Boeing shares experienced significant losses after the FAA grounded dozens of its top-selling 737 Max 9s for immediate inspection, calling into question their delivery schedule and sparking Spirit AeroSystems, which makes parts for these planes, to decline significantly over the past seven weeks.
Boeing and Airbus each benefit financially from production of the Boeing 737 Max series; production helps create free cash flow and help generate free cash.
Why it happened
The FAA has issued an emergency order against 171 Boeing 737 Max 9 planes after an Alaska Airlines flight experienced a cabin panel blowout which required it to make an emergency landing. When this occurred, part of its fuselage blew off resulting in two unoccupied seats becoming exposed through an opening in its fuselage and creating a hole near them resulting in two unoccupied seats being exposed next to it.
FAA officials have yet to complete their investigation, but have expressed safety concerns regarding an automated flight control system which activated unexpectedly during both Indonesia’s crash and Ethiopia’s accident. Boeing has been working to revise their MCAS system ever since these accidents happened.
David Calhoun has sought to assure investors that Boeing is getting back on its feet following two deadly crashes that killed 346 people. But this latest incident has raised further doubts over its best-selling jetliner; FAA officials have not lifted grounding orders until they are satisfied that planes are safe; that process may take months.
What caused the blowout
Friday during an emergency landing of a Boeing 737 Max 9 plane, windows and panels fell out during its emergency landing, raising concerns over its safety. Boeing is under intense scrutiny following two accidents with this model of plane this year alone that killed 346 people.
Boeing made numerous changes to the 737 MAX model without notifying airlines or pilots, such as changing how its automated flight control system operates. These alterations may have played a part in both of these accidents.
Curtis Ewbank, a senior engineer at Boeing, filed an ethics complaint in 2019 alleging that management suppressed his attempts to warn them about problems with MAX’s new flight control software. Since then he has voiced criticism against its culture focusing on cost and schedule rather than safety (Kitroeff and Gelles 2020). As the US is one of only few countries exempting engineers from having to register as professionals it may make raising engineering issues easier for certain employees within its walls.
What the FAA is doing
The FAA is working closely with international aviation safety officials to make sure Boeing 737 Max 9 jets are safe to fly before they’re returned to service, which could take weeks.
The agency also requires airlines and pilots to review a plane’s documentation prior to flying it, according to Anthony Brickhouse from Embry-Riddle Aeronautical University. Brickhouse believes this should ensure passengers don’t feel unsafe, although “it is extremely unlikely for holes to open up in its fuselage during flight altitude”.
Brickhouse believes engineering decision-making at both Boeing and FAA needs to change, suggesting a removal of industry exemption for engineers would encourage ethical behavior (Kline 2001). Furthermore, penalties should be raised for airlines who fail to follow FAA instructions, with surprise red team drills at airlines’ national airports being conducted annually by FAA as part of its civil aviation duties under Department of Transportation oversight.
What the company is doing
Boeing (BA 1.66%)’s (BA 1) commercial aircraft division accounts for most of its revenue and profits, but is by far its least reliable source of net income. Now that COVID-19 pandemic demand for new passenger jets has virtually evaporated, Boeing faces an enormous earnings challenge.
The latest issues surrounding the 737 MAX 9 could further complicate this picture, having already delayed deliveries on some aircraft already ordered and could alter airlines’ summer schedules should regulators opt to ground all planes already operating.
Boeing has experienced its most serious aviation-related setback in years, prompting questions regarding engineering decision-making and interactions between FAA and Boeing during regulatory decisions. Even if the MAX eventually receives clearance to fly, there remains much work for Boeing to do to regain market share parity with rival Airbus.
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