Did Boeing Secretly “Bet the Company” Yet Again on an Airline Project?

Boeing announced today a $5.6 billion pre-tax charge in its second quarter for costs related to its B737 MAX problems.  This followed the earlier $1 billion charge in its first quarter, and is based on an assumption that the plane will return to service “early in the fourth quarter” (which we take to mean October).  Some (many) commentators feel this to be an optimistic assumption.

There is also a $1.7 billion future charge to be applied to the ongoing manufacturing costs of the 737 to reflect added costs as a result of the production delays.

So, in total, there are about $8.5 billion in disclosed costs – so far – resulting from the 737 grounding.  This amount apparently does not include compensation payments to victims of the two crashes, nor any possible losses from the assorted other law suits now being brought against Boeing.  One can only guess what the total cost of this grounding will be.

Interestingly, the stock market reacted generally positively to this news.  Analysts had been guessing costs might be higher (and perhaps they may well still ultimately prove to be) but chose to generally accept Boeing’s comments and charges at face value.

It seems likely the costs of the B737 suspension will exceed $10 billion.  The daily costs increase with each passing day, due to the increasing number of non-delivered 737s as well as the static number of grounded planes.  Keep in mind that Boeing had been producing 52 planes every month, and had hoped to increase that still further to 57 planes, so every day, that’s almost two planes that coulda shoulda been delivered that haven’t been, and more airlines getting more unhappy and seeking greater daily amounts of compensation.

It addition, continuing to manufacture and not deliver planes is harming Boeing’s cash flow.  What will the final total cost be?  Because no-one knows when the problems will finally be solved and the plane cleared for flight, no-one dares guess as to the total cost.  But it seems sure to be on the high side of $10 billion and could conceivably approach $20 billion.

Even that is far from a worst case scenario – the worst case scenario sees the total 737 MAX program being summarily terminated entirely.  That seems almost totally unlikely/impossible, but Boeing is starting to say it might have to shut down the production line until the problems have been resolved, and it isn’t an impossible step further to go from a temporary shutdown to a permanent shutdown.

Other “softer” costs will never be known but will also be massive in scale – the loss of Boeing’s reputation and need for Boeing to discount more desperately to keep customers, and the loss of deals that otherwise it would have won.

Boeing’s total profit in 2018 was $10.5 billion, so one, possibly two or even more years of total profit is being jeopardized by these losses.  Is the entire company now at risk?

Astonishing, some people are suggesting it might be.  And a person making these claims – Loren Thompson – should know.  He is a Boeing supported journalist/lobbyist, who in an article (not all of which we agree with or feel to be fully fair and accurate) is basically saying that Boeing is “too big to fail” and needs to be saved :

737 MAX isn’t just one of the jetliners in Boeing’s commercial product mix, it is the pivotal offering of the entire enterprise. …

Boeing makes widebody jets too—747,767,777,787—but without 737 the company could not remain competitive in any market segment with European rival Airbus.  …

Is Boeing itself at risk of failure now?  That seems to be what Thompson, who has to be considered as a Boeing mouthpiece, is hinting at.  This is also notable for being the first thing approximating an official acknowledgement that the entire 737 program might be at risk and unsalvageable.

We don’t think the worst-case scenario will get anywhere near this, and suspect that the gloom and doom in Thompson’s article is a precursor to seeking some form of direct or indirect government support.  Our interpretation has been bolstered in the week subsequent when Boeing’s CEO started to openly talk about halting the production line entirely – a move that would not only throw thousands of Boeing employees out of work (most/all of the 10,000+ at its Renton WA 737 plant, possibly others elsewhere too).  This would also create terrible problems for Boeing’s many suppliers all around the country, and we view this statement/threat as being a warning to the politicians that if the plane isn’t quickly approved to resume flying, then there’ll be a lot of unhappy voters throughout the country and a harmed national (even global) economy.

