737 MAX 9 issues delay MAX 7 and MAX 10 certification

On Boeing's last quarterly earnings call, the 737 MAX 7 and 737 MAX 10 were expected to be certified early and late in 2024, respectively. However, the recent “quality escapes” on the 737 MAX 9 and the decompression incident on Alaska Flight 1282 changed regulatory attitudes and likely actions regarding those programs. Boeing asked the FAA to issue a special waiver to certify the MAX 7 and MAX 10 with a known defect to be fixed later. That defect would be corrected and retrofitted to the entire fleet, which is estimated to be completed by the end of 2026. The problem for all MAX models is that the Engine Anti-Ice System has no automatic shut-off. If this system is left on, it could overheat portions of the composite nacelle that is meant to contain engine parts in the event of an engine failure. That could result in parts hitting the fuselage and causing an explosive decompression. This has happened several times with the previous generation 737NG series that suffered uncontained engine failures. Twice on Southwest Airlines flights, engine failures punctured the fuselage, with one incident resulting in a fatality when a passenger was partially sucked out of the aircraft at altitude through a broken window. The 737 MAX is not equipped with an Engine Indication and Crew Alerting System (EICAS) and is currently the only commercial aircraft built without such a system. But without a crew alerting system, there is no way to inform the crew of a potential engine anti-ice overheating, adding another item to the pilot workload. Rather than making things easier for the flight crew, this adds an element of risk. Several safety organizations and pilot unions oppose the FAA's exemption for new airliners like the MAX 7 and MAX 10 since the flaw is now well known. The potential flaw was discovered after the MAX 8 and 9 entered service and is scheduled for retrofit to all existing aircraft and new production during 2026 at the latest. Given the recent “quality escapes” at Boeing, it is now quite unlikely that the FAA would provide Boeing a waiver for a known flaw to be included in a newly certified aircraft. Our sources indicate that international regulatory agencies would likely not follow suit and demand that the flaw be corrected before international certification, thereby breaking the longstanding system of reciprocity between aviation authorities. After the MCAS debacle that caused two MAX crashes, killing 346 people, international agencies were unhappy with the FAA's role in the certification process that enabled Boeing to hide the potential defect from the FAA purposefully and want to ensure it never happens again. The result will likely push back certification from a planned first quarter of 2024 for the MAX 7 and the fourth quarter of 2024 for the MAX 10 by approximately one year, assuming that Boeing has its nacelle fix in place and is ready for certification by early 2025. That remains uncertain, and certification of the two aircraft could, in the worst case, extend to mid-2026, the date Boeing needs to retrofit a solution for the engine nacelle issue on all MAX models. There is a potential for Boeing to utilize its strong political clout in Washington, DC, to have Congress mandate their requested waiver, as they did with the EICAS requirement that would initially have applied to the MAX 7 and MAX 10 if not certified by the end of 2022. That is always possible, but in the current environment, it would not likely be politically feasible in an election year. But the MAX 7, which had initial deliveries scheduled for 2022, will likely slip to 2025, which is not helpful to Boeing’s largest 737 customer. Southwest Suffers This presents a particular problem for Southwest Airlines, the largest 737 operator. Southwest would like the smallest version of the MAX, the MAX 7, as soon as possible as it is retiring older 737-700 models as they approach key and expensive maintenance checks. One of Southwest’s hallmarks is its ability to quickly turn an aircraft and better utilize its aircraft than other carriers. However, taking 176-seat MAX 8s to replace 142-seat 737-700s requires more time to deplane and board the aircraft. As a result, the carrier can no longer accomplish quick turns, and utilization suffers. Southwest is no longer in that category despite its founding as a low-cost carrier. Its labor costs are similar to the major carriers in labor rates, and with outsourced maintenance in a tight environment, MRO faces high costs. It needs the MAX 7 and its improved fuel efficiency as soon as possible. These latest delays from Boeing have depressed the carrier’s earnings and stock price, and it is uncertain whether Southwest will fully recover from them. Southwest is perhaps best known for its single-fleet strategy, maximizing commonality across models. As the largest 737 customer, Southwest's inputs to keep older-style cockpits, including the lack of an EICAS, may have reduced the safety of the MAX design. Their desire for a single aircraft type, effectively putting all their eggs in the Boeing basket, proved less than optimal. What might have happened if Southwest ordered the A220 from Airbus or Embraer's E195-E2 when those programs were announced? Having aircraft optimized for the seating capacity that enabled rapid turns for Southwest could have been a game changer, and the airline could be in a very different place than it is today. When the MAX 8 was grounded, Boeing lost around $1.8 billion to $2.5 billion in delayed revenue monthly. Southwest noted its concerns with rising costs and MAX 7 delays last year.

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