A Company Restructuring Follows Boeing’s Heartbreak

Boeing

For decades, ever since Japan began rebuilding after the Second World War with help from the United States, Boeing (NYSE:BA) has dominated the country’s aeronautics industry. In 1964 — the same year that Tokyo hosted the Olympic Games — the aircraft manufacturer sold its first commercial aircraft to Japan Airlines (JALFQ.PK), known as JAL, and to do this day, the 129-seat plane remains a symbol of Japan’s postwar rebirth.

In 1966, the carrier placed an order for the Boeing 747, with its distinctive hump and four big engines, which has been a symbol of jet travel for most of the past 40 years. The sale, the second placed by an airline, strengthened the relationship between the two companies. Eventually, Japan Airlines took delivery of more than 100 747s, making it Boeing’s signature plane, complete with the carrier’s red crane logo. However, this week, JAL ended its half-century relationship with Boeing, announcing it would purchase 18 A350-900s and 13 A350-1000s, an $9.5-billion order that will replace the carrier’s fleet of 777s.

“We have had a long-standing relationship — it’s a heartbreak,” Kostya Zolotusky, managing director of capital markets and leasing at Boeing Capital, the aircraft maker’s finance unit, told the Wall Street Journal. Before this setback, Boeing already lags behind its European competitor, Airbus, whose 1,112 orders are nearly 90 more than Boeing has in its backlog. Even more telling is that fact that Airbus’s 350 took its maiden flight only in June of this year, while Boeing’s equivalent aircraft, the Dreamliner, took to the sky for the first time in 2009, and only 979 orders have been made.

The list of problems that have plagued Boeing’s technologically-advanced Dreamliner 787 is long, and while many airline operator executives have expressed confidence in the company’s wide-bodied plane, it could be that the production problems have begun to deter some airlines.

One of the Dreamliner’s key selling points, which has likely earned it much favor from airline executives, is that it consumes approximately 20 percent less fuel than other aircraft of the same size. But the technical advancements that have made the fuel savings possible, like its advanced lithium-ion battery, have turned into problems, and some airlines have instead opted to purchase the Airbus A330 — a 20-year-old model with a reputation for reliability and economy.

Still, he company is unveiling the latest version of its best-selling 777 next month at the Dubai air show. With the decision of Japan Airlines to switch to Airbus planes, new orders from the launch of the next-generation Boeing 777X model could help offset the negative impact of the $9.5-billion loss.

Following just behind JAL’s announcement, Boeing said Thursday that it will restructure its commercial airplane strategy and marketing functions. A memorandum penned by Boeing Commercial Airplane Chief Executive Ray Conner, and obtained by Reuters, outlined that the shift would divide the responsibilities of the market and strategy groups that analyze the company’s long-range commercial airplane market forecasts, design its product line, and organize its sales approach.

While a Boeing spokesman told the publican that the loss of the Japanese contract and the restructuring had no connection, Bank of America Merrill Lynch analyst Ron Epstein theorized that, “You probably wouldn’t have seen this happen if they had won JAL.” After the loss, he added, ”Boeing is looking at their sales strategy.”

In the memo, Conner tied the restructuring to the retirement of Mike Blair, who leads the marketing and strategy groups. Upon his November 1 departure, marketing responsibilities will be shifted to the company’s sales group, which will be headed by marketing Vice President Randy Tinseth. The strategy and business development functions will be moved to the finance group, under Kevin Schemm.

Dreamliner problems resurfaced Thursday. In September, the recently-acquired, two-aircraft Dreamliner fleet of Norwegian Air Shuttle, the third-largest budget airline in Europe, suffered a string of technical problems.

Both planes were sent back to Boeing for inspections, and the company’s chief executive officer Bjorn Kjos told Reuters in an interview that Boeing was forced to make more extensive repairs to the hydraulic pump of the $200 million jet than had been expected. But, Kjos thinks “the Dreamliner is going to be a fantastic aircraft.”

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