 2025, so just four years of development. But, my point has always been that they should have done this a long, long time ago. They're a too late for this boom cycle here, and they'll have to hope that, A, this boom is sustained for many more years. And that the replacement cycle that they are betting on in the second half of this decade, actually materializes.
Jens, you've written that Airbus sort of has a two-track strategy moving forward. One, they're keeping some ideas in their back pocket to respond if Boeing does move forward with a near term clean sheet aircraft. But, they're also focused on this rather radical idea of developing a hydrogen powered aircraft by 2035.
Yeah, I mean, for now, Airbus is really in wait and see mode. I mean, I think it makes perfect sense for them to just wait because they're in the market leading position, they have 60, 65% market share. There's nothing... I mean, the A321neo is selling great. Why would they do anything? They're suffering from the fallout of COVID as much as anyone else. And so, I mean, they're in no position to really act right now in the short term, and they don't have to.
The interesting thing about the long-term plan is obviously the hydrogen aircraft for 2035, that it seems to me and to others that I've talked to that Airbus a slowly becoming a little more careful about this. They're emphasizing more the importance of sustainable aviation fuels, and the industry's ability to scale them up to be able to provide them for the existing generation of aircraft and, have become a little more quiet on the hydrogen plans which a lot of people think are extremely difficult to implement. So again much like on the Boeing side, it's wait and see kind of a different situation they're in. But again, it's definitely a wait and see.
Guy, the narrowbody market used to be split pretty much evenly between Boeing and Airbus. The Neo has certainly changed that along with the MAX grounding. Can Boeing really afford to wait and let Airbus just keep going forward with this market share lead that doesn't look to be going away anytime soon?
Well, I don't think it has much of a choice right now at the moment. As Jens said, I think they're both in a wait and see mode. But from a longer term strategic position, obviously, they have to... The one thing that they really do have is a full MAX lineup now. Having returned the aircraft to service and to development, they've got the dash seven, which is poised to finish its certification campaign in the next few months. The dash 10 is flying, so they've now filled out the family really, and that will be all entering service back on schedule, hopefully by any unfortunate events or certification delays next year.
So, they can get back to the original game plan of that. In the meantime, you've got this prospect maybe through the RISE program of being able to update the Leap in a significant way. Remember, CFM already did plan an upgrade plan for the leap anyway, so this is just more sort of fuel for that, if you like. So, I can see you in a way that Boeing strategy is certainly in the single aisles to be able to protect the vast majority of what it had. And to maybe get back into the business of selling more aggressively, particularly on the dash 10 side of things where customers are going to look to upgauge. And if they want to stay loyal to Boeing, they will have an option.
At the very edge of that margin, of course, you can't compete with the XLR and they've acknowledged that, I think. So ceding that element, that small percentage at the top of the market is just a fact of life to them right now. And they just have to get through the difficulties, the costs of reworking the 787, getting the 737 back into production, and getting the 777X certification done and the 777X freighter launched. It's a pretty full plate, really.
So, once you look at all that, I'm not saying that they're not looking at a new product. I know they are. I mean, we've broken the story about how were recruiting a new flight deck team, for example, earlier this year. That's not going away. It's just a lower level of work, and I think they're going to keep that under the carpet as much as they can while they figure out exactly what they need to do.
And you've written it, their R&D spending was down about 20% last year, down further this year. And Calhoun said point blank, "It's not going to increase in a big way anytime soon." Right?
Yeah, exactly. That's right, so I mean, if you look at the bare numbers, that kind of supports what we're saying here. I mean, there is still money being spent. It's just nowhere near the level that you'd think of for a new product. And frankly, it's for all the reasons we've discussed. So, it's not the position ideally that they'd like to be in, but I think they're going to make the most of having gone through the agony and cost of developing the MAX to the extent they have and to basically clean it. This is when they need to make the money out of that product, and they're jolly well are going to try to do it. So now is the time to bank that, because it's a lot cheaper than putting all that money into a new product, which they're not even sure what it's going to be right now.
