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The Crisis that Turned Boeing Upside Down: 737 MAX

Issue 3 - 2020
The Crisis that Turned Boeing Upside Down: 737 MAX

The crisis of the 737 MAX is getting deep for the U.S. manufacturer Boeing. According to the financial data of 2019, Boeing declared a loss on a yearly basis for the first time after a 23-year period and announced that it concluded the year with a loss of US$ 636 million. With the burst of the 737 MAX crisis, the gross orders received by the company fell by 77% down to 246, then it closed the year with merely 54 net orders due to the cancellations and changes in the orders. Declaring 2020 as the year for resurrection and recovery, Boeing closed the month January without receiving any new orders. The aviation archives reveal that the giant airplane manufacturer was experiencing this type of crisis for the first time since 1962. To sum up, things are not on track for Boeing! After the two fatal crashes within 5 months that left 346 people dead, the flights of 737 MAX airplanes were suspended across the world on March 12, 2019 and none of these airplanes have taken flight since. The production of the 737 MAX airplanes that caused the biggest bottleneck to Boeing throughout the company’s history of 100 years has been halted as of 2020. It is claimed that a new problem was arising almost every day during the ongoing tests and software update processes. The relaunch date of the airplanes’ flight operations is still not clear. Despite the increasing compensation bills and the problems that they strive to solve, the new CEO of the company David Calhoun hopes that they will be relaunching the airplanes within the first half of the year. However, to the aviation industry this wish is far too optimistic. Following are the prominent headlines and the chronology of the incidents throughout the 737 MAX crisis. The crisis upon the accidents Aiming to reduce its production costs and wishing to increase its competition with its European rival Airbus A320 in the single-aisle jetliner, Boeing developed the 737 MAX that is the fourth generation of 737 series which conducted its maiden flight in 1967 and reinforced it with new generation systems and more efficient engines. The first member of the family MAX-8 took to the skies for the first time on January 29, 2016. MAX received the title of world’s fastest selling airplane model with over 5,000 orders placed in a short while and it was launched to service within Malindo Air’s fleet for the first time on May 22, 2017. Boeing encountered several problems during the design stage of the 737 MAX and had to overcome these bottlenecks. The new generation LEAP 1 engines developed for the new airplane for a targeted fuel saving of 14 percent was bigger than the engines utilized by the previous models. Therefore, the landing gear of the airplane was lifted up, and the engines were slightly pushed forward and moved away from the hull. However, such actions caused changes in the airplane’s center of gravity and this eventually affected the performance of the airplane. In particular, the angle of attack of the airplane increased more than required during climbing. As a result of this development, the MCAS (Maneuvering Characteristics Augmentation System) was implemented on Boeing airplanes for the first time in their history in order to avoid a stall. On account of this new system, depending on the angle of attack during the elevation, the airplane automatically adjusted the trim as its nose went up and pressed its nose downwards. On October 29, 2018, the 737 MAX of Lion Air crashed 11 minutes after its take off in Jakarta, and on March 11, 2019, Ethiopian Airlines’ 737 MAX-8 plunged into farmland 6 minutes after its take off in Addis Ababa. The evolution of both accidents is quite similar, and all the signs indicated a potential problem in the MCAS system. Flights were suspended Following the second accident, within nearly 4 days, the flights of all Boeing 737 MAX airplanes (371 airplanes) were temporarily grounding until they proved their safety. Nearly 20% loss of value occurred in Boeing’s shares and the U.S. manufacturer experienced its biggest turbulence during its 102-year long history! While the investigations on the accidents continued, it was revealed that pilots operating the Boeing 737 MAX airplanes had also severe concerns. The statement made by Boeing Company in May showed that they knew the plane was having problems long before the Lion Air accident and that no measures regarding the problem were adopted. Experts criticized Boeing’s original software design based on the data transmitted from the sensor of a single angle of attack and claimed that the reaction of the MCAS system in case of a breakdown of one of the sensors of angle of attack had not been tested and that the airplane was defenseless against inconsistency of the data received. Pilots of many airline companies claimed that no information on the deactivation of the MCAS system was included in the documents of the airplane as well as in the training process. After the investigation, Boeing CEO Dennis Muilenburg accepted that the MCAS pressing the nose of the airplane downwards played key roles in both accidents and apologized for the loss of lives. Risk of short circuit in 737 MAX airplanes The 737 MAX airplanes are being controlled down to the last detail both by Boeing Company and the regulators and it is speculated that new problems beyond the software-oriented issues