Policy

Boeing 737 Max grounded following international accidents, downs U.S. export numbers

The downturn in deliveries hit the U.S. trade account hard in May, when U.S. exports of civilian aircraft fell $2 billion

Boeing 737 Max airplanes are stored on employee parking lots near Boeing Field, on June 27, 2019 in Seattle, Washington. After a pair of crashes, the 737 Max has been grounded by the FAA and other aviation agencies since March 13, 2019. (Stephen Brashear/Getty Images)

The downturn in Boeing Co. deliveries caused by the grounding of its best-selling airliner in the wake of two international accidents is having a direct impact on U.S. export numbers.

Company officials said Wednesday that they expect the Boeing 737 Max to be grounded at least through October, shaving billions of dollars from revenue, as they reported an after-tax charge of $4.9 billion related to the disruption of aircraft deliveries.

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President and CEO Dennis Muilenberg also said Wednesday that getting the plane back into service in October, as Boeing estimates, depends on the Federal Aviation Administration and other regulators. He warned that if the recertification of the plane drags on, one consequence could be the temporary shutdown of the 737 Max production line in Renton, Wash. He acknowledged regulators may take different views on recertification.

The disruption in Boeing’s plane deliveries hit the U.S. trade account hard in May, when U.S. exports of civilian aircraft fell $2 billion, or 38 percent, from May 2018. The figures include used aircraft and other types, but the hit from the suspension of 737 Max deliveries accounts for much of the decline. Total U.S. exports of goods in May were $140.8 billion. May is the last month for which trade data are available.

The episode demonstrates the downside of an industry dependent on big-ticket exports from a single producer operating in a highly regulated sector.

Production of the Max had peaked at 52 per month, but Boeing has cut it back to 42 per month in light of the grounding of the aircraft by the FAA on March 13, just days after an Ethiopian Airlines flight crashed shortly after takeoff from Addis Ababa, killing 157.

Muilenburg said in an earnings call Wednesday that the company’s best estimate is that it can return the 737 Max to service in October, following submission of the recertification package and test flights with regulators in September. But he said the timing would be up to regulators.

“We are dependent on the FAA and other regulators for achieving that timeline,” Muilenburg said, in response to questions from analysts seeking more clarity.

The FAA’s decision to ground the plane in March came after the second fatal crash of the 737 Max. The agency didn’t act after an Oct. 29, 2018, crash of a 737 Max flown by Lion Air. The Indonesian airliner crashed shortly after takeoff from Jakarta, killing all 189 passengers and crew members.

The FAA acted after it became clear both flights had exhibited erratic patterns, later attributed to faulty operation of a software system designed to prevent stalling of the aircraft. But the delay permitted Boeing to continue deliveries of the 737 Max.

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U.S. export sales of civilian aircraft hit $16.6 billion in the fourth quarter of 2018, and $12.2 billion in the first quarter of 2019, data consistent with the seasonal variation of previous years. But with just $5.8 billion so far in the first two months of the second quarter, exports are likely to fall far short of the $14.2 billion in the same quarter of 2018.

Boeing had delivered 89 of the 737 aircraft in the first quarter of 2019 as production ramped up, but the second quarter delivery total plummeted to 24, according to company financial releases. Each 737 Max costs roughly $100 million, although prices vary with the variant of the aircraft, equipment and other factors.

Regulatory outlook

Boeing executives fielded questions Wednesday from analysts seeking a better understanding of the how the regulatory environment will affect company results.

Muilenburg confirmed the FAA has asked for an additional update to the software after simulator testing raised alarm bells about the possible failure of the 737 Max microprocessor.

One analyst asked whether the European Union Aviation Safety Agency had submitted a list of five preconditions for recertification of the Max.

Muilenburg sidestepped the question, but acknowledged that different regulators may take different views of recertification. For instance, one issue that could result in disparities is the amount of training necessary for flight crews to qualify on the recertified 737 Max, and whether such training could be computer-based or must be in simulators, he said.

The FAA has convened a joint operational evaluation board, comprising regulators from a range of countries, that is examining how much retraining is necessary, Muilenburg said. He added Boeing already is preparing what it sees as the appropriate retraining package, which would be largely computer-based.

Muilenburg also revealed that the company’s board of directors has convened a committee to look at Boeing’s processes for designing and certifying aircraft. The FAA also has convened a review of its certification process by a board of international regulators.

The 737 Max grounding is not the only obstacle the company faces. Muilenberg disclosed that the first test flights of its new 777X plane had been pushed back from 2019 to 2020, which he attributed to development delays with the new General Electric engine for the aircraft.

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