The Boeing 737 MAX Story Takes a Turn…

Boeing will soon suspend production of its 737 MAX aircraft. “Temporarily,” they say.

Boeing’s 737 MAX has been grounded since March, after two crashes killed 346 people and revealed critical flaws in the airplane’s flight control software.

By suspending production, Boeing is biting a big bullet. It’s a multibillion-dollar decision from the airplane builder, with a cascade of implications and impacts. Indeed, it’s no stretch to say that Boeing is betting the company.

Broadly speaking, Boeing’s move will touch the U.S. economy in a big way.

More personally, Boeing’s decision probably impacts you as well. Looking ahead, if it’s Boeing are you still going?

Let’s discuss what’s in play with all of this…

If you fly on commercial airliners, you’ve probably flown on a Boeing 737. In successive versions, the 737 has been around since the 1960s. It’s a workhorse, and the most commonly used passenger airplane in the world.

Since 1967, Boeing has delivered over 10,500 of its 737 jets. Right now, Boeing’s production backlog is over 4,400.

You’ve probably walked through an airport, boarded a plane and flown somewhere. More than likely, it was a Boeing 737. Maybe you didn’t even notice.

Perhaps you’re a traveler who never much worries about the make or model of what you fly. You just board the plane, get comfortable, sort-of watch the safety brief and then lean back to read your newspaper or watch in-flight movies. Oh, and you hope that the airline doesn’t lose your baggage.

Then along came the ongoing saga of the 737 MAX.

Travel is no longer so tame. Two gory crashes grabbed the world’s attention. Governments and media focused on Boeing and its new version of the old 737 jet.

Never in the history of aviation have so many people become so interested in flight control software on twin-engine, displaced-thrust, high-bypass, turbofan-powered aircraft. We have instant experts discussing angle of attack indicators, pitch control and a Boeing feature called a “maneuvering characteristics augmentation system” (MCAS).

Despite two crashes and the grounding, Boeing has continued to build 737 MAX aircraft. The company has been rolling new birds out of its assembly hangar at a sturdy clip of 42-per month; then Boeing parks and stores them.

Planes

Temporary storage. For now, these Boeings aren’t going. Reuters

According to the Wall Street Journal, this build-store approach costs Boeing about $1.5 billion per month. Boeing anticipates future delivery of the aircraft – and payment from buyers – when flight control problems are fixed and aviation authorities across the world recertify the 737 MAX to fly.

Don’t hold your breath though. It may be a while. April, perhaps? Or later…

Where do things go from here?

Here’s what I know first-hand. I’m an old Naval Flight Officer; an airplane-guy since my days at Pensacola, and flying Navy jets around aircraft carriers… The S-3 “Viking,” a twin-engine, displaced-thrust, high-bypass, turbofan-powered aircraft, coincidentally.

Anymore, I still travel a lot. I like airplanes. I love a new-airplane smell and feel. I flew several flights on the Boeing 737 MAX before the aircraft type was grounded.

I flew the 737 MAX with several different airlines… American, Southwest, Air Canada, AeroMexico. It was exciting to board those 737 MAX flights back in 2018. I was flying on brand-new specimens of Boeing’s latest commercial airliner.

Planes

Brand new Boeings. CBS News

Then came the first crash; Lion Air in Indonesia in October 2018. I follow this kind of news. As a very frequent flyer, it made me go Hmm…

Not long after Lion Air, I was on an AeroMexico 737 MAX out of Mexico City. As I walked to the jetway, I saw the distinctive, General Electric “LEAP” engines and thought… Hmm…

When I boarded, I poked my head into the cockpit and said hello to the pilots; two distinguished-looking, middle-aged fellows. I asked how they liked the 737 MAX. I’m sure they knew what I was really asking…

“It’s good to fly,” said the pilot. “It’s a new airplane, but we have a feel for it.”

Yes, they did. The AeroMexico flight went fine.

Takeoff from Mexico City involved a long runway roll on a hot day, at high-altitude; the airport sits at 7,343 feet above sea level. The jet was full of people and fuel. Climb-out was expeditious. We flew through some weather over the Gulf of Mexico and U.S. East Coast. Then landed a few hours later in New York, at JFK. Entirely uneventful. If you “have a feel for it.”

But in March 2019 came the Ethiopian Airlines crash in Kenya. Uh-oh…  Two 737 MAX crashes inside of five months. Clearly, something was wrong.

Within hours of the second crash, China grounded the 737 MAX. Two days later, President Trump – who owns a Boeing 757 by the way – ordered that the 737 MAX be grounded. The U.S. Federal Aviation Administration (FAA) filled in the blanks on Trump’s paperwork.

Across the world, airline companies’ 737 MAX’s are now parked on airport tarmacs.

Planes

Southwest Airlines Boeing 737 MAX aircraft parked on the tarmac at the Southern California Logistics Airport in Victorville on March 28 (Photo by MARK RALSTON/AFP/Getty Images)

Aircraft accident investigations can take months; even years. It’s a meticulous forensic and engineering effort.

Relatives and friends of the deceased must endure a lifetime of painful memory. It’s agonizing.