Boeing Has Successfully Bet The Company Before

Interestingly, being at risk of complete failure is nothing new for Boeing.  But in the past, it was always as part of a “bet to win”, not as an outcome of having rushed an inadequate product to market.  Back in Boeing’s golden years, they several times claimed – even boasted – to have “bet the company” on a new airplane development project, meaning that if the new plane they were developing failed to sell well, the company’s survival was in jeopardy.

The most boasted about of such claims was the 747 project.  The biggest ever plane seemed worthy of the biggest ever boasting, particularly after the event, when the plane’s enormous success became assured.

But prior to that, in the early 1950s, then Boeing President William Allen claimed to be betting the company on the 707, and the hope that the future of aviation was going to be jet based.  Boeing invested 125% of their total net worth into the 707 program, which proved to be a wonderful success.

A Google search shows other examples of Boeing claiming it was betting its corporate future on other planes, too, including a bet that almost soured – the 787.

But there have been other bets that Boeing has shied away from.  Some were probably sensible decisions, such as not developing a successor to the 747 to match the Airbus A380.  Others are imponderables that we’ll never really know the sense of – most notably the decision to can the B2707 SST development after failing to get more money from Congress to fund its further development.  Or the canning of the Sonic Cruiser, the plane that promised to be about 15% – 20% faster than current jets, because Boeing thought passengers (and airlines!) would not pay even a tiny premium for faster flights and shorter travel times.

Some articles these days laughably describe things as trivial as increasing the production rate on the 787 from 12 to 14 a month as being “big bets”.  Clearly, Boeing’s risk aversion has massively increased over the years.  Indeed, Boeing now proudly boasts that it no longer gambles with its corporate future, invoking a phrase “No More Moonshots” as if it were a virtue.  Some industry analysts and commentators even approved of that as sensible policy.  Only a few far-sighted ones lamented Boeing’s loss of moxie.

Which leads us to an unheralded business decision that within it contained the seeds of another “betting the company” type decision, but which no-one realized the significance of at the time.  We’re referring to the several years prior to and during 2011.  It is an interesting story, and very relevant to today.

To Understand Boeing’s Present Problem, One Must Look 50+ Years Into the Past

To understand this, our story needs to start more than 50 years earlier.

For decades prior to 2011, Boeing has had one airplane that has been the essential element of its corporate success and survival.  The 737.  Ever since its announcement in the early/mid 1960s, and launch in 1967, the plane has outsold all other planes Boeing offers.  In general terms, at least two-thirds of all planes Boeing sells each year are 737s; the remainder being split over all the other models Boeing offers.

Note that all other model planes are at very much higher values, so while in terms of airplane units, the 737 is prominent, in terms of gross revenue generated, the 737 drops down in significance, and we’ve no idea the exact profit contributions per 737 vs the other airplanes Boeing sells.  But we’ll agree with Loren Thompson’s comments above that the 737 is the glue that holds the rest of the company together.

In 2018, Boeing delivered a total of 806 planes.  580 of those were 737s (72%), 145 787s, and a mix of 767s and 777s for the remaining 81 planes.  In 2019, Boeing was planning to increase its monthly production rate of 737s, which averaged 48/month in 2018, up to 57 a month, but that has been delayed due to the current problem(s) with the plane and its grounding.

The most recent Boeing figures (as of end of June 2019) show a 737 order backlog of 4,415 planes (compared to almost 5800 for the competing A320neo series).  This contrasts with backlogs for the other airplane series :

In total, 80% of Boeing’s order backlog are 737 planes, which represents about seven years of future production.

So, yes, the importance of the 737 to Boeing can not be overstated.  If it was discontinued without a successor plane, Boeing would be destroyed.  If it stopped being ordered and with no replacement, Boeing’s future demise when its 737 backlog was emptied would seem entirely likely.

So you’d think the highest possible priority at Boeing was, is, and forever will be that of protecting their entry-level narrow-body airplane and its market share.

If you thought that, you’d be half right.  But only half, because as is now painfully obvious, Boeing’s decisions have not been adequately protective of the plane.

Which brings us to what we suggest was a “Bet the Company” decision made in the first decade of the 21st century.  But we need to complete the 50 year look-back first.

