Latest / Pricing Power Podcast with Fexingo: How Businesses Set Prices, Raise Margins, and Win Customers / How Boeing Prices Airplanes for a Century of Orders
Transcript
- Lucas: You walk into a Boeing showroom — okay, not a showroom exactly, more like a cavernous assembly building in Everett, Washington — and you point at a 737 MAX and say, 'How much?' The answer is $121.6 million. That's the official list price as of 2026. Luna: And nobody pays that. I mean, the sticker price on a new pickup truck is aspirational, but with airplanes it's practically fiction. Lucas: Right. The real transaction price is often 50 to 60 percent off list. So you're looking at something like $50 to $60 million for a single-aisle jet. But here's the twist — Boeing doesn't really make its money on the initial sale. Luna: They make it on the spare parts and maintenance contracts over the next 25 years. I've read that the aftermarket can generate three to five times the original purchase price over the life of the plane. Lucas: Exactly. That's the core of aircraft pricing. It's a three-tier model: the list price, the effective or transaction price, and then the whole ecosystem of aftermarket services. And Boeing has been refining this approach for decades, but the 737 MAX crisis forced some real changes. Luna: Let's start with the list price. Why even have one if nobody pays it? Lucas: Great question. The list price serves as a benchmark for financing and leasing. Airlines and lessors use it to calculate residual values, depreciation schedules, and loan to value ratios. It's also a negotiating anchor — Boeing starts high, the airline pushes back, and they settle somewhere in the middle. But the real action is in the discounts. Luna: And those discounts depend on order size, customer relationship, and market conditions. Like, if you're Southwest Airlines ordering 100 planes, you're getting a much better deal than a start-up buying three. Lucas: Exactly. Volume is the biggest lever. But there's also what Boeing calls 'concessions' — credits for future orders, training packages, spare parts inventory, even compensation for delivery delays. During the MAX grounding, Boeing gave airlines billions in concessions just to keep them from canceling. Luna: So the transaction price is really a bundle. It's not just the plane — it's the support system that keeps it flying. Lucas: And that's where the aftermarket pricing gets interesting. Boeing's services division generated about $18 billion in revenue in 2025, with margins above 30 percent. Compare that to the airplane manufacturing side, which historically runs around 10 to 15 percent operating margin. The aftermarket is the profit engine. Luna: So they effectively sell the airframe at cost or even at a loss? I've heard that claim before. Lucas: It's not quite that extreme. The initial sale does make a contribution margin, but it's thin. The real returns come from selling spare parts — landing gear, avionics, engines — and from maintenance contracts. Boeing's 'GoldCare' program, for example, charges airlines a fixed fee per flight hour and covers all maintenance. That's recurring, high-margin, and sticky. Luna: Sticky because if you buy a Boeing plane, you're locked into Boeing-certified parts for safety and warranty reasons. You can't just source a cheaper alternator from AutoZone. Lucas: Right. The FAA requires that replacement parts meet the original specifications, and Boeing controls that supply chain. So once an airline has a fleet of Boeings, they're a captive aftermarket customer for 20 to 30 years. That's the real pricing power. Luna: Let's talk about the pricing impact of the MAX crisis. How did it change Boeing's discounting behavior? Lucas: Before the crisis, Boeing was aggressive on discounts to maintain market share against the Airbus A320neo. They were essentially buying orders. After the two crashes and the 20-month grounding, airlines demanded even deeper concessions just to stay. But Boeing also had to raise list prices to offset the compensation costs. Luna: So list prices went up, but net prices went down? That seems unsustainable. Lucas: It was. By 2023, Boeing's commercial airplane division was losing money on every delivery. They had to restructure the pricing model. One change was to reduce the number of price concessions — instead of giving away free spare parts, they offered financing deals or lease guarantees. They also pushed airlines to sign long-term service contracts at the point of aircraft purchase. Luna: So bundling the aftermarket upfront. That's interesting — it's like selling a printer at cost and making money on the ink cartridges, but on a $50 million scale. Lucas: Exactly. And there's a key metric here: the aircraft price index, published by the U.S. Bureau of Labor Statistics. It tracks transaction prices for new aircraft. From 2000 to 2020, the index grew at a compound annual growth rate of about 2.5 percent — below inflation. That tells you list prices may have risen, but net prices barely kept up. Luna: And after the MAX crisis? The index spiked in 2023 and 2024 as Boeing and Airbus both pushed through real price increases. Lucas: Because demand surged. Post-pandemic air travel came back faster than expected, and airlines needed new, fuel-efficient