The latest problems with Boeing’s 737 MAX have reignited a debate among analysts and investors about who should run a global commercial aerospace company — an ace engineer or a professional manager.
“To me, the [Boeing] problem is not the engineers, the problem is management,” says Vertical Research Partners analyst Rob Stallard.
Of course, Boeing, and its chief rival Airbus need both. But the numbers appear to support Stallard’s point of view, that strong management is critical. Boeing had no immediate comment. Airbus didn’t respond to a request for comment.
The issue is partly the nature of the aerospace business, which is characterized by heavy investment, high regulation, and product cycles measured in decades, making strategic choices as critical as engineering decisions. “This is the sort of business that, from a product perspective, you build on, or not, over a long period of time,” explains General Electric CEO Larry Culp.
He wasn’t talking about Boeing. Culp was answering a question about GE’s leadership in jet engines. The company is pleased to point out that GE engines power three out of four commercial airline flights. Culp attributes that impressive statistic to decades of investment made by several management regimes.
His comment hints at how Boeing finds itself in the current MAX mess. The company has simply spent less on research and development and new plants and equipment than its most important rival.
Between 2010 and 2023, Boeing spent about $70 billion on research and development plus new plants and equipment, according to FactSet. That spending amounted to about 6.2% of sales generated over that span, going back as far as FactSet had data readily available.
Airbus spent about $93 billion, or 9.5% of sales, over the same span.
The numbers are only a rough guide. Both companies have commercial aerospace and defense businesses. Total spending cuts across all segments.
At the same time, Boeing leads Airbus in spending related to shareholders. Over the past 10 years, according to Bloomberg, Boeing has spent some $59 billion returning cash to shareholders, including about $20 billion in dividends and $39 billion on share repurchase.
Boeing was a big buyer of its stock between 2014 and 2018. Shares outstanding fell from about 751 million at the start of 2014 to 568 million at the end of 2018. Boeing has about 610 million shares outstanding currently.
Airbus has spent, essentially, nothing on share repurchases and about $10 billion on dividends over the same 10-year span.
Choices about returns of capital and investment spending are management decisions. Those decisions manifest themselves in other numbers. Airbus has about 62% of the total backlog for 737-size jets and has delivered about 57% of those planes over the past 15 years. Things are slowly getting better for Airbus.
Shareholders, however, deserve some of the blame for management decisions. Boeing was rewarded with gains in its stock for its capital- return policies. From the end of 2013 to the end of 2018, Boeing stock returned about 20% a year on average, according to Bloomberg. Airbus stock returned about 10%.
Since the end of 2018, however, Boeing stock lost about 7% a year on average. Airbus shares have returned about 13%. Management decisions made years ago generally come home to roost in current stock prices.
The numbers also imply that Boeing has a way out of its current problems: Spend at least in line with Airbus to maintain its market share. That spending could be partly targeted at new aircraft designed to replace part of Boeing’s 737 lineup.
That’s a management call.
Write to Al Root at email@example.com