The 737 Was Never Intended to Become What it Now Is

The 737 has never been a modern new plane.  Even when it first came out, its design was based on the 707 and 727 designs, a good ten years old, and remember the 707 was Boeing’s first entry into passenger jets, not a refined “already state of the art” design in any respect at all.  Design knowledge – these days a well understood mature subject with little new from one year to the next – was rapidly evolving.

The very first 737-100 was a failure of a design that only sold a mere 30 units before being quickly replaced by its much larger successor, the 737-200.  But the 737-100 is significant beyond its sales volumes, because it gives us a clue as to what Boeing was thinking in the early/mid 1960s.  Boeing chose to design a small passenger jet.  It already had the larger 707 series of jets, and also the medium sized 727 jets.  The 737 was to complete the trio as the smallest of the three plane series.

The 737 was only required to grow to be almost as big, and never bigger than, the 727.  The 727 was a plane that could carry about 150 – 180 passengers for short to medium range flights.  Up from that, for more passengers and longer distances, there was the 707 (and subsequently the 747).

The design concept of the Boeing 737 was simple.  It was to be a smaller-than-727 plane – ie, one that would never have any need to carry even 150 passengers, because at that point, there was the 727 series.  So the 737-100 had a capacity of about 85 (in a two class configuration) and up to 110 in an all coach class configuration.  Indeed, even that plane was up-sized from the original specifications which called for a smaller 50 – 60 passenger plane.

In a rush to catch up with other airplane designs from other airplane manufacturers, Boeing lifted about 60% of the 737 design from the already-in-existence 727.

The 737-200 was larger (and longer ranged), and carried about 102 – 132 passengers.  It seemed no-one needed really small, 737-100 sized jets, but the 737-200 quickly provided very popular, selling an unheard of 1100 units during its long 17 years in production.  No-one can criticize the plane or its great success by every measure.

But in the years that followed, and particularly after the discontinuation of the 727 in 1984, the 737 steadily grew in size, because the next larger plane in the Boeing range was also getting larger.  The 757 and lesserly the 767 took over the role of the 727, and now the smallest 757-200 carried not 150 but 200 passengers, with the 737 expected to fill the gap not to 150 passengers but hopefully closer to 200 passengers.  The successor to the 737-200 took the form of three versions, the -300, -400 and -500 (the “Classic” series), capable of carrying up to 168 passengers, and when they in turn were replaced by the -600, -700 and -800 (the “NG series”), passenger capacity grew still further to as many as 215 passengers.

After the discontinuation of the 757 in 2004, the next plane in size up from the 737 was the 767-300, which in the early 2000s was already nearing the end of its model life, and its smallest size carried about 260 in two classes or almost 300 in one class, creating still more gap below it that some type of plane was needed to fill.  The first 787-8 was similar in capacity to the 767-300 (about 240 – 350 passengers).

Meanwhile, Airbus was developing A320 models with ever larger capacities (the A321 could squeeze as many as 236 passengers into itself) making the gap in Boeing’s model range of greater strategic important to Boeing.  Boeing’s response to date is to do nothing except lose sales.

The Mutual Need to Do Something

So, particularly with the lack of any plan for a 757 successor, the 737 necessarily continued to grow, and by the time the 2000’s were coming to a close, there were two problems Boeing was wrestling with.  First, the 737 design itself was no longer anything near “state of the art”.  A new airplane design would have less metal and more composite materials, would have different wings, a different fuselage cross-section, and would be optimized for a different type of engine.  The 737 struggled to compete with the more modern A320 designs and was past overdue for replacement.

The second problem was that when the 737 first came out, it was powered by “low bypass” small long and narrow cigar shaped engines that nestled snugly under the wings, and without a great deal of ground clearance (to allow for shorter undercarriage and easier engine work with it being closer to the ground).  As the 737 grew, so too did its engines grow (both to provide more power and also because the new style “high bypass” engines necessarily had a larger diameter), creating a series of increasingly desperate workarounds to try and fit too-large engines under wings that were too low to the ground.  The egg-shaped engines of the “Classic” series of 737s were an obvious example of trying to solve that problem.

