Boeing recently announced that it will stop production of the troubled Boeing 737 MAX 8 aircraft from next month. Boeing shares fell 4.3 per cent after the news, which opened lower today but was flat at 10:46 a.m. EST. Boeing currently produces 42 grounded aircraft a month. After the suspension, the production fell from 52 to 42 in April. On March 10, global regulators ordered a grounding after an Ethiopian Airlines Flight 610 crashed, killing all 157 people on board.
Just a few months ago, Lion Air Flight 302 crashed in Indonesia for similar reasons.
Just a month ago, Boeing’s mood was more upbeat. Last month, the company hopes to begin delivering the 737 MAX 8 by the end of the year. The Federal Aviation Administration (FAA) has dashed those hopes by ruling out the possibility of a return in 2019. “There are a lot of processes and milestones that need to be completed,” Stephen Dixon, the FA Aviation Administration’s director, told CNBC last week. He added that a 10-11 milestone must be reached before the FAA can approve the plane’s return to service. “If you just count it, it will extend into 2020,” Dixon continued. “
What it means for Boeing and its suppliers
The shutdown has a direct impact on Boeing and other stakeholders. First, Boeing’s shutdown means that once the plane returns to the skies, it will take longer to fulfill the new order. Second, the shutdown is a pessimistic signal. Boeing said in a statement that one of the reasons for the shutdown was “uncertain timing and conditions for restoring service.”
Boeing’s suppliers are also at risk because they may reduce their purchases of parts if they do not produce the MAX 8s. General Electric (GE) supplies engines for the 737 MAX 8 aircraft. GE expects the cash costs associated with the suspension to reach $1.4 billion in 2019. Stopping MAX could put further pressure on GE’s aviation business. GE shares fell slightly at 12:02 p.m. EST. Shares in other suppliers, including Spirit Aerosystems and Allegheny Technologies, fell sharply today.
What it means for airlines and passengers
The Boeing 737 MAX 8 shutdown means airlines will have to wait longer to get orders. Since the suspension, Boeing now has stock of 400 aircraft. The company hopes to do this first.
Boeing currently has more than 4,500 unfulfilled orders, the Boeing 737max 8. Southwest Airlines (LUV) has ordered 310 aircraft, 34 of which have already been delivered. United Airlines (UAL) has ordered 135 aircraft and has received 14 so far. American Airlines ordered 100 and received 24.
All of these airlines have cancelled thousands of flights. Last week, American Airlines extended the cancellations until April. Today, Southwest Airlines is close behind. The suspension means that these airlines may have to continue to cancel flights, even if the maximum flight limit is reached, as most airlines design their own schedules in the event of new aircraft delivery.
Ultimately, passengers will pay the price. The shutdown means fewer MAX aircraft will appear in the sky. Maximize aircraft fuel savings and facilitate low-cost air travel. Not enough people around means ticket prices may go up. Delta Air Lines (DAL) does not have a 737 MAX 8s aircraft, but it benefits from the suspension. The shutdown is likely to continue to benefit Delta Air Lines.
Pilots are another problem. They may be unhappy with the 737 MAX, which was discontinued, because continued shutdowns mean a loss of revenue for some people. The Southwest Airlines Pilots Association has sued Boeing, and other groups may follow suit.
What’s in it for Airbus?
Airbus executives may be a happy bunch of people. Airbus shares are up 1.76 percent on the Paris Stock Exchange today. As of 12:41 p.m. EST, the company’s American Depositary Receipts (adr) were up 0.85 percent.
So far, Airbus has delivered more than Boeing in 2019. In the first 11 months of 2019, Boeing delivered 345 aircraft, compared with 704 from Airbus. In November, Airbus delivered 56 a320s to compete with the Boeing 737 MAX 8. Continuing to delay getting max 8 back into the sky may help a320 increase their share of the single-channel market.
Boeing has been shelving its NMA (new mid-market aircraft) 797 until the 737 MAX 8 returns. Many operators are waiting for it to arrive. In September, Ed Bastian, chief executive of Delta Air Lines, told Bloomberg that the company remained hopeful that Boeing would build NMA. When it comes to demand for NMA, Delta may consider “producing 200 aircraft over the next 10 years,” Mr Bastian said.
In an interview, Bastian acknowledged that Airbus was working hard to secure the A321XLR. “Obviously, Airbus is already in talks and they’re giving us products today, but we want to wait and see what Boeing can create,” he said. It’s not just American Airlines that follows Boeing 797. India’s Spice Plane is also looking forward to its release. However, any further delay in the decision could force the 797 hopefuls to continue with the Airbus A321XLR.
Boeing’s reputation is in jeopardy.
Boeing lost face after the Boeing 737max crash and subsequent suspension. On October 18, a transcript of the conversation between the 2016 Boeing 737 MAX 8 chief technology pilot and his colleagues was released. During the conversation, the two discussed the 737 MAX 8. The pilot said: “I basically lied to the regulator (without my knowledge). That angered the FAA, which expressed disappointment. A few weeks later, the Federal Aviation Administration (FAA) revised its aircraft certification process, a clear sign that the two agencies are parting ways.
Boeing has also made airlines cautious about other aircraft. “I want a plane to go through hell on Earth, basically to make sure everything works,” Emirates President Tim Clark said of the Boeing 777X at the Dubai Air Show. “Boeing has also lost its reputation among its passengers, and they are becoming more cautious about the idea of boarding. Given Boeing’s shaky reputation as regulators, airlines, pilots, suppliers and passengers, its road to redemption in 2020 is doomed to a rough ride.