The next Boeing plane is expected to meet airlines’ need for an aircraft smaller than the 787 Dreamliner and bigger than the single-aisle 737. Shown, a Boeing Co. 787 Max 10 aircraft on the tarmac ahead of the 53rd International Paris Air Show at Le Bourget, in France in June 2017. The Wall Street Journal
By Alex Frangos
One reason things have being going so well for Boeing Co. shareholders: The airplane giant hasn’t tried to build a new type of plane lately.
That looks about to change. Next year, Boeing is likely to decide whether to start developing its first new airliner in 15 years.
Investors would be right to worry. New planes are hugely risky, in terms of cost and design and predictions of market demand years in advance. Boeing’s last big bet was the 787, which launched in 2003, cost $30 billion and only began turning a profit on each plane in 2016.
The next new Boeing, known as the “new midsize airplane,” “middle of the market” and unofficially, the 797, would likely be a double-aisle jet intended for delivery around 2025. The goal is to meet airlines’ needs for a plane bigger than the single-aisle 737, and smaller and with less range than the 787 Dreamliner. The new plane would overlap with the discontinued but still widely used 757 and 767, ferrying 200 to 280 passengers up to around 5,000 nautical miles.
The market for such a plane isn’t obvious today, which is one reason Boeing isn’t building it already. The last 757 came off the line in 2004, and while airlines might like a replacement, it hasn’t been a major priority.
Airbus, too, has a ready response. It can stretch its popular single-aisle A321 to cover some of the same market Boeing’s new plane would, but possibly at lower cost and lower execution risk, since it wouldn’t be a completely new plane.
That doesn’t mean pursuing the 797 is the wrong decision. Boeing’s cash flows are strong, and aircraft makers have to take risks and bring the newest technology to market. While demand for this plane isn’t clear yet, the desire by airlines to link midsize cities, especially in Asia, could make the plane ideal in 10 to 15 years. And what it learns on the 797 might be invaluable for a much bigger and more important task down the road: replacing its best-selling 737 family.
Do nothing and Boeing could end up ceding the midsize-jet market completely to Airbus. If Airbus accumulated insurmountable market share, it would be able to negotiate lower rates from suppliers and sell planes for less than Boeing.
Despite the best intentions, the history of new aircraft programs is littered with tears. Airbus’s double decker A380 and Boeing’s 787 are recent examples where costs skyrocketed. The good news is any pain from a botched 797 would be some time down the road. Problems tend not to crop up for several years after a project’s launch.
Boeing shares were the best performer in the Dow Jones Industrial Average for 2017, up 90%. Free cash flow, the metric most followed by investors, is the best in years. This has no doubt attracted new investors who may need to be reminded: Building planes isn’t a risk-free business.
Original article can be found here ➤ https://www.wsj.com
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