Boeing’s reputation at risk as countries ground jets

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This article was published 12/03/2019 (2120 days ago), so information in it may no longer be current.

BOEING’S 737 Max jet found a sweet spot for the company’s growing base of customers around the world: it’s a bestselling workhorse with low costs, minimal upkeep and an ability to cram in more passengers. The airplane would prove perfect for mid-range flights that could maximize profits for carriers.

As it boosted production, Boeing boasted that pilots didn’t even need flight simulator training to fly the new Max 8 jets. That helped the Chicago-based aerospace giant sell thousands of them, deepening relationships with China and fast-growing markets like Indonesia and Ethiopia. Ultimately, it powered a stock rise that added billions to the company’s value.

“We aspire to be an enduring global industrial champion,” CEO Dennis Muilenburg told shareholders in a 2017 address commemorating the company’s 100th anniversary, “a top performer in every aspect of our business, delivering superior value to our customers, employees, shareholders, communities and partners.”

But the crash of a 737 Max 8 in Ethiopia on Sunday — the second in less than five months — threatens to undermine Boeing’s reputation around the world for safety and reliability. Already, China — the company’s most important foreign market — has grounded the 737 Max 8. Analysts said Boeing would need to get to the bottom of what caused the crash soon or face a backlash from potential customers and investors.

Then on Tuesday, the European Union Aviation Safety Agency suspended all flights by the 737 Max as a precautionary measure while investigators probe why an Ethiopian Airlines aircraft plunged to the ground near Addis Ababa, killing 157. The March 10 crash occurred less than five months after a Lion Air 737 Max 8 plunged into the Java Sea off the coast of Indonesia.

The global rush to halt flights is leaving Boeing, the U.S. Federal Aviation Administration (FAA) and Canada isolated, a day after they expressed confidence in the jetliner’s airworthiness. Jurisdictions including China, Australia and Singapore had already grounded the Max, as had airlines from Latin America to Africa and the Middle East. But the spread of the ban to Europe deals a major blow to Boeing as it grapples with the aftermath of the tragedy in Ethiopia.

In the U.S., Southwest Airlines and American Airlines Group are still flying the 737 Max 8, the model that crashed March 10 in Ethiopia just minutes after takeoff. United Continental Holdings flies the Max 9. Air Canada has 24 Max 8 aircraft, while WestJet Airlines Ltd. has 13 Max 8s and Toronto-based Sunwing Airlines Inc. has four.

In a statement Monday, Boeing said no new safety guidance is planned as of now: “The investigation is in its early stages, but at this point, based on the information available, we do not have any basis to issue new guidance.”

The FAA endorsed the Max 8, issuing an “airworthiness notification,” but saying that it would “continuously assess” its safety performance.

While investigators descended on the crash site to determine what happened, China, Indonesia and Ethiopia grounded the planes. Investors battered Boeing’s stock, which fell more than 12 per cent in early trading Monday before rebounding and finishing the day down 5.4 per cent, a resurgence indicating investor confidence in the stalwart company.

Boeing fell almost six per cent Tuesday, to close at US$376.79 in trading in New York. The company has lost about US$29 billion in market value this week. But analysts at Jefferies investment bank estimated the worst-case scenario — a software problem causing a full grounding and halt to deliveries of the 737 Max 8 — could cost Boeing about US$5.1 billion, or five per cent of the company’s annual revenue, within two months. The 737 program is expected to generate about US$32 billion for Boeing in 2019, Jefferies estimated, making it one of the company’s largest sources of business.

The crash comes as Boeing’s commercial business has been surging, even after the October crash. And with a backlog of 5,900 airplane orders, or about seven years of production, that is valued at US$412 billion, Boeing predicted continued growth in 2019. One of Muilenburg’s goals for the company has been to better integrate its major business units — commercial jets, defence, space and services — under a strategy he has called “One Boeing.”

In 2016, Boeing celebrated its 100-year anniversary, a legacy that marches in lockstep with the history of American aviation, from the dawn of commercial air travel in the years after the Wright Brothers’ first flight to the bombers that helped to allies win the Second World War, to the F-18 Hornets and 747s in use today. The Chicago-based giant has more than US$100 billion in revenue and 153,000 employees worldwide.

But now that investigators are probing two crashes that have killed a total of 346 people, the company is facing a crisis involving its core business and a threat to the reputation it has built.

The FAA said that it was “closely monitoring developments” and that it planned to join the National Transportation Safety Board, which was working with Ethiopian authorities investigating the crash. But it did not ground the planes.

Boeing has delivered 354 of the jets globally and has 2,912 on order, according to market estimates maintained by Boyd Group International. The jet that crashed Sunday was one of five 737 Max 8 planes operated by Ethiopian Airlines, which has 25 more on order.

— Washington Post