737MAX 8 First Flight | Photo: © Boeing

LONDON — The Boeing 737 MAX made its debut earlier today at the Farnborough Air Show, marking the first public appearance since its maiden flight back in January.

Farnborough: The Boeing 737 MAX Debuts at FIA16

The appearance at aerospace’s premier trade event along with a series of flight displays planned for later this week are the latest in a series of pristine milestones for Boeing’s next generation narrow body. And despite our view that the public perception of trouble with rival Airbus’ A320neo is overblown, its hard not to draw a contrast with the nearest competition aircraft’s struggles.

Conservatism enables Boeing to meet and exceeded every milestone since program launch

When the Boeing 737 MAX project was launched back in 2011, Boeing was still reeling from the 787 development debacle, which had seen Boeing’s highly touted distributed supply chain rip apart at the seams, with the 787’s entry into service (EIS) delayed by more than three years. Even today, after most of the kinks in 787 production have been worked out (and performance targets have finally been met), Boeing still contends with the weight of more than $30 billion in deferred production costs that must be recouped by profits on subsequent 787 orders.

The 737 MAX’s (and 777X’s) development has been a marked contrast to the nightmare on the 787. Production began promptly in 2014, the first fuselage rolled off Spirit Aerosystems’ final assembly line in August of 2015, with the MAX rolling out December of last year and flying its first flight on January 29, 2016.

Development is also proceeding smoothly, with the first batch of four 737 MAX 8s progressing through their flight testing campaign at a solid pace. The 737 MAX 8 is now in the midst of ETOPS and FAR testing, allowing Boeing to even begin turning an eye towards development of the large 737 MAX 9, which will roll off of the final assembly line (FAL) later this year and have its first flight in 2017.

Perhaps most encouragingly, Boeing has moved up the EIS from the back half of 2017 to the first half of the year steadily since launch. Now critics will contend that this was Boeing’s internal plan all along and they only started with the 2nd half of 2017 as the public large to give themselves room to beat said target. That is certainly true: Boeing engaged in the functional aerospace equivalent of the schedule padding that airlines engage in at their hubs to ensure “on-time performance.” But there’s nothing wrong with that, and it frankly is to Boeing’s credit that the airline has evolved into a more conservative original equipment manufacturer (OEM) in temperament and rhetoric, with a laser-focus on quality execution to match.

In fact at Sunday’s event, Keith Leverkuhn, vice president and general manager of the 737 MAX aptly noted that Boeing has been “paranoid about making sure we build the airplane on time and correctly is healthy,” and followed up later by describing Boeing’s MAX flight testing program as focused “on operating like an airline.” Boeing is also reportedly on track to meet initial dispatch reliability of 99.8% at EIS, which the A320neo has not. As the 737 MAX enters FAA certification over the next two months, it’s hard not to be heartened by Boeing’s rhetorical shift, as it speaks to a deeper psychological shift at the OEM that is a positive one.

Far too often on the 787 program, Boeing officials fell back on over-confidence and unfounded optimism, batting away any questions as to whether the 787 was truly on track. Some of this has certainly been about Boeing management’s conservatism in setting expectations but relative to their practices during 787 development, that can be considered a win.

Strong execution heightens confidence for MAX 7.5 & MAX 10X

Beyond the mere rebound in technical execution, Boeing’s positive momentum on 737 MAX development is also a critical factor in emboldening the company to weigh various options for improving the 737 MAX’s challenges outside of the core 737 MAX 8 variant. Irrespective of our views on whether market demand justifies the 737-10X (which we covered in our analysis earlier this week) or the 737 MAX 7.5 (more on this below), the fact that Boeing is even considering launching these two variants simultaneously (admittedly with one replacing the dead-on-arrival 737 MAX 7) is a testament to a newfound confidence in Boeing’s rediscovered ability to build airplanes on time.

The 737 MAX 10X has to be out by more or less the end of the decade (the 737 MAX 7.5 arguably sooner given Bombardier’s CSeries momentum) to make sense with a clean sheet middle of market (MOM) likely coming at some point in the next decade. Without seeing success on MAX development to date, there’s no way that Boeing would be willing to consider these new variants, let alone simultaneously.

Wrapping up, briefly, with our view on the MAX 7.5, we are unsure of its business case. The 737 MAX 7.5 would be a shrink of the 737 MAX 8, larger than the current 737 MAX 7 (and Bombardier CS300), smaller than the MAX 8, and actually close in size to the A320neo. This would be cheaper and easier for Boeing to develop than the 737 MAX 7, and even accounting for the inefficiencies inherent in a shrink, the 737 MAX 7.5 would beat the CS300 and Airbus A319neo on performance and unit operating costs (CASM) due to its higher seating capacity.

The downside is that it would be awfully close to the A320neo in seat capacity and would lose on CASM to the slightly larger Airbus product, and the CS300 would still get close enough in CASM at a smaller seat count to win plenty of orders. Moreover, the 737 MAX 7.5 would in all likelihood face a similar effect as the 787-8 versus the 787-9 – when you can operate a 737 MAX 8 for similar trip cost and lower CASM, why operate the smaller and less efficient airplane. So we are skeptical of the need for a MAX 7.5 in the market. But the fact remains that Boeing is now in a position to launch it.