Don C. Brunell: Boeing Has Lots Riding on MAX

When Boeing rolled out its first 737 MAX last month there was little fanfare. Nevertheless, its importance to the company’s future and our state can’t be understated.

The good news is Boeing delivered more airplanes last year than Airbus and it has a backlog of 5,800 orders. However, yellow flag goes up when it comes to the 737 MAX. It is behind the A320neo in development and sales.

According to the Seattle Times, “Not counting Airbus sales in December — those figures are still to come — the European jet maker’s A320neo in 2015 had already won two-thirds of sales in that market against Boeing’s 737 MAX.”

Even though Airbus missed its promised debut in 2015 because of engine problems, the A320neo expects to go into commercial service this year. If all goes well, the 737 MAX will start carrying passengers in the fall of 2017.

Boeing has invested billions updating its commercial fleet to make it more fuel efficient, environmentally friendly, comfortable and less costly to operate and maintain. A large part of the funding for the research and development comes from 737 sales. Since it came on line in 1966, it has been the largest contributor to the company’s cash flow and profits.

The stakes for Boeing are high. Aircraft manufacturers project the world’s airlines will require 36,770 new planes by 2033. The market value is $5.2 trillion.

The strongest growth is in the single-aisle market where three out of four new aircraft are anticipated. That’s where Boeing and Airbus really bump heads. It is also the attracting aerospace companies from Japan, Russia, Canada, Brazil and China.

Currently, China poses the greatest threat to Boeing and Airbus.

In November, the Commercial Aircraft Corporation of China (COMAC) rolled out its first C919 which is scheduled to begin test flights this year. It seats between 130 and 200 which is the sweet spot for Boeing and Airbus.

The advantage of the C919 is the purchase price. China National Radio reported it could be 30 percent cheaper. COMAC already has 534 orders from 21 airlines.

Costs are important, particularly for low-cost airlines in the high growth Southeast Asian market. In China, low-cost flights are currently increasing by nearly 25 percent annually.

Southwest Airlines, which is an all 737 fleet, is the prototype for low cost carriers. It offers no frills, such as first class seating, relies on direct internet sales and operates from lower cost airports such as Chicago’s Midway and Houston’s Hobby.

Boeing reports the low-cost carriers will need more than 10,000 new single-aisle airplanes in the next 15 years. The best news for Boeing is the 737 MAX fits perfectly in that niche.

The benefit for Washington is the company is ramping up its 737 production at the Renton plant. It expects to go from 42 planes per month to 52 in 2018.

Boeing needs 737 profits to help underwrite the transition to its new family of long-range 777X jets by 2020.

The Seattle Times reported Boeing must sell 40 to 60 current-model 777s each year to maintain production and avoid layoffs at the Paine Field factory. The bad news is Boeing sold just 38 last year, down from 63 in 2014.

In our state, Boeing accounts for over 160,000 direct and indirect jobs and has nearly 2,000 suppliers. It purchased $5.7 billion in goods and services and in 2014 gave nearly $54 million in charitable contributions.

Thankfully, Boeing’s growth is strong and the bulk of its commercial airplanes are assembled in the Puget Sound region. However, the key to keeping its production here is also tied to costs.

(Don C. Brunell is a business analyst, writer and columnist. He can be contacted at [email protected].)