U.S. Markets closed

Boeing Max Return Has More Layers Than an Onion

Brooke Sutherland
1 / 3

Boeing Max Return Has More Layers Than an Onion

(Bloomberg Opinion) -- Boeing Co.’s 737 Max may be inching toward a return, but the crisis is far from over.

The airplane maker said Monday that it continues to aim for Federal Aviation Administration certification of updates to the troubled Max in the current quarter, which could allow it to start delivering the jets  in December. It could take several more weeks to finalize pilot-training requirements, which would mean airlines wouldn’t technically be allowed to fly the planes until January at the earliest. And then airlines would need more time on top of that to bring planes out of storage and implement said training. Southwest Airlines Co. and American Airlines Group Inc. said last week that they weren’t planning to fly the Max as part of their fleets until early March, nearly a full year after the second of two fatal crashes prompted a worldwide grounding of the plane.

This is a shift from Boeing’s forecast of a fourth-quarter return for the Max. While Boeing CEO Dennis Muilenburg had warned the Max’s return may be “phased” in across geographical jurisdictions amid greater scrutiny from the European Union, it now appears that the FAA’s approval process will have multiple steps as well. In hindsight, there was a subtle wording shift in Boeing's third-quarter earnings materials to "regulatory approval for the Max return to service" in the fourth quarter, versus its language in July, which mentioned an unqualified "return to service."

Still, investors viewed the news of December deliveries as a positive, and it has a clear appeal for Boeing. The debate over pilot-training requirements has the potential to get contentious with families of the victims of the two Max crashes and Canada Transport Minister Marc Garneau among those who have advocated for much more rigorous (and expensive) simulator training. And Boeing doesn’t have a lot of time to wait. The Wall Street Journal reported over the weekend that it has two months’ worth of parking space left before it will have to explore other storage options for a glut of undeliverable Max jets. In the worst-case scenario, continuing delays to the Max’s return could force it to reduce or halt production.

Why the FAA would be willing to throw Boeing a bone like this is less clear. I will note that in the company’s news release updating investors on the timeline for the Max, Boeing says it’s “possible” the FAA will allow it to start delivering jets in December. Still, this is the most detailed plan yet for the Max’s return to commercial flight and can be taken as a sign that Boeing feels confident there won’t be further snags as it enters the final stages of winning the FAA’s approval for its fixes. That will be a relief after reports last week that regulators found Boeing’s documentation for a proposed software fix lacking and requested that the paperwork be resubmitted.

Getting the plane back in the sky may be Boeing’s most pressing task, but it certainly isn’t the end of this story. Even with the potential to deliver Max jets before pilot training is finalized, attempting to deliver 30 to 40 planes per month while holding on to the current 42-a-month production rate could be a “logistical nightmare” in terms of costs and human capital, SunTrust analyst Michael Ciarmoli wrote in a report this week before Boeing’s timeline update. Then there’s the matter of compensation for the airlines. With major executives signaling they aren’t happy with what Boeing has offered so far, the company’s estimate for $5.6 billion in customer concessions, net of insurance, is likely to rise. Airlines may also want to be compensated for the public-relations pushes they are planning to help convince the flying public that the Max is safe to fly. American CEO Doug Parker said last week that the cost of the damage to his airline from the Max grounding “should be borne by the Boeing shareholders because this was their failure, not ours.”

All of this is before you get to the lasting consequences of the Max crisis, which could range from tougher regulatory reviews to a reconsideration of the rampant consolidation governments have allowed in the aerospace industry. Also on Monday, the EU stopped the clock on its review of Boeing’s purchase of a majority stake in Embraer SA’s commercial-jet program amid concerns that it will wipe out the only remaining viable competition to Boeing and Airbus SE’s duopoly. It’s hard to fathom similar concern in the U.S., where Boeing is regarded as a national champion and lawmakers are concerned about the risks posed by Commercial Aircraft Corp. of China Ltd., or Comac. Indeed, no lawmaker pressed CEO Muilenburg on antitrust during his two days of testimony before Congress last month. But there is room to push back on Boeing’s consolidation of its supply chain. It’s not healthy for one company to have so much power and the Max crisis should force the U.S. to reckon with that.  

To contact the author of this story: Brooke Sutherland at bsutherland7@bloomberg.net

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.

For more articles like this, please visit us at bloomberg.com/opinion

©2019 Bloomberg L.P.