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Boeing CEO Owns 737 MAX Mistakes on Capitol Hill

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Boeing (BA) CEO Dennis Muilenberg is visiting Capitol Hill today to testify before the US Senate Committee on Commerce, Science, and Transportation. The two-day testimony is focusing on aviation safety and the Boeing 737 MAX crisis.

The testimony comes at a time when Boeing is preparing for the return of the 737 MAX to the skies. This is the first time Boeing’s CEO is visiting Congress for testimony since the planes were grounded by regulators worldwide after the Ethiopian Airlines Flight 302 crash on March 10.

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Time to own up to the 737 MAX glitches

In a prepared testimony released by Boeing, Muilenberg accepted the engineering mistakes, saying, “Both accidents involved the repeated activation of a flight control software function called MCAS, which responded to erroneous signals from a sensor that measures the airplane’s angle of attack.” Last week, Indonesian investigators looking into the Lion Air Flight 610 crash said that it had happened due to design flaws. Boeing recently redesigned the MCAS software.

Muilenberg will also focus on the changes the company has made to its organizational structure and the MCAS software that caused the two crashes. Back in August, BA announced structural changes to improve its engineering oversight and feedback mechanism.

In the wake of the 737 MAX 8 crisis, the company said that its senior management only found out about the software issues after the Ethiopian Airlines crash in March. However, Muilenburg admitted that engineers had known about the problem since 2017. Muilenberg has lost Boeing board chairmanship due to the prolonged 737 MAX 8 crisis. Last week, Boeing also fired Kevin McAllister, head of its Commercial Airplanes unit, which makes 737 MAX 8s.

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Boeing testimony: Unanswered questions

Despite Muilenberg’s assertion about the steps Boeing has taken to improve the safety of the 737 MAX 8 planes, Congress will have a lot of questions for him. Whether Boeing knew about the flaws in its MCAS ahead of the crashes will be at the forefront.

On October 18, a 2016 conversation between a chief test pilot for 737 MAX 8 planes and his colleague became public. During the conversation, the two discussed the 737 MAX 8’s troubles. The pilot said, “I basically lied to the regulators (unknowingly).”

Boeing discovered the transcript in February—a month before the Ethiopian Airlines Flight 302 crash, which killed 157 people. The company didn’t tell regulators about it until October 17. In a statement, the FAA said, “The FAA is also disappointed that the company did not bring this document to our attention immediately upon its discovery.”

The allegations regarding management’s pressure on engineers and pilots will also be at the center of the testimony.

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Boeing: Saving its reputation

The 737 MAX crisis has damaged Boeing’s reputation to the point where people are afraid of flying on a 737 MAX, pilots are suing the company, and airlines are canceling orders. Muilenberg will also use the testimony as an opportunity to address reputational risks.

Southwest Airlines’ (LUV) pilots are suing Boeing over a loss of income and a breach of trust. The pilot body, called SWAPA (Southwest Airlines Pilot Association), alleges that Boeing misrepresented the safety and airworthiness of its troubled 737 MAX aircraft. In addition, SWAPA said that around 10,000 pilots had lost over $100 million in compensation since the Ethiopian Airlines crash due to the 737 MAX grounding. Southwest Airlines has canceled over 30,000 flights due to the grounding.

Southwest Airlines has pushed the 737 MAX 8’s comeback to February 8. United Airlines (UAL), which owns 14 of the planes, doesn’t expect them to be back in service until January. By then, United Airlines will have recorded over 10,500 cancellations. American Airlines (AAL) has also extended the grounding to mid-January. American has 24 Boeing 737 MAX 8s in its fleet. The airline is canceling over a hundred flights a day due to the grounding. Boeing lost a huge order to Airbus last week amid uncertainty over the 737 MAX 8’s return.

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In his prepared testimony, Muilenberg tried to pacify stakeholders, saying, “Our airline customers and their pilots have told us they don’t believe we communicated enough about MCAS—and we’ve heard them. So we have partnered with customers and pilots from around the world as we’ve developed our solutions.”

Will the 737 MAX return this quarter?

Markets will be looking for cues about the return of 737 MAX 8 during the testimony and questioning. Boeing has lost billions of dollars in penalties due to the grounding of the 737 MAX 8. Any further delay in its return will mean billions more in losses for the company.

Boeing has focused most of its resources on the 737 MAX project. As a result, the company’s other programs are either suspended or facing delays. Boeing’s new midmarket airplane, dubbed the 797, is on the shelf until the 737 MAX is back in the skies. Delta Airlines’ (DAL) CEO said that the carrier is still hoping Boeing will build a new midmarket airplane. India’s SpiceJet, a Boeing loyalist, has also indicated that it may choose Airbus A321XLR if Boeing delays its decision on the 797. Boeing could lose these customers if the 737 MAX’s return—and thus the 797’s launch—faces further delays.

Delta Air Lines doesn’t fly any 737 MAX 8s. As a result, Delta’s revenue rose due to other airlines’ cancellations.

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