The silver lining behind the Boeing cloud

As we enter the last month of 1Q24 (already?), here are some thoughts on the state of the commercial aviation industry. The summary is that there is a silver lining, but it is obscured - for now. The perfect storm consists of a passenger capacity shortage driven by a pilot shortage (the residue of too many retirements during COVID) and Pratt & Whitney GTF-related AOGs. Add the MAX 9 production squeeze and ongoing delay in getting the MAX 10 certified to that mix. We regularly mention the importance of the single-aisle MoM, and here's an update that needs your attention. This MoM segment averages 35% of single-aisle deliveries. Did the 757 ever have such a significant impact? [caption id="attachment_81810" align="aligncenter" width="580"] AirInsight[/caption] To clarify the situation further, here are the deliveries from Airbus and Boeing for this segment. The implications are self-evident. [caption id="attachment_81812" align="aligncenter" width="257"] AirInsight[/caption] It's no longer just the missing NMA or whatever name that concept goes by now. Even the MAX 9 and MAX 10 are missing. This is the duopoly's Achilles heel and is dangerous for commercial aviation. That cloud is all about Boeing and its absence from the segment. This month has seen LOT, a 787 operator, lease an A330-900 from Brussels. Boeing's 787 deliveries are also running late. The A330ceo saw some of its best years when the 787 entered the market. In Asia, some operators are turning to the A330 to cover for a lack of GTF-powered A321s. The pilot pool limits are leading to deploying larger aircraft on fewer flights to move the traffic at or better than 2019 levels. We understand from an industry insider that GTF-related AOGs are causing pain for operators but are coming in lower than the forecasted 650 AOGs. AOGs are still expected to be high and lengthy despite this “under promise/over deliver” positioning. An important implication from fewer AOGs is that the FAA will not issue the AD until much later than initially expected, as a result, fewer engines have mandatory grounded for now. It is unclear if MRO shops are installing less than full-life parts for a while, with full-life to MRO shops a ramp over the year. So, more flying now, lower AOG, but more MRO later. Incidentally, as we saw at the Singapore show, operators have confidence in the GTF. Today, Icelandair announced it selected the GTF for up to 35 A321s on order. Even as the GTF has created network chaos, the engine remains attractive, and confidence in Pratt & Whitney looks intact. The industry can Band-Aid its requirements - for now. The A330 has come through again. The A321neo family continues to rack up orders, and we expect to see United Airlines move deeper into its A321neo commitment. The pending American Airlines order could add to the A321neo backlog. So, where is the silver lining? Boeing is obscuring that silver lining, and its position is increasingly untenable. Many would argue that Boeing is 100 years old and too big to fail. It is the USA's largest exporter. It is a leading defense contractor. Boeing has tremendous institutional power. But even the venerable Boeing Company has become vulnerable, and that reality is increasingly evident. Here is an example: At the recent PNAA conference in Seattle, Ihssane Mounir asked suppliers to speak up. This is a different tone from "Partnering For Success". That strategy was unwelcome by the supply chain. As a critical supplier shared with your correspondent, Boeing has to change its attitude with suppliers. To reinforce this need to change is the inevitable swing in the supply chain away from Boeing to Airbus. No supplier would be caught even whispering such words. But look at the market - where are most parts being sent? Airbus is out delivering Boeing, and that is where the parts are going. Boeing's decision to bring Spirit Aero back in-house reflects the need to shore up its supply chain. This is unlikely to be the only change Boeing will make. Aircraft production and buying is a long game. Decisions being made now will impact into the next decade. For instance, long-time Boeing customer United's swing away from AMX 10 to A321neo has a long-tail financial impact. If Boeing does not shore up its product offerings by stabilizing its MAX program, it will run into financial constraints. These financial constraints could ensure that even Mighty Boeing will not be able to finance its next aircraft, and there is no doubt it needs another aircraft to match the A321 and its successor better. Airbus is already talking about that model. The number of voices clamoring for Boeing to move in this direction keeps growing. Perhaps the most succinct statement recently was the "Last Chance Saloon." Boeing must realize that its direction has been flawed for some time. There are hints this reality is writ large enough for those decision-makers who led the company to where it is now to notice. This process will take time - for example, the decision to close the Strategy department is odd since that is precisely what Boeing needs more of rather than less. The decision to develop the X-66A is a step in the right direction. It is late and way overdue. But there has been a step made. Another hint at seeing the reality of the future was the leadership changes announced in December. The cloud in front of the silver lining is Boeing's creation, and Boeing needs to remove it. It looks like, perhaps, some at Boeing realize this and are trying to make changes. The company is large, and some decision-makers stand in the way, and this process will take some time. This kind of news will build and force the issue for Boeing's leadership. Boeing's future elicits a lot of attention; example 1, example 2, example 3. Almost certainly, forces are beginning to bear that will force Boeing to make the changes it needs to make.

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