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Boeing faces the most difficult crisis in its history international

B737 MAX at Seattle airport. In video, two experts analyze the area of ​​controversy.

Safety is essential for the Boeing activities. And few planes are just as honored as the B737. This model, which was commissioned five decades ago, is so popular that it lands or takes off every 1.5 seconds from one airport in the world. But the reputation of this aircraft has been seriously damaged after two aircraft of its most advanced version crashed in five months, resulting in 345 deaths in Indonesia and Ethiopia, and that could threaten the survival of the MAX series if passengers refuse to fly it.

The multinational in Chicago is confronted with what is considered to be the biggest crisis in its century of history and must act quickly to prevent the open wound from becoming deeper. After a B737 MAX 8 crashed on March 10 shortly after taking off in Addis Ababa, many countries began to close their airspace for flights of this model, a prohibition to which the United States eventually also added. Only on two occasions a flight suspension was ordered like the current one: after the engine of a DC 10 wing was disconnected when he left Chicago in 1979 and the batteries of the B787 Dreamliner burned down in 2013. But those suspensions were due to mechanical failures that escaped the pilot's control.

This time the motive is very different and places the entire commercial aviation industry in an area that has never been explored before. The origin of the MAX losses is not only attributed to a manufacturing fault. The first analyzes point to a problem that combines automation and the human factor. The black boxes of the plane that crashed in Ethiopia are still being analyzed, but there are similarities between this accident and that of the Lion Air device in October 2018 in Indonesia affecting the automatic stabilization system (MCAS) and the aircraft's control capacity . pilot. The necessary change from software The system is in principle easier to solve, but it also requires the pilot to enter the solution equation. In this case, pilots must familiarize themselves again with the changed system.

The challenge is enormous for the CEO of multinational Dennis Muilenburg, who faces this crisis when he has not been in office for four years. The damage to the image, as Craig Fraser noted by the Fitch rating agency, "can be significant." Boeing has been able to withstand similar episodes. But the analyst warns that the costs can go beyond the B737 MAX. And the most complicated, he adds, the reputation of the company will redefine when the cure is found.

Boeing planned to perform the first test flight of the B777X this week, the efficient version of the old twin-engine long-haul flight. It takes advantage of the benefits of the B737 MAX and the Dreamliner, it has the largest engines that equip an airplane and the ends of the wings are folded to work on the runway. The long waiting time is being postponed and it is possible that the plan to develop a new medium-sized aircraft will do the same.

Global rebellion

S. P.

If the incident with the Dreamliner's batteries is a reference, that crisis will be resolved in four months. It is the time that Boeing worked on the solution after the loss of the B737 MAX 8 from Lion Air. Cowen estimates that it will take between six weeks and three months to find the cure. Bank of America analysts do not exclude the possibility that the suspension could last six months.

Sandy Morris, analyst in the aviation industry at Jefferies, looks more at the circumstances of the suspension. The double accident caused a real "rebellion" against the American Aviation Agency (FAA). A few hours after he said that the B737 MAX could fly safely, the United Kingdom, Australia, the European Union and Canada prohibited the entry of the aircraft into its airspace, "never seen anything like it."

The FAA is the employer that follows the industry during the certification of passenger aircraft. This outcome, analysts agree, sets a precedent that could turn against other manufacturers such as Airbus if one of its new aircraft is in a similar situation. But in the case of Boeing, this means more control when approving the proposed solution.

The worldwide veto against the MAX forced parallel to Boeing to secure the deliveries of the most popular model. The B737 leaves the assembly line at a speed of 52 units per month, with the idea of ​​bringing them to 57 countries in 2019. The company, with 5,100 orders for this model, must maintain the production pace so that the suspension does not cause any disruption in the supply chain. Now they are parked at the Renton (Washington) lane.

Great as a country

Boeing's fate matters. The company is as big as the economy of Ecuador and larger than that of Venezuela or Luxembourg. Last year this giant of the aerospace and defense industry registered revenues with a value of 101,100 million dollars (89,075 million euros). Of that total, 60,700 million was generated by the commercial aviation division, equal to the national wealth of Slovenia. And a third of the worldwide turnover is due to B737.

The twin-engine aisle, which has supplied more than 10,000 copies since it was put into service half a century ago, is more than its main money generator. The B737 is also the product that opens markets such as China. The growing demand for travel in emerging countries has led him to fight fiercely in recent years with his arch enemy Airbus, his only rival.

The duopoly fights for every order. But almost more important is the speed with which they produce the aircraft. Last year Boeing made a total of 806 deliveries of all models and the orders it has collected in the portfolio have an estimated value of $ 412,000 million. Although the B737 MAX will generate 48% of sales in 2019, as it is a new model, it accounts for only 2% of all flights in the US.

The suspension of flights raises serious doubts about the immediate future of the B737 MAX. Nick Wyatt, aviation expert for GlobalData, says that "this story is much bigger than anyone could have imagined." It is of the opinion that the reputation damage of the aircraft "has already occurred", even if the investigation into the accident of Ethiopian Airlines shows that it was not a production problem.


"It's hard to know how passengers can regain confidence in the aircraft in the short term," he says. In his opinion, any refusal of travelers to fly in a B737 MAX will force airlines to reconsider their orders. Standard & Poors notes that the suspension leaves "a trail of uncertainty". But he points out that the aircraft is relatively new and that airlines have few options.

Change to Airbus is not so obvious, says Cai von Rumohr of the financial multinational Cowen because they have a sufficiently large order book to attend five years of production of the A320neo, the rival of the MAX. In any case, they all agree that this would be very harmful to Boeing and could even threaten the future of the series. That is why Credit Suisse says: "it is very difficult to see the border where the crisis can end".

In addition, there are the costs for repairing the 370 MAX aircraft that are in service, as Ken Hernert from Canaccord indicates. The estimate is $ 1,500 million if the cause lies in the system that controls stability. It is not much compared to the 7,900 million profit achieved by the commercial aircraft division. But it still needs to be revealed what caused the Ethiopian accident. Up to that amount, he adds, the delay in aircraft payments can be added if aircraft do not arrive.

Public pressure

This crisis and the reputation damage of the B737 MAX can weaken the company when negotiating future contracts. Moreover, if it influences the production speed of the aircraft, this can deduct the flow from the suppliers of parts. All this without taking into account the public pressure, the politicians, or the demands of those involved or the impact on the 100,000 employees that Boeing has around the world.

Boeing is more than a national pride of the United States. It is also the company that has more weight in the Dow Jones index and drags all other parts of the downside. But as they remember in the investor Stifel, in the public prosecutor's office "it is very quickly about being loved and being hated". Boeing's market capitalization amounted to more than $ 250 billion for the Ethiopian Airlines crash. From there, it lost 12% of its value in the last week.

Edward Jones analysts expect Boeing to be in some sort of limbo until the cause of the accident is determined. "If the problem is mechanical, or worse, you have to re-evaluate the certification," they warn, "this could lead to orders being canceled and the financial impact to be greater." The confidence crisis, they conclude in the case of the Volkswagen emissions fraud, is complex and the way to recover is long and painful.


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