Insight: Playing Poker with Congress

Boeing’s CEO David Calhoun is playing poker with the US Congress. He spoke yesterday about the potential certification issues with the MAX10 and for the first time indicated that Boeing might walk away from that program should Congress not provide the company a time extension for certification. That is essentially playing poker with Congress, and unfortunately, Boeing holds a very weak hand. While he can cite potential job losses and the international balance of trade, the blame for those losses rests directly on his shoulders as the leader of a company that cannot complete tasks on time and on budget. Boeing’s wounds are self-inflicted, and he may find little sympathy on Capitol hill, particularly with the families of the 346 MAX crash victims.

After the MAX crashes, Congress mandated the FAA to cease providing grandfathered exceptions to newly designed aircraft and provided a two-year window for Boeing to complete certification of the remaining two 737 MAX family members, the MAX7 and the MAX 10. The FAA previously indicated that Boeing is unlikely to meet the mid-December 2022 deadline to maintain grandfathered exceptions for the MAX10, which it does not expect to be certified until early 2023. The FAA, following the law, has no choice in the matter but to deny Boeing certification for the new airframe unless it complies with the Congressionally-mandated requirements.

Under the current Congressional mandate Boeing would need to upgrade the MAX10 to include a modern Crew Alerting System to obtain an FAA Type Certificate for the aircraft. Apart from the 737 MAX, Boeing has an Engine Indication and Crew Alerting System (“EICAS”) in every other model. The 737 MAX retains an annunciator light system that was derived from the Boeing 707 cockpit of the late 1950s for alerting pilots to potential problems. Installation of such an EICAS system would require an avionics redesign and likely add two years to the development timeframe for the MAX10.

Boeing has been through a difficult period since the MAX crashes, which revealed a failure to properly design and certify the aircraft. Additional quality problems have emerged with the 737 MAX production line as well as the 787 production process resulting in no new 787s being delivered for more than a year. The new 777X is now five years behind its original schedule and is at risk of losing orders. This new crisis couldn’t have come at a worse time for Boeing, who have apparently decided playing poker with Congress is their only hope to maintain grandfathered status.

It appears that Mr. Calhoun is considering walking away from the MAX10, which has about 600 orders from airlines, although Boeing no longer reports MAX orders by model. The similar-sized A321neo has a backlog of 4,211 as of the end of May by comparison. Mr. Calhoun must be counting on a change in the make-up of Congress after the November elections to be playing poker with Congress. Would a more Republican house help Boeing, and is that feasible after the contentious Roe v. Wade overturns by a Trump-appointed court that has angered the key swing voting block of suburban women? We will see in November, but that isn’t a bet I would be willing to take given a volatile socio-economic climate. Of course, moving Boeing’s headquarters to Washington DC provides the opportunity for easier lobbying, albeit being farther away from the source of the problems that need to be solved.

The MAX7, which has completed its flight testing, also needs to be certified by December and has fewer orders as the smallest member of the MAX family. While expectations are for on-time certification, Boeing has been silent about progress for this model, causing concerns for a key customer, Southwest Airlines who need that aircraft for key routes to replace aging 737-700s. Could the MAX7 also be on the chopping block?

Let’s examine some of the implications for the industry if Boeing decides to walk away from the MAX10 and how key players will view the situation:

If the MAX10 is dropped, does Boeing need to launch the NMA quickly?