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Boeing mulls price cuts in quest for share gain

The Boeing Co. 737 MAX airplane stands outside the company's manufacturing facility in Renton, Washington, U.S., on Tuesday, Dec. 8, 2015. Boeing Co.'s latest 737 airliner is gliding through development with little notice, and that may be the plane's strongest selling point. The single-aisle 737 family is the company's largest source of profit, and the planemaker stumbled twice earlier this decade with tardy debuts for its wide-body 787 Dreamliner and 747-8 jumbo jet. Photographer: David Ryder/Bloomberg

 

Bloomberg

Boeing Co. is studying redesigned versions of the 737 Max jetliner, cutting costs and rolling out more robotics in factories to keep pace with relentless competition in the global aerospace market.
But there are limits to what the US planemaker will do in its battles with old foe Airbus Group SE and newer rival Bombardier Inc., executives said this week. During Boeing’s annual investor conference webcast from Seattle, Chief Executive Officer Dennis Muilenburg sketched out a vision of the company as a “global industrial champion” with profit margins reaching the mid-teens by the end of the decade while cash still flows freely to shareholders.
“We won’t chase market share for market share’s sake,” Muilenburg said during the proceedings, the first since he took over the top job in July.
Muilenburg, who earned his reputation stripping billions of dollars in costs from Boeing’s defense business amid declining government spending, is “leaning hard into margins as key success driver going forward,” Carter Copeland, an aerospace analyst at Barclays Plc, wrote in a May 9 report. While Boeing’s commercial airplane unit can’t lower expenses as freely as its defense counterpart, “there’s a lot of fat to be cut out of this organisation.”
Boeing has stepped up cost-savings efforts at the commercial division to minimise the pricing advantage Airbus, its European rival, enjoys because of the strong US dollar. While the planemakers now split annual deliveries evenly, Airbus holds a far larger backlog of unfilled orders that could give it a commanding lead in the next decade. Airbus has logged 5,479 sales of its A320 family jets to 4,380 for Boeing’s 737 models, according to data compiled by Bloomberg Intelligence.
Boeing will price its jets competitively and take narrow-body market share where “reasonable,” said Ray Conner, CEO of Boeing’s commercial airplane unit. That doesn’t mean every airline customer will get the same bargains as United Continental Holdings Inc., which ordered 737s twice from Boeing earlier this year.
In fact, Boeing didn’t even bid its best-selling single-aisle jetliner in a highly publicised contest for a Delta Air Lines Inc. order that was ultimately won by Bombardier’s C Series. “We competed for Delta with used 717s, used Embraers,” Conner told investors, referring to an out-of-production Boeing model and Embraer SA jets that compete directly with the smallest C Series plane.
Boeing’s 737 Max family doesn’t have any offerings competing in the 100-seat category targeted by the CS100, the aircraft selected by Delta in an order with a $5.6 billion value based on list prices, Conner said. Bombardier warned of a $500 million “onerous contract” charge for that order and a separate sale, implying a below-cost sales price of about $20 million, according to a May 4 Intelligence report.

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