Opinion: 737 MAX, NMA, FSA and regulatory geopolitics: “too big to fail”?

Rotation

Near the end of the 1990 film The Hunt for Red October, the US National Security Adviser peers over the rim of his glasses at the Soviet ambassador and asks: “Andrey… you’ve lost another submarine?”

That moment might feel familiar to anyone following the tragic saga of the Boeing 737 MAX. A new flight control problem with the jet was revealed this week, reported by The Air Current as being categorised as “catastrophic” by the US Federal Aviation Administration, which seems to have disagreed with Boeing about the severity of the issue in what feels like another example of the hubris driving this tragedy.

Back in April when the MAX grounding was new, I opined at the Aircraft Interiors Expo that the jet would likely not be back before the next setpiece cabin interiors event, the APEX Expo in September. This mirrored comments made by #PaxEx industry stakeholders to RGN editor Mary Kirby on the show floor. Now, with this latest problem and the additional time required, I am wondering whether that estimation was too optimistic.

Certainly, some airlines are now changing their operational plans for the MAX that far out and beyond.

At this point, it wouldn’t surprise me if we didn’t see the 737 MAX returned to service before next year’s Aircraft Interiors Expo in April. It’s even more likely that we won’t see it flying everywhere it needs to be, because of the number of global regulators that need to sign off on it.

As I reported in RGN last week at the Paris Air Show, Boeing is using new language around the regulators who certify its new and incrementally evolved aircraft in the 737 family, in this case the passenger-to-freighter 737-800BCF.

Boeing identifies the US, European, Chinese and Russian regulators, although this is a different set to the four regulators reported by Bloomberg to coordinate the restoration of the MAX to service. That list comprises the US, Europe, Canada and Brazil as the regulators of Boeing, Airbus, Bombardier and Embraer.

It’s very clear that certification of the 737 MAX is going to continue to be a matter of much scrutiny, and it seems to me that the FAA may have acknowledged at least internally that it made serious mistakes in the certification of the aircraft.

That acknowledgement would have substantial wider implications, not least because the agency now needs to prove itself not just domestically but internationally.

I would expect the FAA to therefore go above not only its previous level of scrutiny — which RGN and others have cited as problematic within our passenger experience and airline safety wheelhouse — but above even “a reasonable standard” to “beyond reproach” during the recertification of the 737 MAX.

This approach would be smart for the FAA. It would be good for those of us who care about safe aircraft, as long as the approach reverts to “a reasonable standard” once the heat is off rather than falling to the problematic previous level of scrutiny. It is, if it all works out, likely to be good for the MAX in that it will be the most scrutinised aircraft in history.

But the “if it all works out” is the kicker. This “beyond reproach” approach from the FAA will flag #737MAX issues that might ordinarily have been dealt with via Service Bulletins and/or Airworthiness Directives in normal service, without groundings.

I am entirely in favour of it doing so, I should say. Safety is crucial, as is restoring regulatory trust. But the wider implications for the MAX and for Boeing are that, every time one of these #737MAX certification issues arises, it adds months (plural) to the amount of time before the FAA is willing to sign off the MAX and the aircraft starts to be ungrounded.

Recertifying the MAX will take time and is unlikely to be a smooth path. Image: John Walton

Every month that goes by produces dozens more MAX aircraft that airlines were expecting to have in their fleets over the busy northern hemisphere summer months, stored everywhere from boneyards to Boeing employee parking lots.

This is a major market externality, which could well cause a bubble-burst situation within the airline industry, particularly around narrowbodies. The industry is relatively fortunate, in a way, that several airlines have already gone bust, their aircraft able to be reassigned to cover for the MAX. Indeed, this demand for aircraft is likely to drive other airlines to the brink, their jets more valuable to other carriers than to their operators.

Any bursting of an industry bubble would not be good news for the MAX, for Boeing, or for the rest of the industry.

The process of ungrounding the MAX is also key here. For a start, we are entering the northern hemisphere summer holiday season, and in many key countries work simply stops as key people go on holiday. Even if every person required only takes three weeks’ holiday (a relative baseline in Europe), these three weeks are spread out over July and August, and now into September for those without a need to deliver children back to school and with a commensurate ability to take advantage of cheaper shoulder period vacations.

Even once the out-of-office auto-replies aren’t flying, the regulators need to do their work one-by-one. Before the latest news of in-principle coordination between the US, EU, Canada and Brazil, the working assumption was that the FAA would unground the MAX first while showing its work to other regulators for their review.

