Boeing and its rival Airbus will not be able to meet airline demand for new airplanes over the next five years. It’s not going to happen.
It’s a dramatic statement from Boeing’s new sales chief, Brad McMullen, as he begins his tenure leading the Boeing sales organization he’s spent more than two decades in. However, it’s nonetheless the reality of the current market as airlines try to find airplanes, passengers pay top dollar for flights and supply chains shattered by COVID-19 struggle to reassemble.
“There’s more demand out there than the suppliers can meet,” McMullen told TPG during the Paris Air Show, where Boeing secured orders for 356 commercial aircraft. “Everyone wants more airplanes now.”
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But that isn’t all bad news for Boeing, nor the airlines. They continue to see steady flows of new aircraft — if not at the pace they’d prefer — and place orders for delivery in the latter part of this decade and the early 2030s.
With orders largely following pandemic reopening trends, U.S. airlines have some of the earlier delivery slots, McMullen said. Brand-new orders placed now would likely not be delivered until the end of the decade. The supply chain crunch also means longer lead times for new orders.
“We were selling for 2024 two years ago; we’re selling for 2028 and beyond now,” he said. “All of that time frame in the middle is where everyone wants airplanes, but there’s none available. We don’t have them; Airbus doesn’t have them.”
One consequence of this is that new startup airlines won’t be able to get new aircraft anytime soon unless they find some from lessors or older, used aircraft not necessarily built to their specs.
That can seem at odds with announcements from some airlines, such as newcomer Riyadh Air. A few months ago the carrier ordered up to 72 787-9 Dreamliners from Boeing, with the first scheduled to be delivered in 2025.
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So how does that happen?
McMullen said the order had been in negotiations for about a year and a half before it was announced, and Boeing reserved the delivery slots for Riyadh early on in the process.
“And it’s an important [customer campaign], so we quoted them airplanes, and we just never moved them,” he said.
Ceding a ‘niche’ market to Airbus
In recent years, speculation has swirled surrounding a potential new aircraft program at Boeing — one that would design a higher capacity and longer-range aircraft than most of the current narrow-bodies but one that’s smaller and cheaper to operate than the wide-bodies on the market.
This would be an aircraft that could fit the growing trend among airline route planners favoring thin point-to-point routes; it would offer airlines that operate mostly domestic or regional routes a chance to go a bit longer and spread their wings, so to speak.
In other words, it would be a replacement for the 757, which arguably came before its time.
There’s been no word on such a program for a new midmarket airplane, or NMA, from Boeing in recent years. Still, that hasn’t stopped speculation.
Nor has Airbus’ continued development of its A321neo line, including the new extra-long-range A321XLR. The XLR, expected to enter service in 2024, was displayed in public for the first time at the air show and has proven popular with airlines. For example, JetBlue has 13 on order to complement its existing fleet of A321LRs that can reach Western Europe.
McMullen, however, said he hears little demand from customers that would justify the expense of designing a new airplane from scratch — particularly when Boeing’s French competitor is preparing to enter the market with its solution.
“A lot of customers, if they need that range, they’ve looked at the 321XLR,” he said, noting that Airbus has had challenges in the development process. “We can serve the same need with 787-8s, and we’re seeing some of that uptake.”
“We’re not going to build an NMA,” he said. “Maybe someday, but it’s not something that we’re contemplating right now. So I think the airlines have looked for other solutions for that size market.”
McMullen rejected the notion that Boeing was surrendering that part of the market to Airbus, however, arguing that airlines could simply choose the smallest 787, or the largest 737 MAX, the -10.
“The XLR has a range advantage that we don’t have in the market right now, but it’s a niche airplane,” he said. “There will be some airlines who need that airplane and they’ve bought it.”
“Long-term, I think when we or Airbus build a new airplane, that size of market will obviously be something that we want to cover with our product, or we’ll at least look at and evaluate.”
A full-size flagship
On the larger end of the airplane spectrum, Boeing’s newest flagship and biggest airplane, the 777X, is inching closer to certification despite numerous delays.
As those delays have added up and COVID-19 put the industry briefly on pause, orders for that plane have slowed; this is the case even as Boeing has made its air show debut and continued to show off the plane as its centerpiece over the past 18 months. (Air India firmed up an order for 10 of the planes during the air show.) The company currently has 353 orders for the two models of that jet, the 777-8 and 777-9.
McMullen says he isn’t worried and expects that to pick up.
“We’ve had a thousand orders since last year; the vast majority of that has been single-aisle,” McMullen said. “There’s a lot of stuff on the horizon, and there’s an unprecedented amount of demand, and there’s a good chunk of that for big twin-aisle airplanes besides the 787.”
Despite a preference for nimbler operations with smaller or more flexible aircraft, such as the 787, the realities of aviation will continue to require larger aircraft in bigger markets for the foreseeable future, McMullen noted.
“You’re always going to have large metropolitan areas with slot limits where those size airplanes are going to make a lot of sense,” he said. “Look to the second half of the year, I think you’ll see that there’s going to be an uptick in demand.”
Hinting further at additional orders to come later this year, McMullen noted that the plane-maker has been announcing and finalizing orders throughout the year rather than saving big sales, like one to Ryanair for 300 MAX 10 jets, to announce as a marquee show order.
“There’ll be stuff that happens shortly after the air show that we didn’t try and pull in,” he said. “It’s three days out of the year.”
Asked whether air shows matter anymore in terms of announcements, McMullen noted that there can be value in show announcements; however, he said the main benefits of the show are the chance to show off the latest products and touch base with the rest of the industry.
“They’re an important touchpoint for us to meet with our customers,” he said.
Selling airplanes is one thing, but the main focus now: Building airplanes
For the time being, with deliveries of the 737 MAX and 787 resumed and flowing, the biggest challenge Boeing faces is the same as that of Airbus: working to get its entire supply chain stabilized so it can finish building aircraft.
“The industry is struggling with a lot of the same issues right now,” he said. “We’re incredibly focused on executing our development programs.”
“The demand outstrips the supply, and the biggest thing we can do to satisfy our customers is to deliver on time and get back to that cadence,” he added.
A key to keeping customers happy with Boeing is simply transparency, McMullen said. This could be related to supply chain delays or various new regulatory or safety compliance issues that pop up.
“You’re seeing a lot of us being open very early on if we have a problem, just coming out and saying ‘Here’s the situation,’” he said. “In a lot of the cases, there’s no impact to them.”
“Transparency is our mode, that’s just our mantra right now. We’re just open with the customers. We have to be,” he added.
While Boeing has said that it plans to increase its production output — as has Airbus — the biggest challenge is to keep a disciplined approach and not overstretch to meet the current demand, McMullen said.
“We’re not going to go to something that is irrational for the market, and we’re not going to yo-yo the market,” he said. “Having some stability and predictability is good for the airlines, is good for us.”
Nevertheless, despite the challenges, it’s a good time to be in the business of building and selling airplanes.
“The market is exceptionally healthy,” he said. “Healthy for us, healthy for the airlines, healthy for the industry, healthy for passengers.”
Complete coverage from the 2023 Paris Air Show:
