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March 28, 2024
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News

It is Friday, so let’s review this busy week in the world of the 737 MAX.  A lot has been revealed about the crashes, Boeing’s internal safety upgrades, their future production plans, additional recommendations, and lawsuits.

  1. The NTSB, in its review of the 737 MAX accidents, criticized the multiple cockpit warnings in the MAX, expressing concerns that Boeing may have under-estimated their impact on flight crews.
  2. It appears Boeing’s plans are to deliver 70 aircraft per month once the MAX begins to fly, keeping the production rate at 42 per month until all of the existing and newly built aircraft waiting to be delivered are back into service.
  3. Boeing settled its first lawsuits from the Indonesia crash, paying about $1.2 million per passenger killed in the initial settlements.
  4. FAA inspectors weren’t properly qualified to certify the 737 MAX, according to a whistleblower.
  5. Boeing’s Board made several recommendations to improve safety at the company.
  6. SpiceJet, a key MAX customer in India, indicated that it may purchase 100 Airbus A321 jets rather than the MAX10 for route expansion.
  7. Editorials regarding Boeing’s moral compass and culture indicate how far the company’s reputation has fallen.

Analysis

  1. The latest news, that the NTSB criticized the cockpit warnings in the MAX that may lead to crew confusion could be applied to many aircraft, including the A320 family at Airbus. Apparently, when it “hits the fan” in terms of warnings, cockpits can light up like a Christmas tree, taking pilots attention away from manually flying the aircraft and determining the cause of the issue.  The NTSB has recommended changes, and historically, the FAA follows NTSB recommendations.  A change in the cockpit warning systems could add additional time to a return to service for the MAX should the FAA deem it necessary.  What is more likely to happen is a change in the process for reviewing crew information for future aircraft.
  2. Delivering 70 per month would mean delivering 28/month of the aircraft currently produced and undelivered, which could take about 12 months to complete, given that about 250 aircraft have been built since the grounding, and in another month, that will be near 300 aircraft and in two months about 340 aircraft. Boeing will also supply the required software and any hardware needed for airlines to bring the 370 previously delivered and grounded aircraft back into service simultaneously.
  3. Boeing’s first legal settlements were for about $1.2 million per passenger for 11 Indonesian passengers on Lion Air. If that trend were to continue, it would mean a liability of about $415 million for the 346 passengers and crew who perished. A starting price has been established.
  4. The FAA’s independent office of audit and evaluation determined that 16 of 22 the FAA’s inspectors had not completed formal training, and that 11 of the 16 that were under trained lacking CFI certificates, a basic position requirement. Earlier the FAA testified that they were fully qualified, in an effort to cover its own deficiencies in certification. There should be fallout from this.
  5. Boeing is making a number of recommendations and committees, the key one assigning responsibility for safety to the Chief Engineer, who will report to the CEO and Board on safety issues. That creates a focal point for safety within the organization. But the process is not completed and we should expect more news on this front.
  6. SpiceJet indicated that since the MAX has delayed the NMA, it may purchase 100 narrow-body A321XLRs from Airbus, despite their infrastructure geared for the 737. This would be a major blow to Boeing’s most important customer in India and further the loss of the middle of the market that Boeing created with the 757/767 in 1982. There are surely other airlines watching this with angst.  Delivery slots are valuable.  Expect others to get a move on with their own decisions.  This a feeding frenzy waiting to happen.
  7. The need to change Boeing’s culture has been recognized by several organizations editorially, Boeing has lost its moral compass and the short time-frame for bringing the MAX to market contributed to problems that could have been averted.  Whistleblowers at Boeing are often not treated kindly. Boeing’s brand damage has yet to be calculated and owned by its management.

