Deliveries of Boeing’s bestselling 737 MAX jets were effectively frozen, though production continued, after the United States joined a global grounding of the narrowbody model over safety concerns, leaving the world’s largest planemaker facing its worst crisis in years.
The 737 MAX is banned from flying in most countries across the world following an Ethiopian Airlines crash on Sunday that killed all 157 people on board. It was the second deadly incident for the relatively new Boeing model in five months.
Airlines, aircraft industry experts and financiers said that although the ban would theoretically not prevent some domestic deliveries, most airlines would avoid taking a jet banned from entering service in the wake of two crashes in five months.
“Who is going to take delivery of a plane they can’t use,” said an aviation financier, asking not to be named.
Boeing produces 52 aircraft per month and its newest version, the MAX, represents the lion’s share of production, although Boeing declined to break out exact numbers. It is also its largest seller and accounts for almost one-third of the company’s operating profit.
Shares of the world’s biggest plane maker have fallen about 13 per cent since Sunday’s crash, losing about US$32 billion of market value.
In addition to the planes that have been grounded, there are more than 4,600 Boeing 737 MAX 8 planes on backlog that are not yet delivered to airlines.
Boeing was expected to continue with production of the 737 at its factory outside Seattle, and has been planning to speed up production again in June.
Manufacturers avoid halting and then speeding up production as this disrupts supply chains and can cause industrial snags. But having to hold planes in storage consumes extra cash in increased inventory.
Each month of the grounding could cost Boeing around US$1.8 billion to US$2.5 billion in delayed revenue, according to analyst estimates, although that could be recouped once the ban is lifted and the planes are delivered.
Boeing in January provided guidance it would report US$109.5 billion to US$111.5 billion of revenue in 2019.
Asked how the global grounding of the 737 MAX would impact deliveries, a Boeing spokesman said: “We continue to assess”.
Mounting concerns have also reportedly prompted some airlines to reconsider their 737 MAX orders.
Kenya Airways is re-evaluating plans to buy the plane and might switch to the rival Airbus A320 or upgrade to Boeing’s larger 787 Dreamliner, Bloomberg reported the carrier’s chairman, Michael Joseph, as saying.
In addition, Indonesia’s Lion Air is moving to drop a US$22 billion order for the 737 in favour of the Airbus model, Bloomberg reported an unidentified source as saying.
It was the Lion Air crash on October 29, which killed 189 people, that first raised questions about the aircraft, and analysts have focused on software in the new jetliner intended to stop the plane from stalling.
But maintenance issues and possible pilot error related to the software also are being evaluated, and the crash remains under investigation.
The ban on the Boeing 737 MAX aircraft became worldwide after US President Donald Trump joined China and other countries in grounding the aircraft amid intense pressure about the safety concerns.
“Hopefully they will come up with an answer but until they do the planes are grounded,” Trump said of the planes.
Earlier, while consulting administration officials, he said the aircraft “sucked” according to The Washington Post.
The president said Boeing 737s paled in comparison to the Boeing 757, known as Trump Force One, which he owns as a personal jet, according to White House and transport officials who spoke on the condition of anonymity.
Flightradar24, a website that tracks air traffic, tweeted a map showing the 737 Max planes in the air at the time of Trump’s announcement.
Federal Aviation Administration acting administrator Dan Elwell said he did not know how long the country’s grounding of the aircraft would last, but the United States expected it could take months before a software fix for the plane was complete.
Boeing’s main US customers – Southwest Airlines, American Airlines and United Airlines have so far voiced their confidence in the safety of the MAX.
The last time the FAA ordered a plane grounded was in 2013. The agency ordered airlines to cease operations of Boeing’s then-new 787 Dreamliner after five fires in five days originating in the plane’s lithium ion battery. None of the planes crashed, and Boeing implemented a fix for the battery overheating problem. The plane has gone on to be a mainstay of airlines worldwide.
Aircraft contracts do not typically contain a clause that automatically allows airlines to claim compensation for a regulatory action like a grounding.
However, planemakers do sometimes pay out compensation to cover the cost of financing when an airline is left without a promised plane, said a senior industry source.
Even then, they generally balk at paying for other indirect costs borne by the airline.
UK-based aviation consultancy IBA estimated the financing cost of a 737 MAX at US$360,000 a month or US$12,000 a day.
Norwegian Air said on Wednesday it would seek compensation from plane maker Boeing for costs and lost revenue due to the 737 MAX 8 grounding.
Reuters, Tribune News Service, The Washington Post, Bloomberg, Associated Press
