Can Boeing weather the 737 Max storm?

Pressure on Boeing is intensifying as crisis engulfs the company and its most popular plane.

Boeing 737 Max
Pressure is building on Boeing following the latest crash of its best-selling 737 MAX aircraft [File: Mustafa Yalcin/Anadolu]

It could take months to determine exactly why a Boeing 737 Max 8 jet crashed minutes after take-off from Addis Ababa on March 10, killing all 157 people on board. But the safety concerns raised by the second deadly crash in five months involving the model have unleashed a storm around Boeing and its most popular plane.

Pressure on the company intensified on Monday after France’s BEA air accident authority said it found “clear similarities” between flight data recovered from the Ethiopian crash and an October crash of a 737 Max in Indonesia that killed all 189 people on board.

Also on Monday, Canada’s transport minister told reporters Transport Canada is reexamining the validation it gave to the 737 Max.

That decision followed a pair of newspaper reports over the weekend that cast doubt over the certification process for the 737 Max.

The Wall Street Journal reported on Sunday that federal prosecutors and US Department of Transportation officials are scrutinising the development of the 737 Max. And a separate Seattle Times investigation revealed that federal regulators had delegated wide responsibility for assessing the plane’s safety to Boeing and the company, in turn, had delivered an analysis with crucial flaws.

Last week, aviation officials around the world grounded the 737 Max until further notice.

Having a major product designated a global pariah in its class – even temporarily – would be a crippling blow to many firms. And the longer questions circulate around the safety the 737 Max, the more uncertainty it creates for Boeing.

But the company enjoys a market position that makes it highly resilient.

Boeing is the world’s largest aerospace company and the US’ biggest manufacturing exporter with revenues topping $100bn in 2018. It’s also part of a duopoly along with  Airbus, which together control nearly the entire global market for large aircraft manufacturing.

Combine that duopoly power with booming international demand for air travel and Boeing’s potential to weather the storm engulfing the 737 Max becomes clearer.

“It’s a duopoly with very high barriers to entry,” Richard Aboulafia, vice president of analysis at Teal Group, told Al Jazeera. “It’s an enormous market with huge existing revenue streams.”

Surging demand

Demand for international air travel is climbing rapidly, with passenger numbers expected to more than double from around four billion in 2018 to 8.2 billion in 2037, according to the International Air Transport Association.

That surge in demand represents a huge opportunity for aircraft makers.

In the category of “next-generation” single-aisle planes, Airbus offers the A320neo, while Boeing has its 737 Max. 

The big selling point of both is that they are reengineered updates of popular, pre-existing product lines and boast greater fuel efficiency. That combination can save airlines a great deal of money, and indeed, next-generation single-aisles are in tremendous demand.

The Boeing 737 Max is the fastest-selling aircraft in the company’s history with roughly 370 delivered so far and some 4,700 more on order.

Some airlines have said they are reevaluating existing orders of the 737 Max in the wake of the deadly crashes.

All 157 people on board an Ethiopian Airlines flight died on March 10 when the Boeing 737 Max plane crashed shortly after take-off from Addis Ababa [Jemal Countess/Getty]
All 157 people on board an Ethiopian Airlines flight died on March 10 when the Boeing 737 Max plane crashed shortly after take-off from Addis Ababa [Jemal Countess/Getty]

But moving that business to Airbus would not necessarily be painless for airlines, because planes are ordered years in advance.

“They can back someone else’s line and in the meantime burn lots more fuel and spend lots more money than they had to,” said Aboulafia.

If orders are affected, it could show up in key US economic data because Boeing is an important component of orders for US durable goods that are designed to last three years or more.

“If airlines will hold off on ordering Boeing jets – or buy Airbus jets – that could show up in figures for a few months,” Michael Pearce, senior economist at Capital Economics, told Al Jazeera.

Cost to Boeing and beyond?

Last week, Boeing temporarily halted deliveries of the 737 Max. But it’s still building them. It’s also been working on a software upgrade  for the jet’s flight systems since the October crash, and has promised new training for pilots.

On Friday, AFP news agency reported the software upgrade could be rolled out within 10 days.

Meanwhile, analysts are trying to get to grips with how much the 737 Max crisis could cost Boeing.

Some $25bn was wiped off the value of Boeing shares last week and the stock was under pressure again on Monday.

Beyond its share price, the crisis could end up costing the company billions in delivery delays, settlements with victims’ families, compensating airlines for losses relating to grounded planes, and the cost of upgrading software on existing aircraft.

But it’s too soon to know what the total financial hit could be.

“There’s no way to estimate the total cost for Boeing,” George Hamlin of Hamlin Transportation Consulting told Al Jazeera. “We don’t know yet the causation in both accidents.”

Source: Al Jazeera