Photo credit: Boeing 737-7 Max Boeing
Echoing many of his peers at airlines, Boeing CEO David Calhoun thinks this year will be an “inflection point” for the manufacturer, as it seeks to iron out its production issues and return to growth and profits.
With the rising vaccination rate in some countries, Boeing expects air travel to resurge, with domestic markets leading the way. International travel will remain depressed for the foreseeable future, especially if countries retain travel restrictions. The company expects the airline industry to return to its 2019 size by 2023-2024, but growth beyond 2019’s levels probably won’t resume for “some years” after that, Calhoun said. “The next six months will be challenging for airlines,” he said, adding “The recovery is gaining traction but has been uneven.”
Even before the Covid-19 pandemic hobbled its customers, Boeing, the single largest source of U.S. exports, struggled with the grounding of its most popular aircraft, the Boeing 737 Max, which was grounded for almost two years after two fatal accidents in Indonesia and Ethiopia. Boeing resumed delivery of the type late last year after regulators cleared it to fly and has delivered more than 80 since then. It still has 100 Maxes waiting to go to customers. Some of those aircraft will have to be re-marketed and reconfigured after their original buyers balked, Calhoun said during the company’s first-quarter 2021 earnings call on Wednesday.
The company also is struggling with an electrical issue on the flight decks of some in-service Maxes that has grounded about 100 aircraft worldwide. The airframer is working with the FAA for a fix and expects that to come “soon,” Calhoun said, without specifying a timeline. Boeing estimates it will take a day or two to fix each aircraft after the remedy is approved. The issue slowed down deliveries and will show up in Boeing’s April delivery numbers, but Calhoun expects to work through its delays by yearend.
The airframer has 3,200 737s in its backlog and plans to raise production of the type to 31 per month next year, with production rates gradually increasing over the coming two years.
Although regulators in more than 150 countries approved the Max’s return to service, China still has not, but Boeing expects China to re-certify the Max in the second half of the year. The larger issue of strained U.S.-China relations is of critical importance to the airframer, as China may fuel up to one-quarter of the demand for aircraft over the next decade. Calhoun said the company has begun talks with the Biden administration to stress how crucial smooth relations between the economic behemoths are to aerospace.
During the quarter, production problems on the 787 delayed that aircraft’s deliveries, but Boeing said it has resolved the issue, and deliveries resumed in March, with nine of the type delivered so far. The remaining aircraft will be delivered by the end of the year, Calhoun said. Production rates for the 787 will hold at five aircraft per month.
Boeing expects the first delivery of its 777X to be in late 2023. It is in talks with its customers over the production delay for this aircraft and is working with regulators for certification. Emirates President Tim Clark recently said the airline planned to have “grown up discussions” with Boeing about the 777X delays. Boeing expects production rates for all types of the 777, including freighters, to stabilize at two aircraft per month.
The global commercial aircraft fleet is about three-quarters the size it was before the pandemic. Boeing sees opportunity in this, however. The company estimates that airlines have permanently retired more than 1,500 aircraft. When they return to growth, they will seek to replace that lift with newer, more fuel efficient jets. Boeing’s current backlog is for more than 4,000 aircraft, worth about $283 billion.
The Max grounding, the 787 production problems, and even the 777X delays cost Boeing about a year, during with Airbus grabbed more market share than it typically had, Boeing conceded. But Calhoun is confident the company will “hold our own” against Airbus as the air transport market recovers.
Demand for Boeing’s defense and space business remained strong, although Calhoun warned that governments around the world may shift some spending away from defense as they deal with the economic ravages of the Covid-19 pandemic. This unit reported revenues of $7.2 billion, up 19 percent from last year.
Boeing reported a $561 million net loss in the first quarter, its sixth consecutive quarterly loss, on revenues of $15.2 billion, down 10% from last year. Its Commercial Airplanes division reported revenues of $4.3 billion, compared with $6.2 billion last year — a 31 percent drop. The airframer delivered 77 aircraft in the quarter, up from 50 last year, when the Max was grounded. Boeing’s stock price closed out the day down 7 percent, to $235.46.