Having four regulators in the bag early will help, but there are others to content with: at a first set, China, Indonesia and Ethiopia, with Australia, Qatar, Singapore and the UAE also early requirements.

These global regulators are individual agencies, with individual agency, governmental, national, regional and international agendas. Even a notional agency with only the interest of the flying public at heart would want (and want to be seen) to ensure that it is scrutinising the 737 MAX — and, crucially, the FAA — to a “beyond reproach” level.

But that notional agency does not exist. For a start, Indonesia and Ethiopia, as the states of registration of the two crashed MAX aircraft, have national agendas.

China, too, has multiple interests that are vital to consider. Its aim to grow its aviation industry means that it has an interest in understanding how the certification process works, and indeed it has an interest in growing the role of the CAAC as a regional and global regulator.

More widely, the Chinese aviation industry is in the process of developing its aircraft manufacturing capabilities with first-run aircraft like the ARJ21, C919 and soon the C929. It would not be verging on the paranoid to assume that there are interests within China that would gain from poring over vital parts of the process as Boeing presently sees it.

And, indeed, the wider geopolitical context is likely to cause problems for Boeing, some of which are out of its control but many of which would be of its own making. As trade tensions between the US and China continue to make news, the US’ largest exporter would always be inextricably linked here.

But it does not help Boeing that its pro-Trump strategy and corporate appeasement of a capricious and volatile White House with objectively bizarre views on aviation link the company even more closely to the US government than in previous years.

All of this is a problem for Boeing, and every month that the cold stasis on new programmes that results from the MAX’s grounding is another that the airframer cannot launch the NMA mid-market airplane — and, by extension, the FSA, the 737 replacement.

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Running two new airplane projects would be complex to the point of foolhardiness for any manufacturer, but given Boeing’s demonstrated history with the 787 and 737 MAX design and entry into service problems, it would be especially unwise.

A scenario where the NMA falls by the wayside, Boeing takes a hit on the shrinking lower-middle of the market that the A321neo is running away with until it can build the FSA, and the airframer ends up figuring out some way to make the 787-8 appealing to the upper end is looking less and less left-field.

But moreover, I can’t stop being concerned about Boeing more widely. As I said on the Runway Girl Network #PaxEx Podcast this week, I can’t help feeling that we’re talking about the 737 MAX returning to the air as inevitable, which rings of Boeing and its products being ‘too big to fail’. That didn’t work out well for the financial industry, and I’m worried that we’re talking about half of the global airliner manufacturing industry in the same kind of way.

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9 Comments

  1. Frank

    Now we know why Boeing fought so hard to not have the Max grounded in the first place – it has opened up an unimaginable can of worms for them. They are struggling desperately to keep ahead of the narrative and even the effort to shore up sales support with the IAG ‘order’ for 200 jets at Le Bourget (read: letter of intent for a fleet order no one knew about) went a little sideways when it was revealed that IAG didn’t even approach Airbus for competing tenders.

    Financial analysts have bandied about a figure on the order of $5 billion PER QUARTER that the 737 is grounded – and if your April target date for re-entry into service is correct, they are looking at an eye watering $20 billion for this fiasco. You wouldn’t know it, by looking at their share price, which is astonishing – considering the amount of exposure they face. It’s as if they are indeed, too big to fail and investors have taken that stance, to their own peril.

    An added regulatory dimension worth mentioning is Canada:

    Boeing tried to kill the C-Series jet in the cradle, mostly succeeding as Bomardier had to turn to Airbus for help and now with the sale of the RJ business to Japan looks to be the end of an aviation era north of the border. Transport Minister Garneau has already said that expensive (to Boeing) simulator training will most likely be mandatory and with Air Canada owning one of the only simulators in North America, look for Canada to stand firm on that. Boeing has acted like a bull in the China shop (along with the Trump organisation) towards Canada – so you can forget about borrowing the lawnmower from the neighbour while yours is in the shop.

    Images of male appendages and fans come to mind, whenever the 737 Max is now mentioned.

  2. Chris Parker

    The more that comes out about the 737 MAX the more disturbing it is. Aviation is the safest form of travel by far , however the corner cutting by Boeing and the ruthless nature that they pursue their interests in not what you would hope for from a global player. The slick PR and lawyers seems to hide a dark side.

    Boeing is getting what it deserves a very expensive shot across tge bows. The 737 MAX will fly but hopefully every piece of it will be torn apart. Hopefully other regulators will demand mandatory simulator training.

    Black the MAX….it is where it belongs…grounded

  3. Rennie Allen

    A “beyond reproach” process by the FAA would mandate scrapping of the design. In order to be “beyond reproach” there can’t be a fundamentally improper approach to the design.

