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April 14, 2024

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Today’s story in the Globe and Mail was interesting in that it quoted an expert speaking about delays to the MAX 10 differently than we’ve heard elsewhere. John Gradek, who teaches aviation management at McGill University in Montréal, made an interesting statement about the MAX 10. “If that airplane isn’t going to see the light of day for years – if ever – because of what’s going on, the plans that WestJet has for fleet renewal are going to be in jeopardy.”  Note we have italicized the “if ever” – words that imply doubt about the MAX 10 being built.

This is the first story in which we’ve heard an aviation expert doubt that the MAX 10 will actually be built. While most experts in the industry expect a significant delay, none have actually brought up the prospect of the MAX 10 being canceled. We believe the FAA will likely deny Boeing’s request for an exemption for a known safety issue regarding the engine anti-ice system and portions of the composite nacelle. That action will likely add 18 months or so to the certification timetable for both new models. But even a 2026 MAX 10 is better than a program cancellation for airlines counting on the new model, which will be more fuel efficient per passenger than the MAX 9 and a better competitor to the A321neo.

If we speculate about a new model being canceled, it would be the MAX 7, which has about 34% of the orders of the MAX 10, 363, to 1,063, respectively. The MAX 7, while important to Southwest, is primarily a one-customer model and has not caught on with other carriers. The MAX 10, by contrast, has generated more interest and, with a higher price point, would provide higher margins than the MAX 7. From an outsider’s perspective, why would Boeing cancel the more popular and profitable of the two new MAX variants if it was going to cancel one at all?

A Change in Tone

A year ago, nobody would have been talking about Boeing cutting one of the new MAX programs. But with rudder wiring and bolt issues, mis-drilled holes in pressure bulkheads, mis-drilled holes near windows, and most recently, failing to re-install bolts holding a door plug on the airplane, Boeing’s ability to build safe airplanes has been called into question.

The FAA has already limited 737 MAX production to a maximum of 38 per month for the foreseeable future and will review Boeing’s quality system and processes. The review results could impact the certification process for Boeing’s two forthcoming MAX models, each already running about three years late.

With additional FAA scrutiny expected and a tougher certification process expected, Boeing may face difficult product decisions over the next couple of years.

The airlines, including WestJet and Southwest, that operate primarily 737 fleets don’t have anywhere else to turn. Airbus is sold out until 2032, and training costs to transition pilots from the 737 to the A220 or A320 would be significant. There isn’t anywhere for them to turn, and they are at the mercy of Boeing. Southwest and WestJet ordered the MAX 7 initially, with WestJet opting for the larger model during their most recent order for 42 MAX 10s with 22 options.

The Bottom Line:
We’d bet that if Boeing chose to cancel one of the two new MAX variants, they would cancel the MAX 7 rather than the MAX 10, ceteris paribus. We don’t expect that scenario to happen if Boeing’s senior management is serious about making the changes needed to focus on safety rather than cost control.  But that’s a big if, given what we’ve seen in 2023 and early 2024.



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President AirInsight Group LLC