What's Next for Boeing?
In Randy Baseler's 32 years at Boeing, the company has evolved from the world's dominant manufacturer of commercial jets to part of a duopoly, with the European consortium Airbus, that competes fiercely over billions in aircraft orders. Airbus has outsold Boeing since 2001. But the European company has faltered this year, announcing an embarrassing delay on its future flagship, the A380 jumbo jet, followed by a change in CEOs. Baseler, now vice president for marketing in Boeing's commercial airplane division, sat down with Deputy Business Editor Rick Newman to discuss his top competitor, globalization, the new 787 Dreamliner, and the rebound of the U.S. airline industry.
Airbus has been hammered in the press for delays with the A380. Will Airbus bounce back? Airbus's product strategy is failing. In the '90s, they came out with all of these planes that were similar, lots of commonality. That's why they looked so brilliant. They used that as a strength. The company moved from an upstart to a point of parity with us in a very short time. That's why we think they'll be successful in the future. But now that they've filled out their product line, it's hard to go back and replace in the same way. Now that they're a mature company, they have to act differently.
When Airbus was launching the A380, the industry was hard on us. People said, "Airbus is taking away the big-aircraft market from you." But it depended on how you saw the market changing. We don't think airlines need more big airplanes. We think they need more point-to-point aircraft. That's where the 787 came from.
Is Boeing benefiting from Airbus's stumbles? Not really. I'm not aware of any A380 cancellations. Besides, if a customer came to us and said we want a 777 or a 747 and here's a big pile of money, we couldn't meet the demand. Our order book is full for the next few years.
You talk to their customers—the airlines. Do you think Airbus's customers are losing confidence in them? I think customers are still doing a wait-and-see with Airbus. …
But keep in mind, we want Airbus to be healthy. We think of the airplane manufacturers as an ecosystem. We need to keep the suppliers healthy, keep the engine manufacturers healthy. To do that, Airbus needs to be up and running well.
Have Airbus's problems cost it any orders yet? Hard to know. Orders for the A320 aren't as robust as they have been, but of course they put on a surge late last year to beat us. About 150 of the orders were from China, and they did it on the government's decision, not on the airlines' orders. But China took 150 from each of us.
Does it matter if Boeing is No. 1? We recognized that Airbus was going to at least catch us–that it would be a 50-50 market for a few years. But a lot of the reason they beat Boeing was on account of 9/11, when our biggest market suddenly shrunk. We had to cut production rates in half. They maintained their levels through pricing discounts.
Whether we are No. 1 … Well, it causes a lot of soul-searching when you read "No. 1," and it doesn't say "Boeing". Or after "Boeing," it says "No. 2." Part of the soul-searching is, can you live with that?
Can you? Here's what's important to us: customer satisfaction, stockholder satisfaction, employee satisfaction, communities. So, we're not so fixated on market share.
What's your target for stockholder satisfaction? Our target is the top quartile of growth for the S&P 500.
Is Boeing interested in building regional jets? Not at this time. It's difficult to be in every market sector. We have studied regional jets for years and decided it wasn't a good idea for us. There was an initial surge of RJs in the late '90s and in this decade, but we thought the growth would subside. We thought it would peak in 2004 or 2005. And some of that has happened. Now there are only a couple of players, Bombardier and Embraer.
How big a factor is Asia when you're considering what kind of plane to build next?
Asia is about a third of the overall world market for new planes. Because they're growing, they're still developing networks, not just replacing existing aircraft. In Europe and the U.S., the market is mainly replacement aircraft. But you can't ignore any market.
Do airlines in Asia care about fuel efficiency as much as the cash-strapped carriers in the U.S. do? They care as much in Asia about fuel efficiency, but they don't put as much emphasis on the environment. Their environmental laws aren't as tough.
A lot of analysts think there will be mergers or other consolidation among the U.S. airlines. What do you foresee? We've said for many years that the U.S. and European industries will need to consolidate. Probably down to three or four global carriers in each market. In Europe, the big one so far has been KLM and Air France. But other countries, they haven't gotten over the emotional tie of having their flag on the tail.
In the United States, the US Airways‑America West merger didn't really change the market, because they aren't big players in the global network. Among the other big five or six airlines, one big issue is the three alliances—OneWorld, StarAlliance, Skyteam. We used to think that one of the objectives of the alliances was to buy airplanes in giant blocks. So far, that hasn't materialized. Airline priorities still outweigh a lot of alliance priorities. The airlines agree on costs, but they disagree on some of the branding—how to set up first class, frequent-flier programs. They still want their own identities.
In the past, when airlines have cut capacity, they've usually added it back to protect market share, which sends their margins down. Will that happen again? U.S. capacity has been cut so far this year. And I hope it's more sustainable than before. The business model of the past was, let's serve all markets. That's not sustainable today. The big network carriers must be global and let the low-cost carriers serve the smaller markets. You must decide what you're going to be, because you can't be everything anymore.
All of the network carriers are expanding in the international market. That's where you must have a heavy infrastructure to operate. And the U.S. cost structure is very competitive with the international cost structure.
Now that the 787 Dreamliner is underway, what's the next airplane you have to think about? We're thinking now about the follow-on to the 737. We need a lot more market knowledge about that. How many flights can you add between city pairs like New York to San Francisco, San Francisco to Los Angeles, until you have to drive up the size of the aircraft? Also, what is the value premise we have to bring forward for this airplane? Is it lower fuel costs, lower maintenance costs, lower price? I don't know what the airlines will want. And on the technology side, we're looking at the 787 and how to scale down some of that technology, and working with the engine guys because we need smaller, more efficient engines.