    The root cause of the aircraft’s failure as a vehicle is that the primary design constraint was that pilots not have to obtain a different type rating, and that this requirement superceded any safety requirements. That is not consistent with even a “reasonable” standard as it is a fundamental conflict of interest between cost savings and safety.

  4. Howard Miller

    Spot on analysis & commentary.

    Perhaps it’s also time for a thorough housecleaning of the C-Suite, and the Board of Directors whose responsibility is to prevent a company from flying as off course as Boeing has with this escalating debacle – that also resulted in the deaths of 346 people – followed by a restructuring of a corporate culture that cannot be overlooked as a factor in allowing a product riddled with so many defects to be rushed to market.

    Further, if the ground continues as long as John suggests it could (April, 2020) and the cost as high as he estimates it could be ($20 billion), then it’s hard to imagine shareholders remaining silent once the dimension of the problems Boeing faces before the 737MAX achieves clearance from regulators around the world to fly again.

    Of course, this is based on what’s known now – and assuming things don’t get too much worse going forward as each new revelation, if any, going forward changes the equation.

    And then, who knows how many more setbacks, if any, and to what degree can be tolerated before airlines lose patience at not having the aircraft they ordered years ago in their fleets; residual values tank; and cancelations begin with increasing speed before the tipping point comes, and the program itself is jeopardized?

    And even when (if?) Boeing finally gets ahead of the problems and gets the 737MAX back in service by this time next year, if not sooner, it still faces an high wire act for a year or more where it’s just one fatal incident away from the whole program imploding.

    Indeed, more and more one might argue that before the 737MAX can be fixed, Boeing, and a deficient/defective corporate culture that led to this debacle in the first place, must be fixed, too – starting with a transformational leader who understands that the two issues go hand-in-hand for the flying public to have any confidence that when (if?) the 737MAX resumes flying, the people who exercised such bad judgement the first time around are NOT the same ones entrusted to get things right the second time around.

    After all, do they really deserve to have a chance at a “do over” anyway?

  5. Howard Miller

    For paragraph #3 in my reply comments posted above, there were minor editing errors that were undetected prior to uploading.

    The corrected version of that paragraph follows below, with apologies for the error:

    Further, if the grounding continues as long as John suggests it could (April, 2020) and the cost as high as he estimates it could be ($20 billion), then it’s hard to imagine shareholders remaining silent once the dimension of the problems Boeing faces before the 737MAX achieves clearance from regulators around the world to fly again is better understood.

    • Glen

      Good article and good quality comments here.
      Am I the only one that feels unease about the 787 programme and certification.
      Indeed the 787 was certified under the same regime and ideology.
      What surprises does that programme and regulatory capture hold?
      Where there is smoke there is fire.

  6. Bob Braan

    Don’t be surprised there are more delays as the FAA finds other catastrophic flaws in the 737 Max. They are finally doing their job, not just rubber stamping Boeing’s shoddy work.
    Instead of engines too far forward and up Boeing could have just extended the landing gear creating more ground clearance for the bigger engines so MCAS wasn’t needed.
    In fact the 737 Max 10 (not flying yet) has telescopic landing gear to create 9.5″ more ground clearance not because of the engines but because the 10 is so long the tail would hit the ground on takeoff unless the fuselage was raised.
    For the 737 Max 8 and 9 MCAS software was cheaper than extending the landing gear. So long as you don’t count the cost of 346 lives.

  7. John Miller

    Boeing has gotten too big for its corporate britches. It has no American competition. They keep tacking on modern features to a design from the 60’s instead of building a brand new aircraft. Even Volkswagen eventually realized the original bug had to go away.
    Not only is Boeing having issues with the 737, they’ve also screwed the pooch on the USAF KC-46, with sloppy construction. Of course the Air Force is partially to blame with their demand for video game type controls for the refueling boom. But Boeing engineers can’t seem to figure out how to solve that problem either.

  8. William

    I suspect Boeing is going to need a multi billion dollar bailout from the US Government. The costs of the grinding must be approaching 10 billion. The grounding looks like it’s getting close to 12 months with the discovery that elevator trim is too sluggish likely from CPU overload. Airbus needs a healthy Boeing to maintain their duopoly because this is more a benefit to the COMAC C919 or Irkut MC21. The MAX will go back in service and sell well and I have no doubt achieve the outstanding safety of the B737NG. One benefit of a US Government Bailout for Boeing is it gets Airbus of the hook in regards to illegal subsidy claims and potential Tarif actions.

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