I received a note from a reader, Joel, asking for my thoughts on an article entitled The Coming Boeing Bailout? in Big by Matt Stoller. I sent him a response, but then I just kept thinking. And it turned into this post about what would have happened if Boeing had chosen a different path. You can start by reading the article which, from a simplistic point of view, isn’t wrong that the financial-focused culture of McDonnell Douglas hurt Boeing after the merger. Of course, it’s more complicated than that, — Boeing had its own problems before the merger– but it’s fascinating to consider what might have been had Boeing chosen a different strategic path. Where would it be today?
McDonnell Douglas was run into the ground by its leadership team after McDonnell and Douglas themselves merged in 1967. Put it this way: In the thirty between that merger and when it merged with Boeing, McDonnell Douglas never launched a new commercial airplane. All it did was both shrink and extend existing airframes to save money. The DC-9 was stretched into the MD-81/82/83/88. Then it was stretched again and re-engined into the MD-90. Then it was shrunk and re-engined again into the MD-95 (now 717). The DC-10 — the last new airplane that the company launched more than 50 years ago — was stretched into the poor-performing MD-11. There were plans released to do something new, but those never made it beyond pretty pictures. The bean counters got conservative, failed to innovate and ran that company into the ground.
While mergers may have been encouraged by the government, as suggested in that Big article, McDonnell Douglas was in really bad shape by the 1990s. It wasn’t likely to survive as a commercial aircraft manufacturer on its own. So it’s hard to say that the Boeing/McDonnell Douglas merger killed two fine companies. McDonnell Douglas was killing itself quite capably.
Boeing’s Problems Pre-Date The Merger
For Boeing, it is a somewhat different story. While the introduction of the McDonnell Douglas mindset and culture made things worse, Boeing was already going down that path. For example, Boeing had the (very-troubled) launch of the clean-sheet 787 as it tried to wring costs out by outsourcing around the globe.
Beyond that, consider what Boeing’s big projects are today: the 777X and the 737 MAX, both stretches. The new midsize airplane (NMA) 757/767 replacement is in progress, but it hasn’t yet been launched. Had Boeing chosen a different path many years ago, it probably wouldn’t need that airplane at all.
Consider the 737 MAX, the NMA, AND the Bombardier C-Series to see how Boeing has really messed things up for itself.
You’ll remember that Boeing’s response to the C-Series — an airplane it did not compete with — was to try to kill it through politics and have massive tariffs implemented. What Boeing should have done is acquired the C-Series outright and touted that as the company’s replacement for the 737-700 and smaller. Instead, Boeing lost the tariff battle and Airbus swooped in, turning the C-Series into the A220, a powerful airplane with no real competition.
Boeing had to settle for its joint venture with Embraer. The problem is that the Embraer E2 is far from a replacement for the 737-700. It’s a much smaller airplane and it lacks the range. Southwest will have to order an airplane smaller than the 737 MAX 8 someday, and the A220 would have been a no-brainer under Boeing’s umbrella. Now, Boeing has to push Southwest to another manufacturer to replace the 737-700 because Boeing has nothing.
The MAX is Not Small Enough at One End and Lacks Range at the Other
Isn’t the MAX a replacement for the 737-700? Not even close. The 737 MAX 7 is dead on arrival. Southwest ordered 30 of them, but it modified the order to only take 7 in the near term. The other 23 have been deferred out several years. That is hardly a vote of confidence considering it has over 500 737-700s that will need replacing eventually. WestJet has the only other significant order for the MAX 7. It has also deferred its initial deliveries and seems more interested in bigger versions.
The MAX is really focused on the MAX 8/9/10 size category. It competes with the A320/321neo airplanes, but it doesn’t have the range capabilities of the neo. Boeing made the fateful decision to rush out the MAX to compete with the neo after Airbus announced it. Airbus put Boeing into a really tough position. If Boeing went ahead and built a clean-sheet airplane, it would have given a several-year lead to Airbus. Instead, it modified the 737 into the MAX, and that has led us to where we are today.
The MAX computer issues will be worked out, and the airplane will be successful, but a new airplane could have been more successful. Even with all the work put into turning the MAX into something great, it can’t do what the neo does. The neo, especially with the new A321XLR version, can comfortably replace not only A320/737 family aircraft but also the 757.
Boeing doesn’t have that luxury.
The MAX 10 has more than double the capacity of the original 737-100. This airplane has been stretched out so much that it just doesn’t seem possible to gain the range and performance of the A321XLR in the same airframe.
The NMA Didn’t Have to Be
Because of that, Boeing now has decided to go and create the NMA, a brand new airplane that’s supposed to replace the 757 and 767. Though it hasn’t been launched, work is being done on the design. This means Boeing will now require operators to have two airplanes (MAX and NMA) to do what the A320neo family can mostly handle on its own. (The A330neo is needed at the top end as a 767 replacement for some carriers.)
It’s easy for me to write this when I don’t have to actually make the decisions. And it’s even easier with hindsight. Yes, if Boeing had gone with a clean-sheet design for a 737 replacement, it would have given Airbus a head start. That being said, it would have set itself up better for the future that might look something like this.
The C-Series could cover up to 150 seats, the 737 replacement could cover from 175 to 225, and then the 787 could take over from there as a 767 replacement (same capacity but pull out range and modify as necessary to gain efficiency to match the A330neo) as well as a 777-200 replacement. Then the 777 can continue the line with the 777-300ER. The 777X? It’s a really big airplane that probably has limited appeal. That’s another one that probably shouldn’t have diverted engineering resources away from more important projects.
It would have been a gamble, but you know how it works… high risk is how you get to high reward. Now Boeing finds itself in a corner with no easy way out. Does it now launch a 737 replacement to cannibalize its MAX? Probably not. It needs to wait until there’s new technology to help it leapfrog the MAX and whatever Airbus has up its sleeve for the future. If only it had taken a different path years ago, it wouldn’t be in this predicament.