Insight

  1. The NTSB recommendations have the potential for the FAA to require additional modifications to the 737 MAX cockpit. If they deem this a requirement prior to the MAX returning to service, this could evolve into a further delay of several months, which would be costly for Boeing and the airlines.  Is it needed? Yes.  The question now is by when will it be needed.  We’re leaning towards later, but international regulators can make their own decisions, and geopolitics can be an influence.  Remember, there is an on-going Airbus-Boeing trade war at the WTO.
  2. Boeing will take a year to catch up on its production schedule and get all of its aircraft delivered to customers – but in the interim, will likely add another 10 late aircraft every month from its reduced production rate for new aircraft, likely to stretch the time period to 16 months before the delays officially end. At this point, a few more deferrals or cancellations from customers would help, and given their limitations on bringing new aircraft on board quickly, is likely to happen.  But the final certification tests have not yet begun, and the time frame for FAA and international certifications remain uncertain.
  3. The first settlements tend to be the easiest, and we don’t believe the $1.2 million average will hold, particularly with investigative results placing much of the blame on Boeing’s MCAS system, which the company did not adequately inform pilots about prior to the first crash. Our estimate is that final settlements may be in the $2-$2.5m per passenger range, bringing the total to between about 700 million to 1 billion dollars.  The question then becomes with some design culpability, what will Boeing’s insurers pay?
  4. The FAA clearly shares some blame in these accidents, and needs to restructure how its Designated Representatives report to the FAA. Reporting through Boeing program managers enabled Boeing to stifle dissenting voices, who had no direct channel to the FAA as historically has been the case.  The lack of qualified inspectors is an indictment of the regulatory process and how the FAA enabled Boeing to essentially self-certify the airplane while sweeping potential problems, like MCAS, “under the rug” into low impact categories rather than be exposed to the scrutiny that should be provided for a safety of flight system.
  5. The key person in the new structure is the Chief Engineer, who reports directly to the CEO. The question is whether a disagreement on safety would lead to job termination, and how heavy-handed Boeing management wants to be.  Without a channel directly to the Board in the event of a disagreement with the CEO, the same situation could arise as with a typical whistleblower at Boeing – here today and gone tomorrow.
  6. The real question with SpiceJet is whether they are negotiating in the press, as often happens in India, or are simply out of time to resume a growth plan? Either way, choosing the hot-selling A321 is not a bad decision, as resale values for these aircraft, which are in high demand, should be excellent.  Taking the A321, and waiting a bit longer for the NMA, ensuring that any early glitches are solved, might be a prudent strategy with very little downside risk.
  7. We’ve called for cultural change editorially at Boeing and applaud those who recognize that Boeing’s management has focused on short-term shareholder value rather than building the company’s long-term future. The cost of the MAX failures will likely exceed the cost of building an all-new narrow-body program that could have changed the competitive balance in the industry.  Losing one customer in the short-term at American might have been worthwhile if an all new aircraft, purposefully designed around the aerodynamics of new engines, could have been introduced within 5-6 years.  Boeing certainly had the money, given their dividends and stock buybacks over the last 5 years, and by now, the program would be flying.  But after the 787 debacle, management took the low risk approach, and lost.



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President AirInsight Group LLC

It is Friday, so let’s review this busy week in the world of the 737 MAX.  A lot has been revealed about the crashes, Boeing’s internal safety upgrades, their future production plans, additional recommendations and lawsuits.  

  1. The NTSB, in its review of the 737 MAX accidents, also criticized the multiple cockpit warnings in the MAX, expressing concerns that Boeing may have under-estimated their impact on flight crews
  2. It appears Boeing’s plans are to deliver 70 aircraft per month once the MAX begins to fly, keeping the production rate at 42 per month until all of the existing and newly built aircraft waiting to be delivered are back into service.
  3. Boeing settled its first lawsuits from the Indonesia crash, paying about $1.2 million per passenger killed in the initial settlements
  4. FAA inspectors weren’t properly qualified to certify the 737 MAX, according to a whistleblower.
  5. Boeing’s Board made several recommendations to improve safety at the company.
  6. SpiceJet, a key MAX customer in India, indicated that it may purchase 100 Airbus A321 jets rather than the MAX10 for route expansion.
  7. Editorials regarding Boeing’s moral compass and culture indicate how far the company’s reputation has fallen

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