Planes

Some losses can never be remedied. Washington Post

But airlines and airports operate daily schedules, with flights spaced to the minute. And when hundreds of airplanes suddenly go offline, it’s a mess. Grounding the 737 MAX instantly affected 59 airlines across the world, operating 387 MAX airplanes, making about 8,600 weekly flights.

That’s a lot of planes and passengers not moving from point A to point B. Collectively, it’s a massive hit to revenues for airlines, airports, all manner of suppliers, vendors and others up and down the food chain of travel. Expect plenty of claims against Boeing just for those kinds of damages.

Meanwhile, Boeing is a giant company. All by itself, the 737 MAX is a massive, ongoing, long-term industrial and logistical operation. Plus, all the other things that Boeing does, which are legion… from space satellites to submarines.

Every 737 MAX is assembled from over 600,000 components, large and small. Over 12,000 Boeing employees beaver away on the program. And there are over 900 distinct suppliers, with more tens of thousands of people earning paychecks.

A 737 MAX involves everything from large fuselage components from Spirit AeroSystems to small wire bundles and fasteners from little companies you never heard of in the Puget Sound area.

According to a recent account in the Wall Street Journal, “It would be hard to have any other single company stop the production of a single product and have it hit the (U.S.) economy as hard as this would.” Stopping 737 MAX production for one quarter could shave 0.3% from quarterly annualized GDP growth in the U.S.1

Meanwhile, again per the Wall Street Journal, “General Electric Co. will likely take a significant hit to its cash flow from Boeing Co.’s decision to halt production of the 737 MAX jetliner.” GE makes all of the MAX’s engines through a joint venture with France’s Safran SA.2

At the corporate level, Boeing’s approach is to power through. The company’s managers and directors evidently believe that with enough money and engineering talent, the flaws in the 737 MAX will be fixed. Then government authorities will recertify the airplane to fly.

When the 737 MAX is recertified to fly, goes the thinking, airlines will restore parked airplanes to flight status, and take delivery of stored planes from Boeing parking lots. The jets will fly.

Then again, getting the 737 MAX past regulators may not be so easy. Many foreign governments have lost trust in the U.S. FAA aircraft certification process. Some of this skepticism is real; some is convenient from an industrial standpoint.

The regulatory authority of Canada, for example, has declared that Boeing should remove the MCAS software that played a role in the two deadly crashes of its 737 Max before the plane is cleared to fly again, according to the New York Times.3

European regulators also might question recertifying the 737 MAX, especially considering the leg up that this entire matter gives to competing products from Airbus.

China would likely agree as well, considering the recent launch of a Chinese-built, direct competitor aircraft to the 737. It’s called the C-919.

And Russia has a remarkable new competitor to the 737 family, called the MC-21. It’s more or less a 737-lookalike, but of quite modern origin and based on a “clean sheet” design through the well-regarded engineering complex Irkut/Yakovlev, part of United Aircraft Corp.

Point is, the 737 MAX recertification process may drag out for quite some time, costing Boeing in all manner of ways.

There are these, and many more angles to Boeing’s problem with the 737 MAX.

It begins with the fact that about 15 years ago, Boeing wanted a new version of the 737. Rather than design a new airplane, the company determined to add one more update to an already 50-year old design. Then, Boeing marketed and sold the heck out of it.

I’ve heard smart people – superb engineers and senior airline pilots – say that Boeing never should have tried to get that last upgrade out of the old 737 airframe. It was “one design challenge too far,” according to a serious pilot whom I’ve known for many years.

I’ve heard other criticism of pilot training for the 737 MAX. Boeing wanted to make training relatively fast and inexpensive for its airline customers. But the nature of the new upgrades to the old 737 airplane make this problematic.

Meanwhile, there’s a serious quality spread between U.S.-European pilot standards, and standards in some other countries. Pilots for name-brand Western airlines are just better; there, I said it!

So now, here we are. Boeing has billions of dollars’ worth of parked airplanes, and the company is juggling cash to cover the costs. While beginning in January, Boeing will shut down a vast industrial program that has major connections throughout the aerospace economy.

Boeing’s “temporary” suspension of production will affect U.S. gross domestic product (GDP), and the nation’s trade deficit will show the impact.

Plus, as things unfold over the next six months – and likely, for years ahead – you will always wonder about what you’re flying as you walk down a jetway. You’ll see a 737 MAX and say… Hmm…

You may even wind up adjusting your travel plans based on what kind of airplane the airline company is offering. Like I said above, if it’s Boeing are you still going? It’s going to take a long time and a lot of credibility-building to answer that question.

Send your thoughts to WhiskeyAndGunpowderFeedback@StPaulResearch.com.

On that note, I rest my case.

That’s all for now…  Thank you for subscribing and reading.

Best wishes,

Byron King

Byron King
Managing Editor, Whiskey & Gunpowder

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1 Boeing to Suspend 737 MAX Production in January, WSJ
2 GE’s 737 MAX Problem Just Got Bigger, WSJ
3 Canadian Official Calls for Removal of Key Software From 737 Max, NYT

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