Boeing Might Not Be Doomed Just Yet…
With the Boeing employee union strike making headlines around the world, many people wonder what impact this may have on the Aviation Industry should this continue for a long time.
The impact of the Boeing strike, however, is already here.
Let me tell you why.
For a few months now, Boeing has seen tremendous impact on its production capacity due to the FAA closely monitoring the 737 MAX production line, following the events of the Alaskan Airlines flight. This means that supply for one of the most sought-after narrow bodies was going to become tight.
So much so, in fact, that while Boeing originally planned to ship 70 MAX units per month, they went down to even less than 10 per week.
Now, you may think that Airbus executives receive this news while popping champagne and seeing their numbers grow, but this is ultimately not true.
While Airbus has indeed seen demand for the A320neo family spike, they are also facing issues of their own:
- Saturated production capacity.
- PW Engine issues.
- High opportunity costs.
Saturated Production Capacity
On the one hand, while it’s great for Airbus’ accounts that the A320neo outsells the 737MAX, their order book has grown so much that they are reaching the maximums of their current production capacity, with A220 workers even having to work on the weekends.
In fact, if you bought an A320neo today, you wouldn’t get it until next decade.
This shows that while many customers might switch from the 737 MAX to the A320neo citing operational security reasons, they would have to wait until past 2030 to get their units, unless they lease it from a Lessor.
PW Engine Issues
Pratt & Whitney (PW for short) is the supplier for the engine on a great number of Airbus jets.
In late 2023, they reported that engines manufactured between 2015 and 2021 might have fallen victim of contaminated metal that could interfere with the correct functioning of the engines. This caused several of the already-scarce A320neos to be grounded for further inspection.
Moreover, the global supply chain constraints make it harder for PW to perform scheduled maintenance due to lack of spare parts.
High Opportunity Costs
The idea is simple: Airbus production is so constrained, that any other investment in production capacity other than for the A320neo is a waste of money.
This prevents Airbus from scaling other production lines that see a strong demand, like the A220’s, or even prevents them from considering bringing the A380 back and producing a NEO model, after much public debate in the past years.
I write more about Airbus’ current struggles and how they prevent Boeing from falling here
Expanding over Airbus’ issues helped us illustrate how important it is for Boeing to get its act together and resume a path for growth.
Most recently, an internal memo of Boeing’s CFO was released, where he explains how the company will cope with the effects of a continued strike. Here they go in short:
- Hiring Freeze.
- Stopping executive travel that is not critical.
- Eliminating First and Business Class travel.
- Suspending consultant spend and letting go of non-essential contractors.
and the list continues…
While this is really tough medicine, this is maybe the concrete, tough, and direct solution Boeing needed to their financial struggles, since it’s highly unlikely that all these measures will be simply scaled back once the strike is over.
So, to conclude, while the outlook might seem sheer in the short/medium-term, I have high confidence that Boeing will successfully turn the ship around, and that these hard measures will only allow them to grow sustainably in the future.
