Boeing is Economic Bellwether

Those searching for a realistic assessment of the global economy may need to look no farther than Seattle-based Boeing. Predictably, the aerospace giant did not see a single order for new aircraft in March or April. But the real news may be in the company’s long-term outlook. In announcing restructuring last month, CEO Dave Calhoun asserted that it may take five-to-six years, if not longer, for the industry’s long-term growth trend to return.

For a company that has thrived on the back of globalization, growing incomes in the developing world, and a burgeoning travel industry, the outlook is difficult to swallow.

And then there is the real clincher:

We are in an unpredictable and fast-changing environment, and it is difficult to estimate when the situation will stabilize. But when it does, the commercial market will be smaller and our customers’ needs will be different.

Boeing CEO Dave Calhoun

Consistent with this outlook, Boeing cancelled a pending joint venture with Brazil-based Embraer, sending years of negotiations and strategic planning down the drain. The estimated value of the acquisition was $4.2 billion.

The Boeing view deserves merit. The enterprise employs legions of economists who are centered on long-term planning. Its customers, after all, do not buy a $125 million aircraft (at the low end) to use for a few months or even a single business cycle. The sheer volume of cancelled aircraft orders seen by Boeing—now registering more 200 this year—validates the outlook. Granted, the 737 Max fiasco is in play with this data, but cancellations are still running amok.

At Boeing, the immediate impact of the coronavirus shutdown is elimination of 10% of its 161,000-strong workforce. We suspect this headline number is conservative when compared to the actual size of the workforce a year from now. Credit to the company for rolling out a voluntary layoff program, but, as an aside, we wonder how enticing that will be for employees when there are no jobs, anywhere.

Optimists may point to the fact that Boeing has resumed aircraft production. To be clear, that move has nothing to do with fresh or revived orders. It is a baseline attempt to keep its extensive supply-chain as intact as possible.

In searching for economic footing, Boeing is a useful bellwether to monitor. Like other companies, it has seen its business collapse. It differs in its business approach, however, by the essential need for distant, strategic planning. Clarity on the scope of coronavirus-era challenges comes from a company willing to take bitter medicine early and realistically.

Our Vantage Point: Boeing is unique in its requirement to focus on long-term customer demands. Difficult maneuvers in Seattle are indicative of tough times ahead worldwide, regardless of industry.

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