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Boeing feels the heat as China, Indonesia ground 737 Max jets
BOEING Co chief executive officer Dennis Muilenburg faces his biggest crisis yet following the second deadly crash of a 737 Max jetliner, prompting some airlines to ground the bestselling plane, and sending the shares on track for their biggest loss since just after the 9/11 attacks.
China ordered its carriers to ground all 96 of Boeing's newest 737 model, while Indonesia said it would also halt flights after Ethiopian Airlines Flight 302 went down in a field shortly after takeoff on Sunday, killing all 157 people on board. While the flight recorders have now been recovered and must be analysed, the disaster bore similarities to the doomed Lion Air 737 Max that crashed in October.
The 737 Max is Boeing's most important aircraft type, generating almost one-third of the company's operating profit and forming the backbone of many global airline fleets who use the model and Airbus's competing A320 family on shorter routes.
Boeing sank 12 per cent to US$371.89 in early US trading. That would put the stock on track for its biggest drop since September 2001, and pose a threat to the rally under Mr Muilenburg, who has overseen a tripling in the shares since taking over at the biggest US exporter.
"Boeing has lost control of the timetable to provide the safe, reliable solution," said Neil Hansford, chairman of the Australian consultancy firm Strategic Aviation Solutions. "The longer it goes, the more chance Boeing has of losing orders."
The grounding in China, followed by the Indonesian air safety regulator's order to halt 737 Max flights from Tuesday, raises the spectre of other countries following suit. South Korea began a special inspection of the aircraft, while in Europe, regulators said they're in contact with their US counterparts as well as Boeing, but that it's too soon to take action.
US carriers such as Southwest Airlines, American Airlines Group and United Continental Holdings are still flying the 737 Max.
Investigators have recovered the cockpit voice and flight-data recorders, Ethiopian Airlines said on Monday, a significant step forward in piecing together what happened.
Chinese airlines accounted for about 20 per cent of 737 Max deliveries worldwide through January, and further purchases of the Chicago-based planemaker's aircraft are said to have been touted as a possible component of a trade deal with the US.
China Southern Airlines has 16 of the aircraft, with another 34 on order, according to data through January on Boeing's website. China Eastern Airlines has 13, while Air China has 14, Boeing says. Other Chinese airlines that have bought the Max include Hainan Airlines Holdings and Shandong Airlines, the data show.
Lion Air, which is based in Indonesia, is one of the biggest customers, having ordered 201 Max planes and taken delivery of 14.
The single-aisle 737 Max is poised to generate about US$30 billion in annual revenue as factory output rises to a 57-jet monthly pace this year, according to Bloomberg Intelligence estimates.
The disaster in Ethiopia followed the crash of Lion Air's 737 Max off the coast of Indonesia on Oct 29. A preliminary report into that flight indicated that pilots struggled to maintain control following an equipment malfunction. The US Federal Aviation Administration is working with Boeing on a possible software change to reduce the chances that such a failure could cause an accident in the future.
Boeing responded to the earlier crash by advising pilots that the Max's so-called angle-of-attack sensor can provide false readings, causing the plane's computers to erroneously detect a mid-flight stall in airflow. That in turn can cause the aircraft to dive abruptly to regain the speed the computer has calculated it needs to keep flying. Pilots could counteract the sudden downward tilt by following a checklist in their training manual, the planemaker said.
"The B737 Max design is dangerously flawed," said Mohan Ranganathan, a former commercial pilot and an aviation safety consultant based in the southern India city of Chennai. "There is a definite similarity between Lion Air and Ethiopian Airlines Max crashes." BLOOMBERG