Boeing Profit at Stake as Rainmaker 737 Max Takes to Skies

  • Jetliner makes maiden flight Friday before 2017 market debut
  • Company attempts to cut into sales lead held by Airbus A320neo

Boeing Co. Max 737 's first flight in Redmond, Wash. on Jan. 29, 2016.

Photographer: Mike Kane/Bloomberg

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 Co. The maiden flight took place days ahead of schedule, a contrast to Boeing’s delay-plagued 787 Dreamliner.

Workers and customers in rain ponchos and hats bearing the 737’s signature teal color scheme were on hand for the takeoff of the plane, christened “The Spirit of Renton,” a reference to the Seattle suburb where Boeing has made single-aisle aircraft since the 1950s.

“It is an emotional experience,” Keith Leverkuhn, a Boeing vice president and general manager of the 737 Max program, said after the plane was airborne. “Someone said these things are like comet sightings. They don’t happen very often and when they do, it’s very, very special.”

The latest version of the half-century-old jet took off at 9:46 a.m. outside Seattle and flew laps over western Washington, before landing at 12:32 pm. Three other planes under construction also will be used for flight tests this year.

Deadline Targets

The first flight is the culmination of years of effort for Boeing workers and a heart-pounding moment for executives who have pledged to airlines that the single-aisle jet will meet performance and deadline targets.

Any missteps in the Max’s development could be costly to Boeing as it tries to cut into the sales lead held by Airbus Group SE’s revamped A320neo. The new 737 is coming online as Boeing counts on a series of record-setting increases for single-aisle production to counteract revenue lost from production cuts to the 777 and 747 jets, its highest-priced commercial aircraft.

The Max already is 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.

One measure of the Max’s importance: The company’s shares took their worst plunge since 2001 on Wednesday, following the surprise disclosure that 737 deliveries will dip this year as Boeing builds its first dozen Max models. Boeing rose 1.8 percent to $120.13 at the close Friday in New York.

“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.

Longer Wingspan

The Max bears a similar profile to the first 737, which entered service in 1968, although with a longer wingspan and distinctive V-shaped winglets to shave fuel consumption. The new jet should burn about 14 percent less fuel than the current 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. 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.”

(An earlier version of this story was corrected to say the 777 is the largest twin-engine model.)

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