Too Big To Fail

In spite of all the economic uncertainty in recent years and the poor performance at Boeing, I have a hard time believing that a bankruptcy is a real option, although it’s getting plenty of attention in the Wall Street Journal. Prior to the COVID-19 pandemic and the B737MAX grounding and production pause, Boeing was the largest exporter by dollar value in the United States. It employed 130,000 people and its supply chain consisted of thousands of companies employing several hundred thousand more people domestically and abroad.  Boeing is essential to our national security. If that fact pattern doesn’t scream “Too Big to Fail”, I don’t know what does.

Setting the Right Priorities

I think the likelihood of a Boeing bankruptcy is still very low.  Sure, the company’s balance sheet health has deteriorated a bit, but it still has plenty of maneuvering room left to avoid the bankruptcy court, provided it prioritizes and focuses on its core businesses. 

What does this mean for Boeing?

• Boeing should focus on designing and building airplanes that carry lots of people or cargo. 
• The company would benefit from getting out of the space exploration business and divesting Boeing Distribution Services, neither of which has added to shareholder value.  
• In addition, a new single-aisle airplane to replace the B737MAX has got to be announced as soon as possible—or Boeing risks losing even more market share in this segment and potentially making Airbus’ recent share gains as permanent as share gains can get. 

I think Boeing and Airbus are both waiting to see how the CFM Rise engine tests go over the next 18-24 months before determining a path forward on the next single aisle, but it would put Boeing in a very difficult spot if Airbus announced first and got first-mover benefits. 

The CFM Rise (CFM is a joint venture between GE and Safran that produced the CFM56 and CFM Leap, two of the most successful commercial aircraft engines in history) is an open rotor design (similar to a hi-bypass turbofan without the nacelle surrounding the fan) that has the potential to improve fuel efficiency by 20+% and significantly lower greenhouse gas emissions. It has the potential to be a total game changer and could make even the most recent engine technology obsolete (for example, Pratt’s Geared Turbofan and CFM’s own Leap).

Bankruptcy Is Not Likely. So, What’s Next?

As an industry professional, I wouldn’t bet on a Boeing bankruptcy, in fact, I’d bet against it. That said, Boeing needs to divest some of these non-core, non-value-creating businesses and focus on what it does best—building technologically advanced, well-engineered airplanes that safely carry people and cargo everywhere in the world.

Today, both are on the ropes. Intel has suspended its dividend, slashed jobs and capital spending, and is a takeover target. Boeing has been hobbled by investigations into crashes and a midair mishap, production delays and a strike. A breakup or bankruptcy are no longer unthinkable.

https://www.wsj.com/business/crises-at-boeing-and-intel-are-a-national-emergency-093b6ee5?mod=hp_lead_pos8