Boeing’s other problem in the second half of the 2000s was its runaway costs and delays with the 787 development – problems which, ironically enough, were entirely self-inflicted by Boeing attempting to reduce the risk (and cost) of developing the plane, but which unexpectedly resulted in much greater costs and delays.  The outsourcing of much of the plane’s design and development to other companies and in other countries saw Boeing lose close control over the process, and some people believe that Boeing’s inexplicable decision in 2001 to move its corporate headquarters away from Seattle, where all its manufacturing was, to Chicago, further disconnected the management from the people who actually had to implement management’s decisions and provide management with the feedback to make the right decisions.  A decision by the senior management to distance itself, quite literally, from its actual revenue-generating processes negated the hallowed concept of “management by walking around” and weakened the informal lines of communication; and surely to some degree contributed to the colossal problems that arose with the 787 development.

The 787 delays and cost overruns meant the company had less money and fewer engineers to allocate to new projects.

For a long time, it was becoming increasingly apparent that Boeing desperately needed to replace its 737 model series with an entirely new airplane, designed from a “clean sheet” rather than continuing to try to develop the 737 further.  Airbus was not quite so pressured, because its A320 series was newer (dating back to the mid 1980s rather than the 1950s/1960s roots of the 737.

With no other competitors offering similar types of planes, Airbus and Boeing were in a “being chased by the bear” situation.  As the story goes, if you’re with friends in the woods and a bear chases after you, you don’t have to outrun the bear.  You only have to outrun your friends.  For Airbus and Boeing, this meant that as long as the other manufacturer didn’t come out with a new airplane, then neither did the other company need to do so.  For Boeing, there was another consideration.  Due to the almost 20 years of extra marketplace life, the 737 had a much larger installed user-base than did the A320, and Boeing liked to sell new 737s to its existing users, viewing them as almost a captive market.  A switch to an entirely new airplane design would cause it to lose the advantage of parts/training commonalities between each of the models of the 737, and make it easier for Airbus to compete more equally.  Boeing was loathe to surrender what it felt to be a valuable advantage by continuing its 737 line.

Meanwhile, not only did Boeing have its 787 problems, Airbus was suffering from its own expensive challenges too.  It had suffered from cost overruns and delays, first with the A380 in the early/mid 2000s and then the A350 program, and was also keen to avoid another new plane program.

So both companies decided to adopt the “cash cow” part of the classic product life cycle model, where they simply keep selling a product that is past its prime to get extra profits from it as long as possible.

Applying Some 20:20 Hindsight

There were some valid reasons, in the mid/late 2000s, for Boeing to delay the development of an all-new successor to the 737, but of course, there were also a growing number of reasons why that should no longer be delayed.

It is interesting to look at an alternative world where Boeing chose to be forward-looking and ambitious once more.  What would have happened if it chose to create an entirely new plane rather than to come up with another makeover of the 737?

What we do know is that the 737 MAX has not been an outstanding success, even prior to its grounding.  Not only is its market share compared to the A320neo series at an all-time low, but at the bottom end, the new Bombardier Cseries (now the Airbus A220) has stolen still more market share, and in total, the 737 MAX is estimated to have no more than a 38% share in the 100-220 seat airplane market, and of course, no future beyond its present final iteration.

What if Boeing had instead developed a clean-sheet new plane?  Well, we can guess that the development costs would probably be slightly over $10 billion, and that the development lead time might be in the order of eight years.  In contrast, the tweak to the 737 to create the MAX is thought to have cost about $4.5 billion and took almost six years to get to market.

But if we now add the benefit of hindsight and first look at the lost market share that a new plane might easily have won (several thousand extra airplanes so far), plus consider the distress it would have caused to Airbus, forcing it to urgently switch from the neo to a matching new plane development, already the gap between the $4.5 billion and the $10+ billion closes.

