2020 was a challenging year for the aviation industry as a whole due to the COVID-19 pandemic, but for Boeing it has been an even more challenging time as it has also had to deal with the global grounding of its flagship product, the 737 MAX, since March 2019.
The 737 MAX was launched with the intention of becoming Boeing's market-leading narrow-body aircraft, trying to break through the stiff competition in the narrow-body market from its main competitor, Airbus. However, that aspiration has so far failed to materialise due to the global grounding of the aircraft in March 2019 following two catastrophic incidents. At its peak, with over 750 MAXs grounded and unable to generate revenue, Boeing faced a significant challenge to return the MAX to the skies and restore the confidence of regulators and safety authorities, its customers and the flying public around the world.
Scrutiny and robust re-testing was required to restore global confidence that the 737 MAX is a safe aircraft for passenger flight once again and in December 2020, over 19 months after the worldwide grounding of the MAX, Boeing, airlines and lessors with an interest in the MAX finally received some good news: the first recertification of the 737 MAX to allow it to return to the skies.
The US Federal Aviation Authority (FAA) conducted a 20-month long recertification process, involving a full review of updated software and hardware and both simulator and in-flight testing. Steve Dickson, the Administrator of the FAA stated "Based on all the activities we have undertaken during the past 20 months, and my personal experience flying the aircraft, I can tell you now I am 100% comfortable with my family flying on it." Shortly after the FAA granted its approval, Transport Canada followed suit. Following a comprehensive review, EASA is also now 'confident' in the safety of the 737 MAX to return to passenger operations within the first quarter of 2021. Aviation regulators in other key jurisdictions, such as the DGCA in India, the GCAA in the United Arab Emirates, and the CAAS in Singapore, have been more cautious about giving the green light, and will take more time to study the FAA decisions and conduct their own testing as they see fit.
For airlines with 737 MAXs in their fleet, these recertifications permit domestic flights on the MAX to resume (and international flights where both jurisdictions have permitted recertification). American Airlines has already recommenced passenger operations using the 737 MAX; United are to resume their operations in February, and Southwest in March. GOL, the Brazilian low-cost carrier, also resumed its operations with the MAX in December 2020. However, the initial return to service of the 737 MAX hasn't been without turbulence - Air Canada, while conducting a ferry flight in late December 2020 with 3 crew members but no passengers on board, was required to shut down one engine and make an unscheduled landing.
To facilitate the re-introduction of the 737 MAX into airlines' fleets, Boeing has hired a team of 160 instructing pilots to assist with re-training and providing simulator and instructional guidance to airline pilots; it has also set up a 24/7 monitoring centre in California to observe flights and respond in cases of emergency. In an effort to re-build and strengthen relationships with its lessor and airline clients, Boeing is also providing a suite of ancillary services. However, this does not come cheap: the whole crisis has cost Boeing well over US$20bn so far, and Boeing has recently reached a settlement with the US Department of Justice to settle the criminal conspiracy claims brought against the organisation to the tune of US$2.5bn.
It has been a testing time for Boeing, with leaks of unflattering emails and criticism levied both at the company and the FAA for manipulating testing results and for permitting Boeing to 'self-certify' the safety of its aircraft in a report by the US Senate. The Seattle-based manufacturer is also currently sitting on a hefty backlog of inventory, including 450 MAXs that remain undelivered. The lack of deliveries, combined with the cost of rectification of the MAX issues and global recertification efforts, has hit Boeing's financials hard. The impact of COVID-19 hasn't helped either - it has been a contributing factor to Boeing stock falling from a steady $330, down to under $100 per share at its lowest point. In turn, this has prompted Boeing to scale back on expenditure, reducing the number of staff by around 30,000 from pre-pandemic levels, axing some manager and vice president level employees taking home the higher salaries in the business, and reducing its real estate footprint by over 30%.
The nearly 2-year period without being able to earn revenue on the MAX has also significantly hit the balance sheets of affected airlines and lessors with exposure to the aircraft. Going forward, passengers may also have some initial nerves to return to flying on a 737 MAX, and the challenge for those airlines operating the MAX will be to reassure passengers that flying on the MAX is safe. However, some industry commentators have observed that most consumers are less conscious of the aircraft type they are flying on, and are instead more focused on the cost of travel. Therefore, we may see ticket pricing strategies being used by airlines as a way of encouraging people to fly on the MAX again and at the same time restoring the public's confidence in the aircraft.
Certain airlines, such as Ryanair and Poland's Enter Air, appear to have 'rebranded' their MAXs by not including the 'MAX' moniker on the exterior of their aircraft, in preference of the more discreet '737-8' or '737-8200'. Whether this is an attempt to remove references to the MAX issues of the past in the eyes of the flying public, or to start a new chapter with the newly recertified aircraft, is unclear to those outside the boardroom. Clearly though, the reputational damage to the MAX has not diminished certain airlines' appetite for the aircraft, with many praising it to be the 'best in class'. British Airways' parent company IAG placing an order of 200 MAXs and Ryanair last month adding an additional 75 MAXs to its order book are clear indicators of that.
The return of the MAX was never going to be an easy road for Boeing or its customers. The recertification by global aviation authorities was just the first step. Now comes the long process of airlines rebuilding passenger trust and confidence in flying on a MAX once again; lessors taking deliveries and converting a grounded asset into a profitable one; and for Boeing to clear its backlog of undelivered aircraft, increase its manufacturing capabilities to boost its revenue generation, clear its serviceable debt and rebuild its relationships with its customers.
The aviation industry has been - and for the time being at least, continues to be - financially strained by the events of the COVID-19 pandemic, and the pre-existing MAX crisis has compounded the financial struggle for Boeing and a number of other stakeholders. Let us hope that 2021 is a year of recovery in every respect.
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