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FAA Dashes Hopes for a Boeing 737 MAX Return in 2019

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Today, Federal Aviation Administration chief Steve Dickson squashed the hopes for a 2019 return for the grounded Boeing 737 Max 8. Boeing (BA) was hopeful of completing the recertification process this month. At 12:13 PM ET, Boeing stock was down 1.51% as a reaction to the news.

Southwest Airlines (LUV) stock was down over 1% while American Airlines (AAL) stock was trading 0.7% lower at 12:18 PM ET. Notably, Southwest Airlines has 34 Boeing 737 Max 8 planes in its fleet while American Airlines has 24. Southwest and American have canceled about 50,000 flights due to the Boeing 737 Max 8 grounding.

Boeing’s losses

What does another Boeing 737 Max 8 delay mean, financially? Boeing has already lost billions of dollars due to the Boeing 737 Max 8 grounding. The company is losing about $1 billion every month due to penalties and other grounding-related costs. Any further delay in getting the 737 Max 8 back means more such expenses.

Pilots are also losing money because of flight cancellations. In fact, the Southwest Airlines Pilot Association (or SWAPA) has sued Boeing for the loss of income for pilots. Others may follow suit if the delay continues well into 2020. Airlines have lost millions of dollars due to these cancellations.

Suppliers that produce components for the Boeing 737 Max 8 are also posting losses. General Electric (GE), which supplies engines for the Boeing 737 Max 8, is expecting cash costs related to the grounding to be around $1.4 billion this year. This scenario assumes that the aircraft’s recertification occurs this month. With Dickson dimming those hopes, we can expect GE’s grounding-related costs to escalate.

What is the next step in the 737 Max 8 saga?

Today, Dickson told CNBC that “there are a number of processes, milestones, that have to be completed.” He added that there are 10–11 milestones that must be achieved before the FAA can give the green light to the plane’s return to service. Dickson continued, “If you just do the math, it’s going to extend into 2020.”

After the FAA’s approval, airlines expect to take delivery of the updated 737 Max 8 planes, train their pilots, and meet other requirements before flying them commercially. That will take a few more weeks.

Is the FAA trying to rebuild its image?

In recent weeks, the FAA has turned up the heat on Boeing. First, the FAA was not happy with Boeing after a 2016 conversation between two test pilots went public. The conversation showed that the pilots knew about the problems with the 737 Max 8 planes.

While Boeing learned about the conversation in February, the FAA alleged that it was kept in the dark until October. In a statement, the FAA said that it was “disappointed that Boeing did not bring this document to our attention immediately upon its discovery.”

Recently, the FAA made changes to the 737 Max 8 certification process. Earlier, the FAA only certified a type of plane, and Boeing assumed responsibility for checking individual planes. Now, the FAA will do it all. That’s perhaps because the earlier practice came into focus after the Boeing 737 Max 8’s grounding.

How could the delay affect the Boeing 797?

The Boeing 797 project is waiting for the 737 Max 8 plane to return to the skies. Another delay could push some airlines to take a seat in the pipeline of the Airbus A321XLR. From Delta Air Lines to India’s SpiceJet, many airlines are waiting for Boeing to make a decision on building the 797. Some of these airlines could lose patience with further delays in the 737 Max 8’s return to service. In our view, the future of its 797 program rests on the 737 Max 8’s return.

Among the US carriers, American Airlines, JetBlue, and United Airlines have ordered the Airbus A321XLR, which provides similar specs to the proposed Boeing 797. If more airlines choose Airbus, the demand for the Boeing 797 might be significantly impacted.

Looking ahead for Boeing’s CEO

The delay in the Boeing 737 Max 8 recertification could add to the pressure faced by Boeing CEO Dennis Muilenburg. Muilenburg has already faced pressure from lawmakers to quit. He also lost the chairmanship of the Boeing board in September due to the 737 Max 8 crisis.

In our view, Muilenburg’s position with investors and the markets may weaken if delays continue. To add to these concerns, the Boeing 737 NG, the predecessor of the MAX planes, is also facing issues related to fan blades and wings.

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