Boeing’s Wisk Investment Is Worrying For Three Reasons

Boeing’s announcement this week that it will invest $450 million in Wisk, which is trying to develop autonomous Advanced Air Mobility (AAM) vehicles, is not a positive move for America’s premier aerospace company. Boeing seems to be taking another step away from everything that made it great.

First, this investment is a diversion of resources from the pressing need to develop a new mid-market jetliner. As I and other industry observers have argued for years, Airbus has a huge advantage with its A321neo. As of January 1, Airbus has sold 4,079 of the large narrowbody, more than five times sales of Boeing’s competing 737MAX9/10. This middle market – 200/250-seat jets with 4,000-5,000 nautical mile range – is easily the fastest growing part of an industry that’s beginning a long recovery from a terrible Covid-related downturn.

 For years, Boeing management and its supporters have argued – not without reason – that the company needed to fix its troubled balance sheet before it could afford a new jet. After all, Boeing has a net debt position of over $40 billion. Airlines, jet financiers, and the company’s own people have been willing to temper their hopes for a new aircraft as a consequence of this reality.

 Yet now Boeing is investing half a billion dollars, not in its core business, but in something completely unrelated to jetliners. What does that tell people? If Boeing were to take that $450 million and publicly start developing and promoting a new mid-market jet, even if it wouldn’t arrive for five or six years, customers would be encouraged. But now, airlines and lessors have every reason to join the long line waiting for an A321neo.

 As a consequence, I’d be surprised if the A321neo order book didn’t break 5,000 jets within 18 months. This very strong (but not unstoppable) product will get Airbus to a 60%-65% market share by the end of the decade. For Boeing, jetliner history tells us that it’s very hard for a company to recover from a 10- to 15-point market share drop.

 Second, consider the market Boeing is pursuing instead. Actually, it’s not a market — It is a series of shiny objects in pursuit of a theoretical possibility. Literally hundreds of new AAM companies have been created, and all can be euphemistically termed “pre-revenue.” That is, there is no revenue. There is just a roughly $1 billion market for small turbine and piston civil helicopters that may, or may not, be disrupted by the possible arrival of AAM vehicles.

 But I and others argue that the AAM market is a mirage. Multimillion-dollar rotorcraft are too expensive for mass adoption, and yet AAM business plans depend on mass adoption to justify their big up-front expenses. The result will likely be a flurry of bankruptcies. By contrast, jetliners are most definitely not pre-revenue: they are a $100 billion to $150 billion industry with guaranteed long-term growth.

 Investors seem to share my doubts about the AAM market. The three big publicly listed AAM wannabes, Joby, Archer, and Lilium, have seen their share prices fall 57%, 68%, and 48%, respectively, since they started trading last year.

So, AAM may be a future possibility at best, and a dangerous diversion of resources at worst. But what’s Boeing’s rationale for this gamble? Does anyone at Boeing really think that its core business – jetliners flying hundreds of passengers thousands of miles – is going to be disrupted by small, slow, two- to four-seat vertical machines built for 20-minute flights?

 Third, if Boeing were to invest in its core market, it would also be investing in its own people. Instead, it’s investing in another company, with different products, processes and talent.

 This continues a dismal pattern of Boeing trying to leverage other people’s engineering. This pattern began with the near-catastrophic 787 outsourced development model. It continued with the disastrous loss of the U.S. Air Force strategic bomber contract, lost in part because Boeing submitted a bid using someone else’s design. Several other key defense contracts have leveraged other company’s design work, including the T-7 trainer and MH-139 helicopter. These have not been disasters, but they have had issues, and do little to keep company capabilities intact.

 This reliance on outside engineering has been accompanied by a neglect of in-house capabilities. Boeing Commercial’s independent R&D funding fell 30% in 2020 from 2019, and last year it fell 21% from 2020. In all, between 2016 and 2021 it fell 70%. The headcount reductions accompanying (but thankfully not in-line with) these spending cuts disproportionately impacted younger engineers. These former employees should have been a key part of the company’s future.

It has been 18 years since the company launched an all-new clean-sheet jetliner, a record duration in the history of Boeing’s new product development. Given that, and the decline in engineering spending and headcount, it becomes just a matter of time before Boeing passes the point of no return, when it no longer has the people and capabilities necessary to design a new jetliner. This Wisk investment effectively hastens that terrible moment.

But Boeing is far from lost. The company still has fantastic talent, and it’s still one of the two jetliner primes in an industry with extremely high entry barriers. If Boeing launches a new mid-market jet, the market will reward it with hundreds of orders. Airlines and financiers are reluctant to hand over a near-monopoly position in a key segment to one player.

And Boeing has a history of arriving relatively late to a segment, but with a category-killer product, as it did with the 777 (after the MD-11 and A330/340) and 787 (after the A330-200). With the right strategy, it could even get back to its lost position as the world’s biggest jetliner prime.

The way for Boeing to get there is also clear: invest in the company’s core market, invest in products that compete against those of its direct competitor, Airbus, and invest in the in-house engineering capabilities and talent needed to restore the company’s position in the market, and in the world. But this week’s announcement represented a move away from all of this.