The world's biggest plane manufacturer is up against the ropes. After the second fatal crash of one of a new Boeing plane model over the weekend, fingers are being pointed and whole continents have banned it from entering their airspace. As the fallout for businesses and consumers across the globe continues to ramp up, City A.M. brings you up to speed.
A Boeing 737 plane operated by Ethiopian Airlines bound for Nairobi, Kenya crashed on Sunday, killing all 157 crew and passengers on board. It was the second time Boeing’s newest version of the 737, the Max 8 model, has fatally crashed in the space of five months, after an identical model operated by Indonesia’s Lion Air also crashed in October, shortly after it took off from Jakarta, killing all 189 passengers and crew.
Air travel authorities across the globe have reacted by putting a temporary flight ban on Boeing’s 737 Max models, including the US, Europe and China.
What does it mean for Boeing?
The US manufacturer has seen billions slashed from its market value this week, amid concerns the two crashes were a result of one – as-yet-unidentified – defect with the model. Shares fell 6.15 per cent on Tuesday, following a 7 per cent drop on Monday, as investors feared the worst.
As the global furore grows, so does the threat to what has been Boeing’s fastest-selling plane range since it was rolled out two years ago. The 737 model has been the firm’s flagship short-haul plane since the first variant entered service with Lufthansa in 1968. The Max range, made up of the Max 7, 8, 9 and 10 models, is a more fuel-efficient replacement.
The firm said on Tuesday: "Safety is Boeing’s number one priority and we have full confidence in the safety of the 737 MAX. We understand that regulatory agencies and customers have made decisions that they believe are most appropriate for their home markets."
There are only around 350 Max 8 planes in active service globally, and 30 Max 9 jets. But a bigger concern for Boeing will be the 5,000 orders it has taken for the model, set to be delivered in the coming years.
Unsurprisingly, Boeing’s arch-rival Airbus stands to cash in, according to Neil Robinson from the University of Salford. If European carriers ditch their Boeing planes or future orders, “Airbus might potentially step in… and increase product price accordingly.” Another source added, rather more bluntly: “[Airbus] must be rubbing their hands together with glee.” Airbus shares have already risen four per cent over the course of the week.
Concerns have been raised the issue could be to do with an emergency stall-prevention function fitted on the new planes. An emergency airworthiness directive issued by the US Federal Aviation Administration (FAA) after the Lionair crash in October said the function had the potential to “cause the flight crew to have difficulty controlling the airplane, and lead to excessive nose-down attitude, significant altitude loss, and possible impact with terrain”.
Boeing said on Monday it would roll out a software patch to address these concerns “no later than April”. It is “designed to make an already safe aircraft even safer,” the firm said in a statement.
There has been no information yet to directly link the Lion Air and Ethiopian Airlines incidents.
What does it mean for airlines?
The scare poses a particular headache for airlines. While only around 380 of the Max range planes were in operation at the start of the week, carriers still face the choice between paying compensation to affected passengers or sourcing replacement planes.
Airlines such as Norwegian Air and Tui have been affected, with 34 Boeing Max planes between them and share drops of 2.9 per cent and 1.4 per cent respectively on Tuesday, when the flight ban was announced.
Embattled carrier Norwegian could be hit particularly hard. Its share price has been in freefall since a high of 184 krones last spring, and closed at 55 krones yesterday. Speculation has already been mounting that Norwegian could collapse – or be subject to a hostile takeover bid – if its value drops any further.
Reports of British Airways-owner IAG circling for the firm last year came to nothing, but at a further decreased share price, it and other rivals may be tempted to take a fresh look. One industry source told City A.M.: “This could be the final nail in the coffin.” The firm said on Wenesday morning it would seek compensation from Boeing, but it is unclear whether such a bid would succeed.
US aviation authority held off
The US Federal Aviation Administration (FAA) held off from banning the jet as long as it could, repeatedly denying the plane showed "systemic performance issues" for the first half of the week. But after Canada finally decided to ground the Max range on Wednesday afternoon, US President Donald Trump finally submitted to the pressure, issuing an emergency order to ground the plane hours later.
The US flight attendants’ union, the Association of Flight Attendants, sent a letter to the FAA on Tuesday, saying both crew and passengers were “expressing concern”. As a result of the FAA's delay, the union was forced to “formally request" it conduct an investigation before the plane was finally grounded. Meanwhile the Allied Pilots Association told its members: “It is important for you to know that if you feel it is unsafe to work the 737 Max, you will not be forced to fly it.”
The hesitance drew renewed attention to the close ties between Boeing and the Trump administration, as the US Federal Aviation Administration (FAA) dug its heels in on still letting the jets fly for longer than the rest of the world.
President Donald Trump has close relationships with Boeing executives, and chief executive Dennis Muilenburg personally called him on Tuesday to reassure him the plane was safe. Hours after the call, the FAA insisted it was confident in the planes.
Furthermore, before joining the Pentagon, acting defence secretary Patrick Shanahan, who is expected to be named to the post, worked for 31 years at Boeing.
Boeing responded to the eventual US flight ban by recommending the FAA temporarily suspends the operations of the entire fleet of aircraft model worldwide. "We are supporting this proactive step out of an abundance of caution," the Seattle-based plane maker said today.
Which countries have grounded Boeing's 737 Max 8 plane so far?
- Europe – including separately Belgium, Germany, Iceland, Ireland, Italy, Netherlands, Norway, France, Germany and the UK
- New Zealand
- South Korea
- United Arab Emirates
- United States