were being emerged in 737 MAX airplanes. According to the latest claims, problems were experienced in the wiring system and engines of the airplane bearing a potential of a short circuit in-flight. The wiring system enabled the control of 737 MAX airplanes’ tails and the emergence of potential risks that were not tackled before are claimed to be included in the issues that need urgent attention. Boeing is examining if the two bundles of wiring were too close to each other that caused a short circuit problem. Determining whether or not the wiring bundles of approximately 800 airplanes manufactured so far needed to be taken apart will also reveal the road map for the solution. Boeing claims that even if such correction is required, 1 to 2 hours would be sufficient for such a process for every airplane. Since the company is afraid of causing additional damage to the wires during such a repair process, it is not willing to make changes on the wiring system of the airplane. Engines also examined in detail Engines of the 737 MAX airplanes are being examined in detail by the regulators as well. FAA officials detected a structural weakness in one of the engines powering the 737 MAX airplanes. The engines were developed by CFM (a partnership of General Electric and Safran) and the identified weakness may have led to the failure. This potential issue bears low probability in the breakdown for the time being and regulators recommend that even though no steps were taken towards an urgent correction, the airlines should be checking as many MAX engines as possible prior to the relaunch of airplanes. Furthermore, previously, a manufacturing defect that left the airplane engines defenseless against lightning strikes was discovered. Although merely for testing purposes, the MAX airplanes’ back in the air implies a very critical milestone in terms of the future of the airplane. The FAA insists that all the pilots should have compulsory simulator training when the 737 MAX airplanes are back in the air. Production of the aircraft halted Upon the suspension of the flights of the 737 MAX, Boeing slowed down the production rate of the airplanes from 52 to 42 monthly. As the problems continued and the relaunch of the 737 MAX was further delayed, the production of the 737 airplanes that had never been interrupted for 53 years had to be halted temporarily in the beginning of 2020. Approximately 400 new Boeing 737 MAX airplanes were manufactured within nine months, but none have been delivered to the clients yet. The manufactured airplanes started to be stored at the facilities of the manufacturer. In its statement, Boeing announced that the decision for the suspension of the production was based on a series of factors such as the extending of the certification process to 2020, the timing and conditions of the relaunch of the airplanes, ambiguity of the global training approvals, the priority attached to the delivery of the stored airplanes. Delivery of nearly 400 manufactured airplanes stored at Boeing facilities is estimated to take at least a year. It is known that severe problems were experienced due to the current condition in which the company can barely find parking spaces for new airplanes. The continuation of the manufacturing process of the aircraft also implied serious problems for the company in terms of finance and logistics. While monthly production of 42 airplanes indicates a stock of US$ 1.5 billion per month for the company, the quarterly cost is believed to reach US$ 4.4 billion. Besides, nearly 3 thousand employees were assigned to other teams performing in other production programs due to the suspension of production. The companies that were manufacturing components for the 737 MAX were mostly affected by the suspension of production and many companies experienced financial bottlenecks. How will the Airlines persuade the passengers to fly with the 737 MAX? While the efforts to relaunch the 737 MAX keep on, the airline companies with these airplanes in their fleet are developing various communication strategies by thinking of ways to wipe out the passengers’ negative perception of the MAX. Oscar Munoz, the CEO of United Airlines, one of the 3 major airlines of the United States made a statement on this controversial issue. Underlining that they will be completely transparent to their customers, Munoz stated that they would not allow anyone fly with an airplane that they do not trust! Passengers who claim that they do not feel comfortable or safe during the boarding process and even the passengers at the gate with the same claim will be entitled to a new reservation without paying any extra charges. Munoz drew all attention with his statement “This is a crucial call for us. We do not think that all passengers will be cheerfully boarding the flight with that airplane”. Also as part of the “it is the proof that counts not the word” approach in their management understanding, Munoz stated that he will be taking part in the first United 737 MAX flight. Like many other airline executives, Emirates Airlines President Tim Clark recommended that Boeing should change the name ‘MAX’. Senators accuse Boeing of building ‘Flying Coffins’ Giving his testimony at the U.S. Senate on October 29, 2019, regarding the 737 MAX accidents taking place in Indonesia and Ethiopia, Boeing CEO Dennis Muilenburg shared that they learned from both accidents and identified changes that need to made, adding that he did not intend to resign. The Senators accused Boeing of