And then layer on the cost of this unexpected grounding – about $8.5 billion so far – and all the “soft costs” of reputation loss, etc, plus the at least six months of delay to the MAX program during the grounding, a delay extending by probably another 1 1/2 days for every extra day of grounding – and suddenly, it becomes plainly apparent that by most measures, the “No More Moonshots” decision to play it safe and stick with the 737 was actually anything but safe, and definitely nothing close to sensible.  The $8.5 billion in grounding costs plus the $4.5 billion in MAX development costs would have more than paid for a lovely state of the art new airplane design.

A really clever move would have been for Boeing to start this program quietly in the late 2000s, and wait for Airbus to announce its neo product line, and then wait a bit longer to ensure that Airbus was committed to the neo and sinking billions of dollars/Euros into its development.  At that point, Boeing would then announce its already half-developed entirely new plane design, that would surely be better than a reworked A320, and with an entry-into-service date comparable to or maybe even earlier than the A320neo.

That would force Airbus to abandon its neo program and urgently start its own new plane program.  It would see Airbus lose billions of dollars/Euros in development costs for the cancelled neo program, and end up being some years behind Boeing for when its own new plane would be delivered.  Or, equally badly, Airbus would persevere with its neo, claiming hopefully that it was just as good as the new Boeing model, only to be thoroughly spurned by the market and forced to, at an even later point, urgently turn to a new plane.

If that scenario sounds unbelievable, think what happened with the 787/A350 development.  After Boeing announced its 787, Airbus first said its existing A330 was just as good as the new 787 promised to be.  Airlines didn’t accept that and started ordering large numbers of 787s.  Airbus next rushed out a new A350 that it said would be better than the 787, but its design wasn’t anything any airlines wanted, and so Airbus had to then totally revise its design and come out with a new version A350, which even now suffers from being “late to the party” while the 787 clearly dominates, as much from its “first mover advantage” as from anything else.

Our point is that any decision about future airplane models has to involve a careful analysis of what the other company is doing and will do, and prudently involves a cold commercial calculation about what to do, when, and how, so as to create maximum disruption for the other company and maximum advantage for one’s own company.  Boeing had a great opportunity, but shied away from it, while proudly chanting its mantra “No More Moonshots”.

Most surprising of all, this risk-averse invocation ignored the fact that its “moonshots” to date had been both extraordinarily successful and commercially essential.

Airbus Seizes the Initiative, Boeing Drops the Ball

So, while Boeing was timidly doing nothing and overlooking a chance to re-create its dwindling 737 dominance, Airbus did a very clever thing.  At the end of 2010, it announced plans for a new generation of A320 planes, called the “neo” (for New Engine Option) series.  This offered the usual improvements in operating costs and fuel economy (about 15%), and as the name hinted, these gains were almost entirely due to the new engines to be fitted to the planes.  Because the changes were modest rather than major, the new planes were to start being delivered only five or so years after the announcement.

Boeing had to respond.  The earlier and now named “ceo” (current engine option) A320 and the corresponding 737 NG (Next Generation) planes were moderately evenly matched (actually, in well-obscured truth, the A320 was slightly outselling the 737, but because the 737 had extra decades of model life, there were in total many more 737s in service, causing it to appear to be the more popular plane), but the new A320 neo models were significantly better than the 737 NG.

Boeing had two choices.  Either design an entirely new plane, to get clearly ahead of the A320 series, or make a few tweaks to the 737 NG series and respond with yet another generation of 737 planes.  Coloring their considerations was that an entirely new plane would probably cost $10+ billion and might take 8 or more years to get into the air (and the A320neo was expected in five years).  A new tweak of the 737 could be done at much lower cost and much more quickly, and should more or less restore the “status quo” between it and Airbus.

So, Boeing in effect “bet the company” on how it would respond to the A320neo announcement.  But rather than betting the company by investing in a futuristic new airplane that would set a new high-standard for airplane excellence, Boeing’s decision, which seemed to be the less risky bet by a company now focused on lowest-risk management, was to spend the least amount possible to simply catch-up to the A320neo.

