ft boeing swisstrade
Boeing and 737 Max prepare for toughest test
Customers forced to park aircraft after fatal crashes wonder if much has changed at world’s biggest aerospace group
PEGGY HOLLINGER — INDUSTRY EDITOR
Dennis Muilenburg promised investors this week that Boeing had learnt the lessons of the crisis that has grounded the 737 Max, the aerospace company’s newest jet, since March, and raised questions about its safety culture.
“This is a defining moment for Boeing,” the company’s chief executive said, presenting third-quarter results on Wednesday. “We have changed from this, and we will continue changing.”
Yet some of the customers who have been forced to park their multimillion-dollar aircraft after two fatal crashes in the space of five months are less sure that much has changed inside the world’s biggest aerospace company.
“I don’t think they have their arms around the entire situation,” said one, citing “the old Boeing arrogance . . . This is not just a question of ‘We are great engineers and we’ll fix the problem.’ There is a lot to get back in terms of relationships [with customers].”
The 737 is one of Boeing’s most important aircraft families. Ron Epstein of Bank of America Merrill Lynch estimates that the narrow-body aircraft accounts for about 40 per cent of Boeing’s earnings and 30 per cent of group cash flow.
The crisis has called into question the future of the aircraft and the credibility of its manufacturer. Investigations into the two crashes in which 346 people died point to the anti-stall software that was installed on the 737 Max, a derivative of an aircraft developed in the late 1960s, as a significant factor.
Boeing is accused of producing a flawed design for the Mcas system and of failing to give pilots enough information on how to handle it in certain extreme situations. It has been accused of putting undue pressure on engineers carrying out the certification process. This was both to keep costs down and to compete with Airbus, maker of the Neo, the re-engined A320, which was racing ahead of Boeing’s narrow-body offering.
Boeing denies this, and especially any suggestion that it did not prioritise safety. Responding to findings on Thursday by Indonesian investigators, who also cited pilot and regulatory errors as factors in the crash of Lion Air flight 610 last year, Mr Muilenburg stressed that the Mcas software had been redesigned “to prevent the flight control conditions that occurred in this accident from ever happening again”.
Last week Boeing conducted a successful dry run of the system on a certification test flight that it will have to perform for the US Federal Aviation Administration before the 737 Max can fly again.
Executives know that proving the safety of the aircraft is priority number one. They know that when the aircraft is certified as safe to fly — expected by the end of the year, although this could change — it will only be the start of a long battle to win back customers and passengers.
Airlines are approaching the return of the Max with caution, having already suffered significant disruption.
United, the third-largest carrier, will have cancelled roughly 8,000 flights in the final quarter of this year because of the grounding, it said.
When the jet returns to service, not only will United avoid using the 737 Max as a replacement for other aircraft; it will give passengers the option of not flying the jet when they book.
“We will be transparent — and communicate in advance — with our customers who are booked to fly on a Max aircraft,” the carrier said.
Surveys have shown that many passengers will opt not to fly in the aircraft — assuming they know they are flying on one.
“There will be concerns from passengers in the early days,” said one Boeing insider. “We know it is a reputation issue, and we have to work through that.”
Boeing acknowledged that some airline customers might consider changing the name of the aircraft when it came back into service. But this was not its focus.
“Customers can call a plane whatever they want, but we don’t have any plans to change,” the Boeing insider said.
The company has been sending teams of 737 Max pilots around the world to speak to travel agents and associations, and pilots, to reassure them on the actions taken to ensure the aircraft’s safety.
Many in the aviation industry remain confident that the 737 Max will come through the problems once it is recertified. Some recall similarities with rudder issues on the 737 in the early 1990s that caused two crashes, killing 157 passengers. The 737 was not grounded then and it went on to be one of Boeing’s most successful aircraft.
“About two weeks after an accident, less than 1 per cent of the travelling public can tell you anything intelligent about it, and probably even less than that take it into consideration when buying a ticket,” said one contributor to Airline Pilot Central, the professional crew chatroom, in a debate on the aircraft’s future.
Yet some things will change. The company’s relationship with regulators is unlikely to be as trusting as before. Industry insiders say there are signs certification processes are taking longer. This is set to mean higher costs throughout the industry.
There are doubts about whether Boeing will launch the NMA, its long mooted, mid-range twin-aisle. Instead, it will be struggling with 737 fallout for some time. Getting aircraft back in the air could take at least six weeks after recertification, Boeing insiders say.
Customers are concerned about the complexities facing Boeing of getting some 700 aircraft flying again. Not only will each delivered jet have to be run through a battery of tests, having sat idle for months; Boeing will have to test and hand over the roughly 300 jets it has not yet delivered, while producing and delivering 42 new aircraft every month.
“The logistics of getting the 737 back into the air over the next two years is going to be significant,” one customer said. “We don’t really understand how they will manage that.”
Boeing says it has detailed plans to handle the return to service for each customer.
This week it also reassured many of its investors by not announcing new charges for compensating airlines on top of the $5.6bn hit it posted in July.
But elsewhere it continues to pay a heavy price. Profits from operations in the third quarter have fallen 43 per cent and the cash outflow in the quarter was much heavier than expected at $2.4bn, against last year’s positive $4.6bn. The group admitted that it was as yet unable to say for certain what the final tally might be.
Mr Epstein estimates that the costs of carrying inventory, delayed production and of compensation to airlines could run to $17bn.
So far, Boeing has clocked up more than $9bn, including compensation to customers and a further $3.6bn in additional cost to the 737 programme. That leaves at least $7bn still to emerge. Meanwhile, cash flow continues to suffer, with customer payments on hold until deliveries restart.
The worry for investors is that the timetable for recertification could slip into next year, which would push costs even higher and delay further any financial recovery.
Relations with the FAA appear at a low after a controversy last week over Boeing’s disclosure of information to the regulator. Many fear this could hinder recertification.
Cai von Rumohr, aerospace analyst at Cowen & Co, is optimistic, as long as there are no further hitches.
“If Boeing gets the green light in December I think it will be OK,” he said. “But if the FAA takes longer they are really at the knife’s edge. If it drags on, it is financially very difficult for Boeing. And it doesn’t get any easier to rebuild customer confidence.”
‘The logistics of getting it back in the air over the next two years is going to be significant’ ‘There will be concerns from passengers in the early days. We know it is a reputation issue’
Comments
Post a Comment