Boeing CEO Loses Board Position amid 737 MAX Crisis


Oct. 14 2019, Updated 11:51 a.m. ET

The Boeing (BA) 737 MAX 8 crisis has cost a lot for everyone: passengers, airlines, pilots, and the company itself. Most recently, CEO Dennis Muilenburg lost his job as chair of the company’s board, as the board felt he needed to actively focus on getting the 737 MAX back in the skies. He conceded the post to Boeing board member David Calhoun.

Muilenberg is scheduled to appear before Congress for testimony regarding the 737 MAX’s safety on October 30. Not getting the planes back in the skies before the end of the year could also put his position as CEO in danger.

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Boeing 737 MAX return worries

Muilenberg’s losing his seat as chair may be a sign that things aren’t going too well with the 737 MAX’s return. Boeing has made several organizational changes lately to improve oversight. However, the board asking the CEO to focus on the plane’s recertification is the biggest sign of them all.

The 737 MAX planes have been grounded for over seven months since the Ethiopian Airlines Flight 302 crash that killed 157 people on board. Boeing took on a $5.6 billion pretax charge for penalties due to the grounding in the second quarter alone. It’s losing over $1 billion every month due to the grounding of the 737 MAX 8 planes. Its stock has lost 11.3% since the March 10 crash of Flight 302.

Boeing 737 MAX 8 crisis: Airlines and pilots suffer

The grounding has been costing airlines and pilots too. Airlines have had to cancel thousands of flights in the aftermath of the 737 MAX 8 grounding. On October 11, United Airlines (UAL), which has 14 737 MAX 8s in its fleet, extended the grounding until next year. By then, United Airlines will have canceled over 10,000 flights since the crisis began in March.

With 34 planes, Southwest Airlines (LUV) holds the largest fleet of 737 MAX 8s in the US. Southwest has canceled over 30,000 flights since March due to the grounding. Earlier this month, the Southwest Airlines Pilots Association sued Boeing for loss of income and breach of trust. The company doesn’t expect the plane to be back in service until January 5.

American Airlines (AAL) owns 24 Boeing 737 MAX 8s. It canceled 7,800 flights in the second quarter alone, and it expects the grounding to continue into next year. American expects to cancel 140 flights per day starting in November.

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MAX 8 grounding side effects

Boeing and many airlines have suffered the side effects of the delay in the 737 MAX 8’s return to the skies. Boeing has kept its midrange project, dubbed the 797, on hold until the 737 MAX 8’s issues are resolved. This may push some loyal Boeing customers to look at Airbus’s (EASDY) A321XLR as an option.

On the airlines front, those who hold 737 MAX 8s have conceded some of their market share to those who don’t. Delta Air Lines (DAL) has reaped the benefits of the 737 MAX 8 crisis, as the company doesn’t have any of those jets in its fleet. Last week, Delta reported its third-quarter earnings results as well as its outlook for the fourth quarter. Delta saw strong revenue growth in the US at 7.8% as passengers switched to Delta amid the 737 MAX grounding.

Why Boeing could still win

Boeing operates in a duopolistic market, competing with Europe’s Airbus. The Trump Administration slapped 10% tariffs on made-in-Europe Airbus planes at the start of the month. In the absence of a third viable option, airlines may be forced to look at Boeing even after the reputational damage the 737 MAX 8 crisis has caused it.

Whether Boeing wins out in the long term or not, Mulienberg’s job could be in danger if the 737 MAX crisis continues.


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