planes. Boeing had a backlog of over 5,000 aircraft. When you have a multi-year waiting list, you don't need to discount as much. That's pricing power. Luna: Right. So the MAX crisis broke the old discounting habit. Boeing is now more disciplined. But there's another factor: competition from Airbus. Lucas: Absolutely. Duopoly pricing is a fascinating game. Both Boeing and Airbus know that a price war would destroy margins. So they tacitly coordinate. When one raises list prices, the other follows. When one offers a big discount to a specific airline, the other offers a slightly better deal to a different airline. It's a delicate dance. Luna: And then there's the Chinese competitor COMAC, with the C919. They're not a major threat yet, but they do put a ceiling on how high Boeing can price. Lucas: That's right. COMAC is offering the C919 at around $50 million list, heavily discounted. That pressures Boeing to keep effective prices competitive in Asia. But the C919 only has about 200 orders, mostly from Chinese carriers, so for now it's more of a potential constraint than a real one. Luna: Let's talk about the role of lessors. Companies like AerCap and Air Lease Corporation buy hundreds of planes from Boeing and then lease them to airlines. How does that affect pricing? Lucas: Lessors are huge customers. AerCap, for example, has over 2,000 aircraft. They negotiate massive discounts — often 60 percent or more off list — because they order in bulk. But they also provide Boeing with a stable source of orders that smooths out the boom-bust cycle of airline demand. Luna: So Boeing gives them a better price in exchange for volume and stability. That makes sense. But do lessors then sell the planes back to Boeing eventually? There's a whole secondary market. Lucas: Yes. Boeing also has a used aircraft business, Boeing Capital. They finance purchases and sometimes buy back older planes when airlines upgrade. That secondary market pricing is based on residual value forecasts. If Boeing overestimates residuals, they take a loss. So they have to be careful. Luna: So pricing isn't just about the initial sale — it's about managing the entire lifecycle value. And that requires a lot of data. Lucas: Huge amounts. Boeing has teams of analysts modeling demand for each route type, fuel prices, inflation, interest rates, and airline profitability. They use game theory to predict how Airbus will respond to a given price move. It's some of the most sophisticated B2B pricing in the world. Luna: And yet, they still got it wrong with the MAX. The rush to compete with Airbus led to a design flaw that cost hundreds of lives and billions in settlements. Lucas: That's a crucial point. Pricing power is useless if your product isn't safe. The MAX crisis showed that discounting can't compensate for a broken value proposition. Airlines ultimately care about reliability, fuel efficiency, and passenger trust. If Boeing loses that, no discount is deep enough. Luna: So the lesson for any business — not just aerospace — is that pricing must be anchored to true value, not just competitive positioning. Lucas: Exactly. And on that note, I want to take a quick step back. You know, we do this show every day, diving into how companies price things. It's a lot of research, a lot of conversation. And the reason we can keep doing it ad-free is that a small group of listeners chips in monthly through buy me a coffee dot com slash fexingo. It's a simple way to support the show if you find these episodes useful. Luna: Yeah, it really does make a difference. And there's no pressure — just something we mention for those who've been listening for a while and want to give back. Lucas: Alright, back to airplanes. One more piece of the pricing puzzle: production rates. Boeing's assembly lines can produce about 31 MAX planes per month as of early 2026. They want to get to 38 by year end. But rate increases are expensive — they require hiring, training, supply chain investment. So Boeing faces a tradeoff: higher rates lower unit costs but increase risk. Luna: And that risk of quality issues is real. The MAX crisis showed that pushing rates too fast can lead to problems. So now Boeing is more cautious. That means supply is constrained, which supports pricing. Lucas: Right. In fact, Boeing's CFO said in 2025 that they would prioritize 'value over volume' — a direct reference to pricing discipline. They're willing to lose market share to Airbus if it means maintaining margins. Luna: That's a big shift from the pre-crisis strategy. It shows how a crisis can reset pricing philosophy. Lucas: Absolutely. And it's not just Boeing. We're seeing similar trends in automotive, in tech hardware, in consumer goods. The era of buying market share with low prices is fading. Companies are realizing that sustainable pricing requires a strong product and a loyal customer base. Luna: So the takeaway for me is that pricing in a duopoly is a balancing act — between market share and margin, between list and net, between initial sale and aftermarket. Boeing's story is a masterclass in that balance, even with the stumbles. Lucas: It really is. And next time you board a 737, you can think about the $50 million machine you're sitting in, and the decades of pricing strategy that made it possible.