Walking out of a hotel in Kuwait recently, a receptionist escorted me to the car. “Thank you for staying with us, sir! Have a great trip…but don’t take a Boeing plane!” he cautioned, as he opened my car door and waved me goodbye. It’s at that point I started to reflect on just how damaging the last month has been on the reputation world’s largest aircraft manufacturer.
April 10th marks one month since the Boeing 737 MAX 8, a brand-new version of the classic Boeing 737, suffered a devastating crash for the second time in less than five months. The preliminary investigations for both the recent crash of Ethiopian Airlines flight 302 and Lion Air’s 737 MAX 8 crash last October, flight 610 has found both accidents point to problems with a software system, the Maneuvering Characteristics Augmentation System, or ‘MCAS’, as it’s now known.
All Boeing 737 MAX jets around the globe were grounded by mid-March, forcing Boeing to suspend all new deliveries of the new aircraft type. The 737 is Boeing’s most profitable aircraft program and accounts for approximately 40% of the company’s operating profit. While classic versions of the 737 continue to fly normally, nearly all of the new 737 jets that are due to be delivered from 2019 are MAX variants — paralysing Boeing’s bestseller.
As the world witness Boeing’s largest crisis in recent history, it’s becoming increasingly clear that initial and heavy disruption to business could last up to nine months, and that’s without taking into account the implications of just how damaged this new aircraft’s reputation is. In a fiercely competitive aircraft order battle with its European rival, Airbus — Boeing is set to face a difficult year in terms of single-aisle orders. Airlines are holding off on orders for Boeing’s 737 Max while they wait to see the developments in Boeing’s (already heavily criticised) response to the latest accident, all in the run-up to Paris Airshow, one of the industry’s most prominent yearly aviation trade event, whereby manufacturers announce large aircraft orders from airline operators across the world.
A month following the deadly Ethiopian Airlines crash, both the FAA and Boeing have said they will require enhanced pilot training and additional references to the MCAS system in flight manuals. Boeing had previously decided that 737 MAX pilots needed no extra references in 737 MAX manuals for pilots in relation to handling the MCAS system, as the system was supposed to activate only in ‘extreme circumstances’ and far outside the normal flight envelope.
With multiple 737 MAX aircraft rolling off Boeing’s assembly lines every month, storing all those aircraft has quickly become a large problem. Boeing will now reduce its 737 production rate from 52 per month to 42 as of mid-April.
As the stock market reacted to the uncertainty regarding future deliveries, Boeing continues to insist that once the 737 MAX grounding is lifted, the company will be able to ramp up output again.
Before March’s Ethiopian Airlines crash, Boeing had planned to boost 737 family production, from 52 per month to 57 in June. The company was also calling on suppliers to ‘work harder and faster’ to ensure more 737 MAX jets were able to enter commercial service with airline operators worldwide.
Now one month on from the second 737 MAX disaster, the company’s short-haul flagship jet is shrouded in uncertainty while being caught up in various investigations, lawsuits and accusations. Indonesian carrier Garuda Indonesia is the first airline to cancel an order for dozens of 737 Max jets, a deal worth over $500 billion at list prices.
Other airlines, including Middle Eastern operators of the jet, want to delay their Boeing 737 MAX deliveries until the new design changes are proven to be effective. On the condition of anonymity, one executive at an airline which has multiple 737 MAX jets in its fleet told me “Our passengers are nervous, and the expectation is that we will not resume flying the MAX until the industry is satisfied with the fix. But that’s going to take time, and that will be damaging for us in the long run as a Boeing 737 MAX customer trying to operate as a competitive airline”.
Tui has warned that the grounding of its fleet of 15 737 MAX jets will cost the European company around €300m, especially ahead of a busy summer period which takes off next month. Tui is the largest operator of the 737 MAX in Europe, and the airlines’ 737 jets account for one in 10 of its fleet.
The grounding of the 737 MAX has so far led to a $34B market value tumble for The Boeing Company. Boeing’s own shareholders are suing the U.S. planemaker for alleged securities fraud violations and concealing safety deficiencies in its 737 MAX, with some claiming “Boeing effectively put profitability and growth ahead of aeroplane safety and honesty by rushing the 737 MAX to market.”
“This will go down in the history books,” another airline fleet manager told me, pointing out that “the 737 MAX is now a household name for all of the wrong reasons.”
While the aviation industry has proven itself to be among the most resilient business sectors, Boeing has both witnessed and orchestrated a chain of events that has left the U.S. planemaker in an ever-worsening crisis.
As a manufacturer, the company will be faced with the economic implications of this unprecedented state of affairs for years to come. But it’s important the industry pays attention to those who are the purpose of a plane: passengers. With confidence in the 737 Max jet at an extreme low, Boeing and its airline operators have a turbulent, extended-period ahead in their respective fights for both financial stability and passenger loyalty.