Jens, you can go back 10 years and look. And you, Guy, and our old colleague, Mike Mecham, were writing about when the next clean sheet narrowbodies would arrive. And people were looking at 2019, 2020 back then. This could be more like 2030 now, right?
Yeah, if at all, right. I guess the key question is that market share question, right. If Airbus manages to expand, to go much further than the 60, 65% that they're in right now, then I think the pain on the Boeing side will be so significant that they will have to act at some point, because the kind of discounting that we'll have to do to keep at least that that level of market share will just be too painful.
One aspect we haven't talked about yet is Pratt & Whitney, right. Pratt is also, I understand, going through a proof and package work here on the GTF side. And depending on how successful that is, the pressure on the MAX will become even greater, so it's hard to tell. Obviously, Airbus isn't really interested or actually isn't interested in all in having to launch its own new aircraft before 2035. The next generation hydrogen concept is supposed to enter the market, because that would mean an extra generation then they don't like. So in a way, it's in their own interest to not make Boeing too weak. There's a lot of nuances here that come into play and that are not quite obvious.
And Joe, can I just mention that Jens is absolutely right. The market hates it when things get out of whack like this, when the status quo is upset. It doesn't do anybody any good from a pricing perspective, or overall market and balance side. And you're absolutely right, Jens, I think almost Airbus would like Boeing to get its act together a bit more in some of these areas. So, yeah interesting time.
Well, speaking of balance, Guy, Boeing hasn't had an order from China, the world's second-largest airline market, since 2018. And, it really seems Boeing is being held hostage to a wider trade and political dispute between the US and China. And Calhoun's pretty blunt about that, that Boeing is in trouble if it doesn't start selling airplanes in China again.
Yeah, obviously China's a huge aspect, isn't it? To not only the biggest strategic question from the Airbus- Boeing market share because you know Airbus is in a much better position right now from the Southeast Asian perspective. But, also really from Boeing's ramp up of its entire production line, particularly on the MAX, they're really are banking on the fact that this geopolitical solution will be reached and that China-U.S. relations will improve to the point where they can go out in the next few weeks, literally, to their suppliers and say, "Get ready for a ramp up early next year, because we think China is going to be okay."
So, you can bet your life that there's a lot of interplay right now between Seattle, Chicago and DC, where they're trying to work out what's going on inside the beltway and politically what the real prospects are for a rapprochement between the U.S. and China. Totally critical to their plans for 2022 and beyond.
Jens, let's let you take us to the finish line. Guy talked about a ramp up, Airbus has some really aggressive ramp up plans for production rates and the suppliers are pushing back.
Yeah, the plan is to go to 45 single aisles for months in the fourth quarter to 63 in the second quarter of ‘23 to 70 sometime in 2024 and, maybe to 75 in ‘25. Now, the 70 and 75 are subject to kind of confirmation and they're just asking suppliers to explore that. But 63 is a firm plan and yes, a lot of suppliers are really concerned about this because they don't know that the market will justify that. They're also concerned about their own costs. I mean, they just went through the highly expensive exercise of ramping down because of the pandemic. And now just a year later, they're being asked to ramp up again which is extra costs and extra pain.
It's a big debate, it's not friendly sometimes. Faury says he's very disappointed, and what he meant was Safran comments about the ramp-up not being realistic. So, it's an interesting time there. The problem that Airbus has is they've deferred hundreds and hundreds of deliveries from 2020 and 2021, to 2022 and the following years. So, the production is pretty full and there aren't that many slots on top of what they already have filled that they can sell.
So if you want an Airbus aircraft, you have to wait four or five years. That's not very attractive, and so there's a very real risk that if the market picks up again as much as it does right now, that people will have to pick Boeing and that's not obviously in Airbus' interest.
Well, guys, there was a lot to talk about and we squeezed quite a few topics into this podcast,More podcasts to come, because this story certainly is not going to go away. Thank you Jens, and thank you Guy. That is a wrap for this Check 6 Podcast. You can subscribe to Check 6 in Apple Podcasts, Google Podcasts, Stitcher, and Spotify. Special thanks to our producer in London Guy Ferneyhough. Have a great day and stay safe.