The FAA and Boeing said Monday they'll await more information before ordering any action on the 737 MAX. Meanwhile, about a third of the worldwide fleet is grounded under orders of regulators in China and Indonesia, and action by a few small airlines elsewhere.
Even as more than 30 percent of the world’s operating fleet of 737 MAXs stood grounded Monday following the second fatal crash by one of the new Boeing jets, both the Federal Aviation Administration (FAA) and Boeing said Monday they’ll await more information before ordering any action such as a suspension of flights.
The FAA told 737 MAX operators worldwide Monday that although parallels have been drawn by commentators between the crash Sunday of an Ethiopian Airlines jet and the Oct. 29 crash of a Lion Air jet in Indonesia, the investigation into the latest crash “has just begun and to date we have not been provided data to draw any conclusions or take any actions.”
In a statement, Boeing said it is talking with its airline customers but “at this point, based on the information available, we do not have any basis to issue new guidance to operators.”
The crash of Ethiopian Airlines Flight ET302 that killed 157 people Sunday followed just over four months after the crash of Lion Air Flight JT610, in which 189 people died. In response, China, Indonesia and Morocco grounded their MAX fleets Monday, as did several airlines including Ethiopian itself, Mexico’s Grupo Aeromexico, Aerolineas Argentina and GOL of Brazil. In India, another big market for the plane, the air safety regulator ordered a review of the plane and the qualifications of pilots.
That’s about a third of the worldwide in-service fleet of 387 airplanes now unable to fly.
If more MAXs were to be grounded indefinitely, the short-term hit to Boeing would be substantial. Sens. Dianne Feinstein, D-Calif., and Richard Blumenthal, D-Conn., issued calls for the FAA to ground the planes until more is known about the cause of the crashes.
So far, U.S. MAX operators, including Southwest, American and United, are taking direction from Boeing and the FAA and continuing normal flying. Alaska Airlines has 32 MAXs on order but is not scheduled to take the first one, a MAX-9, until June.
Actions taken after Lion Air crash
While Monday’s notice from the FAA to MAX operators put off any action on the Ethiopian crash, it itemized a series of actions undertaken following the Lion Air crash.
A preliminary investigation into that accident pointed to a faulty “angle of attack” (AOA) sensor, which then activated a new flight control system on the MAX — called MCAS (Maneuvering Characteristics Augmentation System) — that repeatedly pushed the nose of the aircraft down.
The FAA’s actions in response include an airworthiness directive in November that informed pilots of the standard procedure to handle a malfunction of that flight control system and ongoing work with Boeing to approve a redesign of the system that will enhance its safety.
The FAA said it anticipates another airworthiness directive mandating the design changes no later than next month.
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Later, Boeing issued a statement confirming that “in the aftermath of Lion Air Flight 610, Boeing has been developing a flight control software enhancement for the 737 MAX.”
Boeing said the software changes to MCAS will address the input from the AOA sensor and limit how much MCAS can move the horizontal tail in response to an erroneous AOA signal.
Boeing said it also plans to update pilot training requirements and flight crew manuals, after various pilot groups including U.S. airline unions criticized the company for not including any mention of the new flight control system in their training or flight manuals.
Boeing Chairman and Chief Executive Dennis Muilenburg on Monday told employees the company is “adjusting plans as appropriate to ensure the right people and resources are available when and where they need to be,” including “further strengthening the support to our 737 team and our ongoing production operations and customer service.”
Muilenburg expressed confidence “in the safety of the 737 MAX and in the work of the men and women who design and build it.”
He also told employees that “tragedies like this affect the entire aerospace industry and remind us of our leadership role, our enduring commitment to safety … and the importance of the work that we do.”
Potential financial impact
Still, for now, Boeing faces a significant threat to its production plans, as well as a potential financial impact.
Deliveries to China, which takes about a third of all 737s built, are likely to stall until further notice because airlines won’t want to take new airplanes they cannot fly.
Boeing is delivering about 13 single-aisle 737s every week now, with the MAXs projected to make up 90 percent of 737 production this year.
That positions the MAX as Boeing’s cash cow, vital to the copious cash flow that has made it a leading component of the Dow Jones industrial average.
Rob Spingarn, a financial analyst with Credit Suisse, in a note to investors Monday estimated that Boeing had expected to deliver 579 MAXs this year, which would bring in about $32 billion in revenue.
At least in the short term, the grounding of planes for an indefinite period threatens that income stream. The uncertainty sent Boeing’s shares sharply down Monday. The stock closed down more than $22, or 5.3 percent, at $400 a share, after sinking as much as 12 percent.
Longer term, Boeing has a backlog of almost 4,700 orders for the MAX, which means its whole future depends on this jet program continuing deliveries.
Sheila Kahyaoglu, a financial analyst with Jefferies, described to her clients “a bear case scenario” of Boeing suspending deliveries for a couple of months until its engineers come up with a software fix for the flight control system already implicated in the Lion Air crash. She estimated that would mean a hit of $5 billion to revenue and lower earnings per share for the year by $2.30.
But even such a grim scenario is not necessarily an existential threat to the company.
It’s comparable to the worldwide grounding in 2013 of the 787 Dreamliner fleet because of two in-flight incidents of overheated, smoking batteries. That grounding lasted 14 weeks while engineers devised a protective steel box around the batteries to prevent any possibility of a fire in flight.
Although that episode was traumatic for Boeing’s business, the jetmaker’s assembly lines continued production throughout the grounding and recovered quickly after it was lifted. Six years later, the Dreamliner is a runaway success with more than 800 of the jets in service around the globe.