Daily Insight: Wednesday 3 July 2019 – Rumors of Longer MAX Delay |

News Media stories indicate that the FAA has uncovered additional issues on the 737 MAX related to flight control computer software and potentially hardware that will need to be addressed. This could further delay the MAX, and Southwest Airlines has now cancelled flights into October, 2019, while privately indicating a longer possible delay to employees. Analysis Our sources indicate that the problem is more serious than initially thought, and that it is unlikely that Boeing will be able to solve the problems with a simple software fix. Our regulatory agency source indicates that the computer chip in the flight control computer has inadequate capacity and tends to overheat in certain situations, which could interrupt certain flight control computer commands that could place an aircraft in jeopardy resulting in little time for a pilot to react. While this is an extreme situation and has not, to our knowledge, happened in MAX operations, it nonetheless represents a risk that needs to be addressed. The processor itself is an old Intel 20286 dating from the early 1980s - similar in speed and capability (or lack therof) to the first IBM PCs, for those readers old enough to remember them. Of course, this will cause additional havoc at Boeing, airlines, and the supply chain, all of whom need deliveries to restart as quickly as possible. Boeing will need to find additional parking for aircraft being completed in Seattle and establish a sound retrofit and pre-delivery process for aircraft it has already built. Another six to nine months will require maintenance for the new aircraft that continue to come off the line, as an airplane cannot sit idle for six months without attention to fluid levels, lubrication, and the potential for flat spots on tires. Airlines who were counting on having additional capacity for this summer are now going to need to look to next spring and summer for schedule changes. And they will want to be paid for their lost revenues and profits. In the meantime, the supply chain is continuing to produce components at Rate 52, and provide them to Boeing, who are producing at rate 42. That can’t go on forever, and carrying that inventory is costly. How much inventory can Boeing hold? The scope of Boeing’s return to service operation for aircraft already delivered, those already built, and new aircraft coming off the line will need to be expanded, as they will likely include a swap out of both flight control computers and software code, and full testing of those elements once the fixes to the aircraft are finally approved by regulators. This isn’t the same as a quick software upload. Insight Replacing a chip in the flight control computer, loading software, and testing it thoroughly will likely require another six to nine months to complete, prior to review and additional testing by the FAA. AirInsight now estimates a return to service for the MAX in the 2nd quarter of 2020, much later than initially anticipated by Boeing and its airline customers. The cash flow impact on Boeing in 2019 now appears that it will impact the company for remainder of the year, and the grounding will likely cumulatively last for more than 13 months as it stretches into the second quarter of next year. While we had hoped for a more rapid solution, our confidential sources within the international regulatory community are no longer as optimistic as they once were for a rapid fix to the issues. It will take longer to make the aircraft safe, and that process will cost Boeing dearly from a financial perspective. If you believe the industry rumor mill, now would be a good time to short Boeing stock.

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