Will Boeing Bounce Back?

On March 10th of this year, a scheduled Ethiopian Airlines flight 302 from Addis Ababa to Nairobi crashed shortly after takeoff, killing all 157 people on board. In the eight minutes between takeoff and the crash, the plane pursued an irregular flight path, both in terms of altitude and speed. Perhaps the most puzzling part of the accident was that the crash involved a brand-new Boeing 737 Max 8, which had been delivered to Ethiopian Airlines just months before the fatal crash. Furthermore, half a year earlier, the same aircraft model - this time operated by Indonesian carrier Lion Air - had crashed under similar conditions, killing all those onboard. The similarities between the two cases caused most countries to ban the Boeing 737 Max 8. After a brief period of indecisiveness, the United States also banned this specific model from its airspace.

An international investigation has uncovered some of the technical details behind the crash. Just a few minutes after takeoff, the plane’s sensors began giving false altitude readings to the pilots. Boeing's new 737 Max 8 planes are equipped with MCAS — or the Manoeuvring Characteristics Augmentation System. When a plane flies at an angle that is too sharp, it risks ‘stalling,’ which essentially causes it to lose speed and fall back towards the ground. The MCAS corrects stalling by dipping the plane’s nose back down. Faulty readings meant MCAS automatically forced the plane’s nose to dip downwards without a stall actually occurring. Pilots tried, unsuccessfully, to turn off the system, resulting in a crash whose causes were remarkably similar to Lion Air’s crash in 2018.

In total, 346 people perished in two horrific incidents. The human factor must not be discounted in this tragedy, but it is nonetheless interesting to consider the implications for Boeing's business. The 737 Max 8 has been lauded as more fuel efficient and more modern than any previous planes produced, in part because of automated systems like MCAS. The model itself has been incredibly successful; in fact, it has been the fastest selling Boeing aircraft in history, with more than 4,500 orders globally and a total of 350 delivered since its launch in 2017. The 737 line accounts for some 30% of total Boeing revenue.

Depending on the source of the problem — which will only be known after the investigation into the latest crash is complete — the solution could be a quick and cheap software fix or a wider restructuring of the aircraft. Regardless of the solution, the crash and subsequent grounding of the 737 have been more than just an inconvenience for Boeing. Its shares tumbled by more than 5% in the day after the crash and have fallen from $422 to $376 a share since the incident. Since March, a tenth of Boeing’s market stock market capitalization, or some $25 billion dollars, has been wiped out.

Boeing’s customers suffered as well — airlines that have paid for aircraft that they can no longer fly. For example, US Southwest Airlines, which operated 34 Max jets, has incurred losses of $200 million in the first quarter of 2019 after cancelling 10,000 flights due to its inability to fly the 737 Max. Norwegian Airlines has also announced that groundings could cost it some $45 million, contributing to growing losses of over $175 million in the first quarter of this year. American Airlines has also been forced to cancel numerous flights. It has revised its sales outlook for this year and suffered a stock price hit of nearly 2.5% in the month after the crash. The issues with the 737 may very well push companies with difficulties over the edge of bankruptcy, and cause a major headache to other operators.

Much uncertainty remains over the exact sequence of events that led to the crash in Ethiopia, as well as how Boeing and the 737’s operating airlines will be affected in the coming months. These developments are contingent upon how successfully Boeing deals with the 737’s planes and the true extent of the current problem. One thing is certain, however: Boeing will remain an aerospace leader for years to come. The company has over 100 years of manufacturing experience, holds a duopoly over the aircraft market along with Airbus, and enjoys a cozy relationship with the US government in terms of military contracting. For now, however, actions must be taken to ensure the safety of the 737 and prevent the loss of life in future.

Image: 20 Minutes