American plane manufacturer Boeing has every reason to be worried even after 4 months its best-seller 737 MAX aeroplanes has been grounded. It seems the safety scandal isn’t going to be solved as quickly as Boeing and its stakeholders had expected – suggesting that the problems plaguing the aircraft’s flight-control systems are not as simple as it looked.
A new problem was found last month by the FAA (Federal Aviation Administration) during simulator testing, dealing another blow to the plan to get the aircraft back into service. The FAA, the agency that oversees American airspace, is notorious for ensuring the safety of civil aircraft in operation. Aeroplanes seeking an airworthiness certificate must meet stringent standards.
Yet, curiously, Acting FAA Administrator Daniel Elwell declared there was “no basis to order grounding” of the Boeing MAX-8 after the stunning crash of an Ethiopian Airlines flight. FAA’s action, backing the airworthiness of MAX jets, faced mounting criticism leading to speculations that the agency was trying to cover-up for the U.S. aircraft manufacturer.
As it turned out, Boeing apparently sold their best selling model – 737 Max 8 – without two essential and vital safety features in the cockpits because they were categorised as “optional items”. The two critical safety features which could have saved both Lion Air and Ethiopian Airlines were an “angle of attack indicator” and an “angle of attack disagree light”.
Now, thanks to Boeing’s greed for profit, it would take at least the end of September to fly again – if they are lucky. JP Morgan Chase thinks that the new delay could force Boeing to consider another production cut. And thanks to the grounding, its deliveries have already fallen by 37% in the first 6 months of 2019, creating a huge headcahe for the company.
To recap, deliveries of the popular MAX aircraft were stopped in March after an Ethiopian Airlines Flight 302 crashed minutes after take-off from Addis Ababa on March 10, killing all 157 people on board. Prior to the Ethiopian Airlines’ crash, Indonesian budget airline Lion Air Flight 610 crashed on Oct 29, 2018, killing 189 persons. Both crashes killed 346 people.
Immediately after the Ethiopian Airlines’ crash, China ordered Chinese airlines to ground all 96 of its 737 MAX-8 models. Following China’s suspension, at least 30 airlines followed, including Australia, New Zealand, India, United Kingdom and even the European Union. It would take an order from President Trump to finally ground all flights of the 737 Max 8 and the 737 Max 9 in the U.S.
The crash was definitely bad news for the American aircraft manufacturing company as the model was viewed as one of the industry’s most reliable. Since the crash, Boeing has not reported any new order for the MAX planes. In fact, Jefferies analyst Sheila Kahyaoglu said she expected zero MAX deliveries in the second and the third quarters of 2019.
It doesn’t take a rocket scientist to tell that a plunging delivery and zero new order is the recipe for disaster. Jefferies estimated the full year MAX deliveries would be about 236, as compared to a total of 580 737 planes delivered in 2018. The Wall Street Journal reported that the situation was so bad that more than 150 undelivered MAX jets are parked at sites around the U.S.
Along with about 380 MAX planes belonging to airlines in the U.S. which remained grounded by regulators since March, there are a whopping 530 planes of similar model eating dust on the ground, including car parks. That’s horrible news for Boeing because any undelivered planes would mean no payment for the company. But Boeing’s agony is great news to rival Airbus.
European aircraft maker Airbus delivered 389 planes in the same 6 months that Boeing suffered a 37% drop in deliveries. That’s a 28% increase in deliveries of Airbus, indicating that Boeing’s full-year deliveries are likely to fall behind its European rival for the first time in 8 years. Airbus has made public its plans to boost output of its best-selling A320neo, the direct rival to the MAX.
After a decade in second place, Boeing snatched the top plane manufacturer crown from Airbus in 2012, and has been in the No. 1 spot since then. While Airbus has targeted delivery of 890 planes this year, Boeing had planned to ship as many as 905 aircrafts. The 737 MAX crisis, however, will crash the American manufacturer’s dream to beat Airbus.
To add salt into injury, Flyadeal, a low-cost airline owned by Saudi Arabia flag carrier Saudia, becomes the first airline to officially drop Boeing 737 MAX order. That cancellation for 50 MAX jets would erase US$6 billion of revenue to Boeing. Instead, the Saudi budget carrier has decided to buy up to 50 A320neo planes from Airbus. The switch to rival is arguably a humiliation to Boeing.
The consolation prize for Boeing is the plan revealed last month by British Airways’ parent International Consolidated Airlines Group to purchase 200 MAX planes. However, that mega deal, announced at the Paris show, has not been finalised. The primary problem with the MAX planes is this – nobody knows when it can be cleared to fly again.
Even when regulators clear the MAX to resume carrying passengers to the sky, it could take months, if not years, to return all of the idled planes to service. Already, some suppliers have been forced to slash output. Analysts said it could take a couple of years before Boeing gets MAX deliveries back on schedule. For now, undelivered planes are draining Boeing’s cash flow.
Still, Boeing has a backlog of about 4,000 of the jets, which have already been ordered. Most of the airlines that intend to buy the jets have already placed their orders. But that was before the fatal crash of the Ethiopian Airlines. As long as there isn’t cancellation like the one made by Saudi budget airline Flyadeal, Boeing should be grateful.
– Finance Twitter