It should be added that the Airbus A320neo announcement was far from a shock.  Some Boeing apologists have said that Boeing was forced into making a bad decision (the 737 MAX) because it had no choice after the Airbus announcement.  Wrong.  A bit like the married couple you see, who quarrel more and more severely, and then announce a divorce that surprised no-one; the decision to do something/anything to the A320 was growing more anticipated with every passing airshow (typical venues for new airplane announcements), as was an announcement by Boeing for a successor to the 737.

This background is discussed in detail in a four part series we wrote at the time of the Airbus announcement in December 2010.

But Boeing seemed to be blindsided by this announcement, and did nothing for month after month into 2011 (see this article from us in February 2011 and this subsequent article in April 2011), while Airbus was raking in orders for its new neo planes, outselling the old 737 NG series by an unheard of factor of 3:1.

It was only when American Airlines issued Boeing an ultimatum – “If you don’t announce a new airplane, we’re going to take an order we could give you of several hundred 737s and give it to Airbus instead” – that Boeing broke out of its funk and agreed to a 737 upgrade at the end of August, eight months after the Airbus announcement.  They were still struggling to catch up, so much so that the new plane announcement and details came six weeks after they were bullied by AA into doing something in early July.

Boeing had a problem in its decision to come up with what became known as the 737 MAX series of planes.  The lack of clearance under the wings was insufficient for the larger diameter of the new engines that were the key part of the improved efficiencies of the 737 MAX.  But as part of the decision to stick with the 737 for another model series, Boeing decided to compromise and “tweak” the height by moving the engine forward so the largest part of it was ahead of the wing and therefore able to be slightly above the wing, giving it more clearance where it was most needed.

Unfortunately, by moving the engine further forward, this changed the geometry and effect of the engine’s thrust, giving it not only the “forward” component that is needed and desirable, but more of an unwanted “upward” component too that tried to tilt the airplane up.

This upward component was at its most notable at low speeds and high thrust settings – in other words, at take-off.  Boeing decided the best “solution” to this problem was to program the plane so that if it detected it was being tilted up too far, it would automatically adjust the rear stabilizer on the plane to counter the tilt-up effect with a matching “tilt-down” setting, so as to make the plane fly “normally” and without bothering the pilots and complicating their lives.

And so was born the 737 MAX.  The benefit to Boeing was that after decades of delay and complacency, they could now rush yet one more generation of tired 737s into service.  Whereas the 737-100 was capable of carrying up to about 110 passengers, the MAX planes could carry up to 204; whereas the -100 had a range of 1,540 nautical miles, the MAX would go up to 3,850 nmi; whereas the -100 was 93 ft long, the MAX goes up to 144 ft, and whereas the -100 had engines that would generate up to 14,000 lbf of thrust, the MAX engines are capable of up to 29,300 lbf.

A totally different plane, you might think.  Amazingly, most of the certification process for this new and very different plane was based on grandfathered approvals for the original 737, almost exactly 50 years earlier.

And So – Boeing’s New Betting Strategy

The bet almost paid off.  The MAX has sold very well – about 5,000 units have been ordered in the eight years since it went on sale in mid 2011.  But the A320neo has sold 6,635 units – it would seem the market share gap that was already slightly favoring Airbus prior to the new models has widened further in its favor.

And then, as is too-well known, an incredible unthinking blunder in the design of the MCAS automatic control system came back to haunt the entire world.  It is hard to be too critical of the thought processes that resulted in a critical control system being reliant on one single and somewhat fragile sensor – a decision all the more inexplicable when the planes came with dual sensors, the other one of which was just ignored.  The outcome, this unchecked sensor system and its automatic response to prevent the 737 MAX plane pitching up too steeply caused two fatal accidents.  Creating a fix, which Boeing first denied any need for, and then described as a pilot training issue, and then as a simple software fix that was already half done, has now, as of the time of writing on 18 July 2019, caused the plane to have been grounded for over four months (since 13 March).

Boeing is projecting the grounding may be lifted in October, which would make it seven months long; other industry observers think it might be longer still.  But when it suits itself to do so, Boeing theatrically worries about that possibility too – in the sense that it would be the FAA’s fault, not its own fault, for a lengthier delay.  As a measure of the speciousness of that claim, keep in mind that now, 4 1/2 months after the grounding, Boeing has yet to submit a fix for the FAA to evaluate and prove.

