BA Boeing Co

By Jon Sindreu 

Whatever flight path Boeing finds through the Covid crisis, it is unlikely to improve the U.S. aerospace giant's competitive position versus European rival Airbus.

Alongside reporting first-quarter results on Wednesday, Boeing is expected to give investors clarity on how it hopes to rebuild its cash buffers and downsize its operations. The company probably had about $15 billion in cash at the end of March, which could rise to $24 billion by June as the company raises yet more debt, according to FactSet's consensus of analyst estimates.

Even that might not cover Boeing's potential cash outflows if travel restrictions last for longer than expected, especially given that the ill-fated 737 MAX is still awaiting recertification. So one closely watched question is whether Chief Executive David Calhoun will tap the federal government's $60 billion aid package for the aerospace industry. He was previously reluctant to accept public aid on the basis that it could come with costly strings attached.

In reality, though, any decisions he takes to keep the business airborne will necessarily come at the expense of its longer-term strategy.

Boeing announced last weekend that it was pulling out of its agreement to buy a majority stake in Embraer's commercial-jet division for $4.2 billion. The Brazilian aerospace manufacturer is demanding compensation, whereas Boeing is blaming Embraer for failing to meet the required conditions.

Boeing isn't linking the move to the current crisis, but the reality is that it needs the money. In Monday's annual general meeting of shareholders, Mr. Calhoun said he expects air traffic to remain depressed for between two and three years. While investors will likely have to wait until Wednesday to hear how far the company will cut plane-production rates, airlines are already deferring and canceling orders.

The deal's demise is an immediate problem for loss-making Embraer, which will struggle to stay afloat. Yet the impact on the Chicago-based company could eventually be just as significant.

Boeing needed Embraer's state-of-the-art E-Jet E2 family to compete in the market for commercial planes in the 90-to-150 seat range. Airbus has started to reinvigorate this once-sluggish segment since its 2017 purchase of Bombardier's CSeries -- now renamed the A220. A post-coronavirus scenario of record-low fuel prices and sluggish demand will probably make such jets more popular, as filling a 737 or an A320 becomes harder.

For all the criticism leveled at Boeing since the 737 MAX debacle, its strategic calls in recent decades have often been spot on. The 787 Dreamliner was a visionary bet on leaner planes at a time when Airbus was wasting resources on the behemoth, four-engine A380. Even the MAX was an efficient temporary response to the challenge posed by the massively popular Airbus A320.

What Mr. Calhoun had to fix was the company's excessive focus on cost-cutting, which led to botched execution. The 787 was delayed for years, giving Airbus time to come up with a competitor. And Boeing's failure to quickly green-light a midsize jet has handed the Airbus A321 a big lead in a promising market segment.

In addition to the E-Jet E2, the Embraer purchase would have given Boeing more engineering nous. Now, all the company's longer-range projects have likely been scrapped, or will at least be massively delayed in favor of rebuilding the balance sheet. For the foreseeable future, there is no challenge to Airbus's supremacy in all segments apart from wide-bodies -- the one most affected by the pandemic.

Both plane makers will have a rough time getting through what is likely to be the biggest crisis in aviation history. For Boeing, though, the lost time could come at a higher cost.

Write to Jon Sindreu at jon.sindreu@wsj.com

(END) Dow Jones Newswires

April 28, 2020 06:10 ET (10:10 GMT)

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