Boeing 737 MAX

Boeing profit at stake as rainmaker 737 Max takes to skies

Chicago-based Boeing Co.’s newest 737 jetliner gunned its engines and headed into rain-streaked skies Friday, with profit and pride riding on its wings.

The aerospace company’s fortunes depend on a smooth market debut for the 737 Max next year with initial customer Southwest Airlines.
More than 60 customers of the 737 were on hand for the initial flight of the plane, christened “The Spirit of Renton,” a reference to the Seattle suburb where Boeing has made single- aisle planes since the 1950s.

“It’s really humbling to think about the confidence they’ve entrusted in us,” said Keith Leverkuhn, a Boeing vice president and general manager of the 737 program.

The plane’s first flight, a key milestone, is emotional for the workers who devoted years to the 737 program, and heart- pounding for executives who have promised that the single-aisle jet will meet performance and deadline targets.

“It’s not real until that airplane turns and takes its first flight,” said George Hamlin, a former aerospace executive who is now a consultant. “It’s a really visceral moment in the program.”

The Max is already Boeing’s all-time best-seller, with 3,072 orders. It’s the latest model in the narrow-body family that is the planemaker’s largest source of profit, and arguably its most valuable asset. The total backlog of unfilled 737 orders is valued at about $200 billion, according to Bloomberg Intelligence estimates.

Any missteps in the development of the Max could be costly to Boeing, as it tries to cut into the sales lead held by Airbus Group’s revamped A320neo. The new model is coming online as Boeing is counting on a series of record-setting increases to single-aisle production to counteract revenue lost from production cuts to the 777 and 747 jets, its highest-priced commercial aircraft.

One measure of the Max’s importance: The company’s shares took their worst plunge since 2001 on Wednesday, following the surprise disclosure that deliveries will dip this year as Boeing builds its first dozen Max models.

“This is what generates the cash flow that allows Boeing to develop a lot of other stuff, including 777s and 787 Dreamliners,” said George Ferguson, senior air-transport analyst with Bloomberg Intelligence. “It’s hugely important.”

Ferguson estimates that the 737 accounted for almost one- quarter of Boeing’s $23.6 billion in sales during the fourth quarter of 2015 and about one-third of the planemaker’s operating profit. It is the largest contributor to Boeing’s profit, followed by the 777, the largest twin-engine model.

The Max bears a similar profile to other 737s, although with a slightly longer wingspan and distinctive V-shaped winglets to shave fuel consumption. The new jet should burn about 14 percent less fuel than a previous version, while operating at the same 99.7 percent operating reliability.

Although first flights of new models only happen once or twice a decade, the focus on the Max is muted in comparison with Boeing’s last such debut: the 787 Dreamliner in December 2009. The first carbon-composite jetliner grabbed the public’s attention for its cutting-edge technology and production snarls that made it years late.

There is no such drama with the 737 Max, which is moving ahead on schedule. While the plane’s Leap-1B engines and greater aerodynamics are improved from earlier models, its deep roots are a strong selling point to customers looking for assurance that the jet will perform as touted, said Adam Pilarski, senior vice president with aerospace consultant Avitas Inc.

“Part of the huge success is that everybody assumed nothing completely new is happening,” Pilarski said by phone. “These guys have produced thousands of these things.”

Boeing profit at stake as rainmaker 737 Max takes to skies

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