Boeing 737 Max’s woes continue

• Global grounding of Boeing’s very popular model- the 737 MAX
• Financial and operational implications for Boeing’s customers

A flaw in the certification process and lack of communication from Boeing’s end regarding a critical new element in the aircraft compromised the lives and safety of the passengers onboard the 737 Max. Once, popularly advertised as a more fuel-efficient version of the rather popular Boeing 737, which had been operating in the skies since the 1960s, the Boeing 737 Max crashes claimed the lives of 346 people with two crashes spread over just five months (Oct 2018 - Indonesia, Mar 2019 - Ethiopia). Post the unfortunate incidents, investigations revealed that Boeing did not adequately disclose to federal regulators regarding how a crucial new system on the aircraft worked. This flight control system, in fact was the commonality & reason for both the crashes that pushed the nose of the aircraft down in the air leading it to crash.

These investigations, which are still ongoing, have been a big blow to Boeing whose 737 MAX accounted for 70% of commercial aircraft orders last year. After reporting three straight quarterly losses, in Q3 2019, Boeing added a cost of $900 mn on account of continued grounding of the MAX, thereby bringing the total cost to a whopping $9.2 bn so far. Boeing further has lost out majorly on deliveries of commercial planes, delivering just 62 airplanes in Q3 2019 vis-à-vis 190 in Q3 2018. The beleaguered airplane maker’s commercial aircraft orders as well as delivery numbers have been constrained due to the prolonged grounding: since April this year, MAX shipments have been frozen. Further, uncertainties regarding MAX’s return have kept orders mostly at bay, with most opting for other wide-body planes instead: Airbus, has recently received an order from leading Indian low-cost carrier Indigo worth US$ 33 bn while SpiceJet is said to be in talks for an order worth US$ 10 bn. Similarly, Flyadeal (a Saudi low-cost airline), for instance, has cancelled its order for 50 737 MAX jets and instead placed an order with Airbus.

Prior to the second crash, close to 50 carriers, that operated the MAX jet, were flying it for an est. 8,600 flights/week. Fast forward this to the global grounding of the 737 MAX after the second crash which resulted in cancellation of thousands of flights leading to significant loss of revenue and slowed down or stalled expansion plans for several airline companies. With their MAX’s lying idle, airlines including Southwest & American Airlines are even demanding compensation from Boeing. On the same lines, even pilot associations, such as the Southwest Airlines Pilots Association, has filed a lawsuit against Boeing on the grounds of having lost significant amount of compensation (to the tune of ~US$ 100 mn), due to the grounding of the 737 MAX aircraft which resulted in cancellation of approx. 30,000+ scheduled (Southwest) flights.

This prolonged delay has compelled airlines to push back the timeline they anticipated for the return of the planes to their operating fleets. For instance, carriers, such as American Airlines, have taken off MAX from their schedules until April 2020. This lost revenue has dented both operating margins as well dashed growth plans. As per a new report by OAG, the global airline industry’s combined full year lost revenue for 2019 (due to the grounding of the 737 Max) is estimated at US $4.1 bn. The report highlights that the top five airlines to have lost seats (capacity) due to the grounding include: China Southern (US$ 370 mn), Air Canada (US$ 300 mn), Southwest (US$290 mn), Turkish Airlines (US$ 270 mn) and American (US$ 220 mn). Additionally, this has also become a pain point for travellers, who in addition to facing rescheduling/cancelled flights are also paying a higher price for their tickets due to constrained capacity.

Since the grounding, Boeing has manufactured around 300 737 MAX aircrafts but has been unable to deliver any. Prior to that, Boeing had delivered 57 737 MAX aircrafts (Jan-March 2019) which were the only deliveries for MAX this year. Overall, Boeing has delivered 345 aircrafts this year (24 in November), bringing the backlog to 5,457 aircrafts. On a positive note, however, Boeing recently received an order for 10 737 MAXs from SunExpress and another 20 from an unidentified customer bringing the total to 36 aircrafts. Until recently, Boeing officials expected MAX jets to be cleared in the fourth quarter by FAA (Federal Aviation Administration, US), the latter, however, refused to rush the timeline. Having faced the flak for hastily granting certification to MAX the first time around, FAA’s chief asserted the 737 MAXs return would stretch into the year 2020. This prompted Boeing to finally halt production of MAX beginning January, albeit no employees are to be laid off (at least for now). This is, nonetheless, expected to have significant impact on the country’s economic output as well as for Boeing’s suppliers and customers, who are waiting for their idle MAXs to finally hit the skies. Neither does this do any good to the thousands of orders that Boeing has on its books.

As time goes on, the 737 MAX’s return seems uncertain. Boeing has a mammoth task at hand: re-writing a code in the flight computer that would enable the aircraft to handle just about any situation. If that wasn’t enough, there is an issue of re-training pilots to enable them to both understand and deal with the modifications. In addition, each country’s regulatory authority, especially the Europeans and the Chinese, which usually proceeded with the acceptance from the FAA as a key supporting guideline to allow planes to be flown in their region, are expected to take their own time and approach in certifying the MAX to be flying again by their carriers. With the return date for the MAX having been pushed back several times already, it will be pertinent for Boeing to come up with a fool-proof fix by factoring in all the complexities that technology brings with it. While automation is expected to make planes more efficient and safer, it has brought with it another level of complexity, posing scenarios to pilots that they might not have even faced in simulators, much like the case of the two infamous MAX crashes. With a heavily dented image and production & supply on halt, the crisis still looms large for Boeing, necessitating the company to battle multiple challenges in order to ensure a smooth return of its, both popular and rather infamous, MAX to the skies.