Insight: Tuesday 11 November 2020: When will the market for MAX return?

News:

Boeing reported its October orders and deliveries, including 12 more cancellations for the 737 MAX. Four of the canceled orders were from CDB Leasing, one from Smartwings (owner of Czech Airlines), three from Oman Air, and four from an undisclosed buyer. In 2020, the backlog has lost 1,043 MAX orders as a result of the grounding and the global pandemic.

In the Airbus-Boeing trade war, Europe has instituted a 15% tariff on Boeing aircraft, which will have a major impact on Ryanair, which currently has an all-Boeing fleet. That could have a major impact on the timing of deliveries. However, it is hoped that a new administration in the US might end the trade wars over commercial aircraft programs that have been subject to WTO fights over the last 14 years and restore no tariff trade with the EU. But until that happens, the market for the MAX will be further hampered.

With the MAX expected to be ungrounded on 18 November, a week from today, we would expect American Airlines to fly its first MAX routes on 27 December, and most operators to be back in the skies in January or February, depending on their ability to train pilots and Boeing’s ability to modify already delivered aircraft.

Analysis:

Of course, given Boeing’s standard contractual positions, the MAX is now the easiest aircraft for an airline to cancel, as Boeing has been unable to deliver those aircraft on time. Executing their rights to walk away, and have deposits returned, is quite appealing to airlines losing money on a daily basis during the on-going pandemic.

The key remaining question is whether passengers will embrace the MAX as a safe aircraft, or avoid flying on an aircraft perceived by many to be unsafe. Boeing and the FAA will likely state that the aircraft is one of the most thoroughly investigated aircraft in history and proclaim it to now be among the safest in the world. But those were the same folks who initially certified the aircraft and whose credibility with the public is waning.

The general public in the United States has lost significant trust in many institutions, including the government and the news media. Contentious congressional hearings airing incriminating internal Boeing e-mails and politicians calling the MAX a flying coffin don’t help instill confidence in the aircraft. We believe there are still issues that have not been adequately addressed by the FAA, and while the airplane is safe and stable, it could still be improved and the grandfathered 1960s design brought up to 2020 standards.

Insight:

The true test for the aircraft will be passenger acceptance. Aircraft previously grounded for crashes; the Comet, Electra, and DC-10 were differently impacted in the market. The first two experienced multiple crashes from design flaws and never recovered their markets, while the DC-10 had a well-documented crash that resulted from improper airline maintenance processes rather than the aircraft, and passengers returned. The MAX crashed as a result of a design flaw and is likely to have a lasting effect.

Airlines understand their customers and are taking different approaches to the issue. American Airlines is planning tours of the MAX, including discussions with pilots and mechanics, in New York, Miami, and Dallas to assure passengers that the MAX is safe. It appears Ryanair has removed the MAX designation from its airplane, replacing it with the model number, 737-8-200 to effectively hid the MAX name from passengers. It is clear that both airlines are expecting a backlash.

Competitively, the MAX family has one very solid performer, the MAX 8. The MAX 7 has been unsuccessful in the market, despite being stretched, and does not compare well with the more capable and newer A220-300. The larger MAX models, the MAX 9 and forthcoming MAX 10 have not been successful, being outsold by the A321neo by five to one margin. Neither will be viewed as a market success over the longer term.

We remain concerned that Boeing’s plans to resume MAX production, on top of the already completed aircraft, will lead to a market glut in aircraft and create a supply-demand imbalance. While there is a market for the MAX, it may be a smaller number of aircraft than Boeing is planning.