Boeing 737 Max Grounding

How the crisis is spreading – one year of Boeing 737 Max grounding (Part 2)

Reiner Hertl
17.03.2020
4 minutes

Now in the middle of March, the crisis model has its one-year anniversary of its flight ban. In part 1 of our article we gave an outline of these 12 months and of a crisis management in the course of which Boeing CEO Dennis Muilenburg resigned. Here in part 2 of our report we summarize the effects of the flight and the aircraft delivery ban. Aviation aspects in general, and Boeing in particular. The group is increasingly under severe criticism.

Effects of grounding on disquieted supply chains

The production stop of the Boeing 737 Max at the beginning of this year was not sudden. The manufacturer had already reduced production of its bestseller from 52 to 42 aircraft in April last year. After the complete production stop in January of this year, the approximately 400 aircraft produced so far must now be stored and maintained. Nevertheless, Boeing said that the production stop is still the comparatively mildest solution for the supplier network.

And nevertheless, the situation is serious. The supplier Spirit Aerosystems, for example, has already laid off 2,800 employees.

After the longed-for re-release – Boeing is currently announcing that this will be achieved by around the middle of this year – the 737 Max is to bring security back into the supply chains. Uncertainties were of course the main topic at the latest supplier conference, the Pacific Northwest Aerospace Alliance, in February. The tier 1 suppliers (i.e. those closest to Boeing in the “tier” – the supplier hierarchy) and the tier 2 suppliers are moaning. And they have to prepare themselves for the fact that the restart of production of the 737 Max will also be a challenge. And this date is still open. As long as nobody knows when the jet will be allowed to take off again.

737 Max am Boden
© Wikimedia Commons ECTran71

Consequences for airlines

US airlines and European customers as well had no choice but to cancel many flights. The airlines – and especially the budget airlines – lack the capacity of the planned Boeing 737 Max. And alternative leases are expensive. For example, the grounding of the Boeing 737 Max causes the airlines large sums of money. More than fifty airlines, to whom a total of around 400 Max models have already been delivered, now have to cope without the aircraft in a second summer peak season. Provided that the assessment of the decision to lift grounding in mid-2020 is confirmed.

Consequences for the competitors

The European rival Airbus has now caught up with the US group as world market leader. But Airbus, too, is currently facing other wounds that darken this success: Due to a slump in orders, a letter states that the Airbus armaments and space sector is in a difficult situation. And for this reason wants to cut thousands of jobs. In addition, the European group is facing fines amounting to billions. Therefore, it too ended last year with a billion-dollar loss.

Nevertheless, the market prospects for Boeing and Airbus are positive – the worldwide demand for passenger aircraft is growing and growing and is estimated at over 40,000 aircraft for the next twenty years. Boeing’s order books are also full, and customers are hardly moving away during the Max crisis. They also don’t have much choice: New orders from airlines, i.e. switching from Boeing to Airbus, would also result in long delivery delays at Airbus. After all, the Europeans are equally booked up for years.

In the context of the ongoing rivalry, there is now also renewed momentum in the dispute between the EU and the USA, which has been smouldering for 15 years, over the respective subsidies for the aviation companies Airbus and Boeing. This WTO dispute is now to be brought to a conclusion.

When the 737 Max grounding, on the other hand, will end, depends on Boeing’s solutions to the problem. And depends on the FAA. It is the authority for the renewed ready-to-take-off.

Results for Boeing and summary after a whole year of 737 Max-Grounding

Analysts estimate that Boeing is losing around one billion US dollars a month because of the 737 Max flight ban. And now, with this deficit, it has to endure its first annual loss since 1997. This is the first time in more than 20 years that Boeing is in the red again. When Boeing’s new CEO Dave Calhoun announced the magnitude of this problem in January, he said that “We recognize that we have a lot of work to do”.

Boeing is now putting aside years of work on a newly planned midsize passenger jet – the New Midsize Airplane (NMA) to continue to deal strategically with the Max riots. These have caught up with the NMA, so to speak. According to estimates, between 10 and 15 billion dollars in development costs would have to be raised. The company must now concentrate on the crisis model 737 Max, said the Boeing boss in order to secure the future.

The aviation giant carries a lot of economic power. And this is why its stumble is also having a dampening effect on the US economy. The year-long 737 Max Grounding is causing chain reactions. In addition, various pending lawsuits for damages still have to be considered. When will the probably biggest crisis in Boeing’s now over 100-year history end? It is also crucial for Boeing to build trust:

We are concentrating on safely returning the 737 Max back into service and restoring the long-standing trust in the Boeing brand.

CEO Dave Calhoun in January 2020

He believes in this plane:

I’m all for it, and the company is all for it.

CEO Dave Calhoun in January 2020

More about 737 Max can be found in this WingMag article.

Cover picture © Wikimedia Commons SibKras

by Reiner Hertl

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