putting profits over safety. The Senator of Connecticut Richard Blumenthal accused Boeing of deliberately concealing the defects though being aware of them and blamed the company of manufacturing a "flying coffin”. The Senator of Mississippi Republican Roger Wicker said, “Both accidents could have been prevented.” CEO Steps Down due to 737 MAX Crisis! In a statement made by the Executive Board of Boeing on December 24, shortly after the testimony, it was announced that a decision was taken to make changes in the executive management in order to build the trust to company while they strived to correct relations with regulators, authorities, customers and all other stakeholders. Having assumed various positions at Boeing since 1985 and having become the CEO of the company in July 2015, 55-year-old Muilenburg stepped down. The shares of Boeing experiencing a decline of 21% following the 737 MAX accidents and then rose by 3% upon the resignation announcement. Having remained on the Executive Board of Boeing since 2009, David Calhoun was assigned as the company’s new CEO as of January 13, 2020. Calhoun initially focused on the financial situation of the company and secured financing commitments of over US$ 12 billion from various banks. Calhoun declared that the name of the airplane would remain as 737 MAX adding that they did not plan any changes. MAX 10 quietly rolled-out from the factory! Boeing quietly rolled out the newest and biggest model of 737 MAX family, the 737 MAX 10 from the factory on November 22, 2019. Despite the statement that the airplane would be going through system controls and engine running stages prior to the maiden flight planned to take place in July 2020, no exact date regarding the flight has been given. It is presumed that the date would depend on the recertification of the MAX 8 and 9 airplanes. 737 MAX 10 was manufactured to compete with its European rival Airbus A321neo. With the A321neo model, Airbus achieved a major market power by increasing its single-aisle passenger capacity to 239 and its range to 5 thousand 700 kilometers. The U.S. manufacturer strived to dominate this market with the Boeing 757 airplanes for long years, then developed the 737 MAX 10 model. The range aimed for the single-aisle category is 6 thousand 110 kilometers and the seat capacity is maximum 230. It is claimed that MAX 10 airplanes would be offering the lowest level in the cost of kilometer per seat among all narrow-body aircraft. Announced at the Paris Airshow for the first time in 2017, the MAX 10 has achieved an order of around 550 from over 20 airlines so far. With the order placed for 100 MAX 10s, United Airlines will be the first client of the airplane. 737 MAX crisis leading airlines to bankruptcy! Another critical issue is how the losses occurred because of the suspended flights of 737 MAX airplanes would be compensated to the airlines. It was announced that the worldwide grounding of the airplanes costed over US$ 9 billion to Boeing as of the end of 2019. Southwest, Air Canada, American Airlines, China Southern, Norwegian, Air China, TUI Group, United Airlines, Flydubai, SpiceJet and WestJet are presently the greatest operators of the airplane. 24 airplanes out of nearly 1000 aircrafts of the American Airlines fleet are 737 MAX. 85 flights out of the 6700 daily flights conducted by the airline used to be made with 737 MAX. Another U.S. airline, United Airlines owns 14 737 MAX 9 in its fleet. Containing the highest number of 737 MAX in its fleet with 34 airplanes, Southwest’s operations with MAX airplanes correspond to 4% of the daily flight operations of the airline. All operators have adopted certain measures to minimize the losses caused by the crisis. Some companies changed the flight program and cancelling certain flights or signed short term airplane leasing contracts. Air Italy called for suspending the operations in the beginning of February. It was claimed that the company would go for bankruptcy and that grounding of the 737 MAX airplanes played a key role in this development. In other words, the crisis caused by 737 MAX deepens in such a way that would lead the airline companies to bankruptcy. THY reaches an agreement with Boeing on compensation Turkish Airlines and Boeing came to an agreement on the compensation required to cover the damages occurred due to the worldwide grounding of the 737 MAX airplanes. Turkish Airlines has 12 737 MAX airplanes that were grounded since March 2019. 11 of these airplanes are 737 MAX and the remaining airplane is a 737 MAX 9. The airline placed an order of 65 737 MAX 8s and 10 737 MAX 9s to Boeing. While it was claimed that Turkish Airlines was intending to sue Boeing for the compensation of the damages, according to the official statement made by Turkish Airlines it was announced that the losses and damages occurred due to both grounded airplanes and the manufactured but not delivered 737 MAX would be compensated by Boeing in line with an agreement reached by the parties. The content of the agreement reached was not declared. However, Boeing accepted vast amount of a compensation for grounding as well as spare parts and training services. In line with the schedule that has been recently declared by Turkish Airlines, the airline aims to receive a total of 48 737 MAX airplanes including the MAX 9 model until the end of 2020. However, these figures may vary due to the relaunch of the airplane and the delivery schedule of Boeing

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