Boeing CEO David Calhoun is careful with rate increases. He isn’t willing to announce increases that go too far into the future. A wrong signal to suppliers might backfire on Boeing if predicted numbers fall short, Calhoun said on June 3 during a Bernstein Strategic Decisions Conference.

Calhoun was asked on rates in the context of the recent announcements by Airbus,  which is studying a steep production increase of its single-aisle aircraft. The A320neo-family could go from the current forty per month to rate 64 in Q2 of 2023, slightly higher than before the Covid-crisis kicked in. In 2025, rate 75 isn’t excluded by Airbus, which also looks at increasing rates for the A220 from five to fourteen in 2025. While the rates have to be confirmed, Airbus has clearly been sounding out its suppliers to get them prepared for the higher numbers.

During the Bernstein event, Calhoun was unwilling to comment on what Airbus has said, but he is careful with production rate increases: “In my opinion, the idea that we should signal to our supply chain what the rate is going to be in two or three years from now when we still do have time to respond and do have time to put things in place, the idea that we’re going to compete on those forecasted rates I think creates trouble for our supply chain.”

Boeing CEO David Calhoun. 

The ‘trouble’ of committing to rates for the mid-20s now is that they can get back to you, Calhoun suggested: “If we get it wrong, we pay a price for that. We don’t satisfy the demand that would otherwise be there and/or we’re getting crushed because there too much inventory and all of a sudden we got to lay people off because we were ahead of ourselves.”

He added: “With respect to supplier capacity , I simply want to give them every ounce of information and transparency as to exactly what the backlog looks like and what the production lines are delivering. And then allow them to weigh in on that judgment with me and those that require physical capacity meaning investments that are longer cycles than the cycles involved in the order or the simple rate adjustment. Then we’ll try to get as far ahead of that as we can. But I am going to steer clear from blanket rate announcements that go out too far. I will always announce rate adjustments when I need to for the benefit of the supply chain not in terms of signaling market shares.”

Commercial aircraft have to be high on the agenda to end the US-China trade dispute as it blocks the
success of the MAX in China, Calhoun says. (Boeing) 

MAX rate increase depends on China

While Calhoun is optimistic that (leisure, business, and long-haul) might recover quicker than is anticipated now, he is careful with translating this into production rate increases. Boeing certainly wants to increase the rate of the MAX to 31 per month in 2022 again but going beyond that depends on something else: the US-China trade relations. In this war, the MAX is a victim as the Chinese regulators still haven’t recertified the type to get it back into service. This is a major setback for Boeing, as its MAX order book has a fair share of orders from Chinese airlines and lessors.

On the situation, Calhoun said: “I don’t want to get past the 31 number until I have real clarity around China and that’s a real factor in it. It does affect the recovery trajectory. And if I try to run that number on the basis of an absolute win across the board in China at a certain moment and get it wrong it’s a big wrong. So I don’t want to do that. We have tried to push out China deliveries in our inventory and with respect to the commitments on our line rates. We’ve tried to push them out as far as we can, risk reduction to all those kinds of things. But we’re going to get within cycle pretty soon, right. And as you get within the cycle, if we can’t restore those, those trade routes then we’re going to have to delay going for 31 to anything until we’re confident that, that is restored and so that, that’s why I’m not getting ahead of itself on it.” Calhoun said Boeing and commercial aerospace has to be high on the priority agenda when the US government tries to solve the trade dispute.

Full understanding for FAA position on the 787

The Boeing CEO said that the production rate of the 787 could return to the pre-Covid level of fourteen per month from the current five. The North Charleston site, which has become the sole assembly site for the Dreamliner since March after production in Everett was discontinued, is still in the process of consolidation but could easily handle the higher number on its own. But here too, Calhoun is careful on a rate increase, as it needs to be justified by demand.

Dreamliner deliveries have been paused again since late May after the FAA requested additional information on the production process improvements that have been implemented since October. Back then, 787 deliveries were paused until late March after quality issues were found on the composite fuselage sections. Since then, Boeing has made many changes but the FAA wasn’t satisfied, leading to another pause.
Calhoun justified the FAA’s position: “Our issue is that the FAA rightfully wants to know more about the analytics and process controls that we put in place which are different than the ones we had previously so that we could be more perfect. (…) Anything that’s different requires a vote and requires a deep look by the FAA. And they just have – they have questions about the approach that we took, not objections just questions.”

Boeing 777-9 WH001

The 777X is performing well without technical issues, Calhoun said. (Boeing)

777X a logical addition to the family

On the 777X, Calhoun said that everything is on track for a late 2023 certification. During its test flight program since January 2020, the four 777-9s have performed very well and are without any technical issues. The delays come from the request by regulators to review the program and redesign electric actuators to make them more robust. “We’ve incorporated all the timeline learning that we could possibly incorporate from the MAX recert and the architectural preferences that both the FAA and the EASA have embedded in their regulations. So those are important things with respect to how we do this and we’ve incorporated that and we’ve given ourselves time to learn as we go through this.”

While to wide-body, the long-haul market might have changed during the Covid-crisis and Boeing reduced its program accounting quantity, Calhoun still sees a bright future for the 777X as it is an “incredible efficient airplane and we think it flies on its own.” He is confident Boeing will bring a 777X-freighter onto the market, confirming reports earlier in the week that Qatar Airways is in talks about an order for the muted 777XF as a replacement of the highly successful 777F.

Taking its time on a new airliner

It was under Calhoun’s leadership that Boeing decided in late 2019/early 2020 to freeze a decision on the launch of the New Mid-market Aircraft (NMA) and Future Single-Aisle aircraft (FSA) as he wished to have another review. Last January, he said Boeing has been making great progress on its future type strategy that seeks to bridge the product gap between the MAX and the 787 to compete with the Airbus A321LR/XLR.

The Airbus is “a good airplane”, Calhoun said: “I like everything about it. And it definitely fills up a select part of the market.” But despite its sales success, Calhoun likes to think it’s a niche aircraft:  “Our view of that market is it’s a select part of the market where it enjoys a performance advantage. And then there’s a whole another part of the market, which is much bigger where our airplanes enjoy a performance advantage. And that hasn’t changed that much. It really hasn’t. So the notion that the A321XLR somehow sweeps the market of some sort or garner some giant share that differentiates the portfolio shares of our two great companies, I don’t think so. I don’t see that as a market mover in that regard. And then, it won’t be all that long before we’ll announce ours. And ours will not be predicated on replacing that because of what I just said. If we believe it’s a – if it’s a select and niche market, we’re going to tackle something much bigger than that.”

Boeing isn’t going to rush a decision on a new aircraft: “Our program is to develop a model that is resilient enough that we can say, this can be used on the development of the next airplane. And then, secondly, to perfect some what we call large scale determining the assembly techniques using our long experience and learning curve and composites to be able to demonstrate that at scale and repeatability such that it can be used on that airplane. And if we can do those two things, that next point-design will accomplish its mission. So, I’m sequencing to these two programs before I call out a point-design and, I use the word I, we, and we’ll call out a great point-design when we call it out. But it’s got to be predicated on a much more efficient way of design and build.”

Whereas Airbus has embarked on the road to a hydrogen-based airliner from the mid-2030s onwards, Calhoun repeated that Boeing will not go this way but rather prefers sustainable aviation fuels (SAF): “We have experience with hydrogen. We test it. We use it. We’ve had experience on military platforms. We’ve got experience on commercial platforms. We don’t think it works for that climate and that scale and size. It will work for some very small packages.”

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