Was it a Sensible Bet

Did Boeing’s bet pay off?  We guess Boeing makes a profit of $6 million on every 737 MAX it sells (this assumes an average price of $60 million and a 10% gross/variable profit margin (ie before all the corporate overhead and other costs), which is reasonably in line with its 2018 annual report figures).  So, noting the company has sold 5,000 so far, that suggests a total gross profit contribution of $30 billion for the program, spread over the ten or more years it will take for all those planes have been produced and delivered.  Of course, more planes will be sold in future years, too, so the actual total sales/program profits will be greater.

Allowing for costs of the grounding so far reaching somewhere over $8.5 billion and likely to exceed $10 billion, possibly even $20 billion, by the time everything is resolved, plus on-going reputational and marketplace damage, it seems this is a gamble that – while not a disaster, has clearly not paid off as well as it should, but which – at this point – is not risking the company’s survival either.

But, let’s not minimize the harm this has caused.  To look at it from another perspective, with 500 or so 737 MAX planes being delivered a year at present (a rate due to increase as soon as the grounding ceases), that suggests $3 billion a year in gross profits from the 737 MAX program.  So, already, three years of gross profits have been lost from the sales that have been made, plus with a lower market share than ever before, more sales are being lost to Airbus.  Wouldn’t it have been better to delay by however long to get a better plane?

That was really the nature of Boeing’s gamble back in 2011.  It had two choices, which it dithered and delayed over for more than half the year.  Either to develop a 737 replacement, or to come up with yet another 737 derivative.  While the 737 replacement would have added another year or two of time until it would be delivered, we don’t think the extra delay would have lost Boeing a lot of clients.  Their customers simply wanted to know what Boeing would do and when, and within some limits, could plan their fleet expansion/replacement programs once they knew.  The 737 replacement would have also likely cost an extra $6 – 8 billion over and above the costs of a 737 derivative.

But the result would have been a new state of the art plane that would almost certainly be convincingly better than the Airbus A320neo alternative in every respect – reliability, operating costs, and passenger comfort.  Instead, the 737 MAX has demonstrably ceded market share to Boeing in the order of many hundreds of lost airplane orders (even thousands of lost orders compared to what a total new airplane design could have done), and has shown Boeing to be on the back foot with its core product, relying more on airline goodwill and longtime client relationships than on product superiority to make sales.

On the other hand, when compared to the 707 gamble with 125% of the company’s net worth invested, Boeing’s current net worth ($208 billion) massively eclipses any foreseeable total loss from this debacle.  Assuming an orderly resolution in a reasonable time frame, Boeing’s corporate future is not at risk.  The mantra “No More Moonshots” never made any sense, because a $10-15 billion investment program into the company’s best-selling product line is small compared to its $208 billion net worth.

As for the successor to the 737, Boeing still has no announced plans to consider a successor.

This should not be surprising, alas.  Not only did it let Airbus beat it to the punch with the neo/MAX announcements, but it clearly doesn’t make any new plane decisions quickly these days.  It continues to endlessly dither about a successor to the 757/767, even though the last 757 rolled off the production line 15 years ago, and even though Airbus is clearly winning in terms of selling its planes into the gap in Boeing’s model range (here’s our take on that written in March 2018).

Currently it seems Boeing’s plan may be to announce a 757/767 successor perhaps in 2020, and then at some stage during/after the development of that plane, to then shift its focus to the 737 replacement.  So there’s every possibility that the dated 737 will remain as Boeing’s strategic core product and without an announced successor for up to another decade.

These days Boeing’s bets are “Let’s do nothing, keep our costs down, and hope we can get away with this in the marketplace”.  Some of us yearn for the bolder days of “Let’s design and build an entirely new type of airplane and hope the market will support us”.

Boeing’s gamble with another 737 derivative has clearly (and, to be fair, unexpectedly) turned out to be a mistake.  But risking the company’s future?  Not so much.