CEO Dennis Muilenberg was addressing Wall Street on a conference call on April 26, 2017. He boasted about how quickly the company had brought the 737 Max to market — and praised the Federal Aviation Administration’s “streamlined” certification process. He attributed that to the pro-business philosophy of the new Trump administration.
“That’s helping us more efficiently work through certification on some of our new model aircraft such as the [737] Max as it’s going through flight test and entering into service,” he told analysts. “So we’re already seeing some benefits there of some of the work that’s being done with the FAA.”
After the March 10 crash of an Ethiopian Airlines 737 Max, coming less than five months after a fatal crash of a 737 Max flown by Lion Air, all of its 737 Max planes were grounded and the plane’s approval process is under scrutiny in Washington.
Boeing says safety is the company’s top priority, and it continues to work with the FAA and investigators as the company develops potential solutions to the problems with the 737 Max. It also asked for patience from the public until all the facts of the crash are known.
“We urge caution against speculating and drawing conclusions on the findings prior to the release of the flight data,” a Boeing spokesman said.
“This is a huge … issue, not only for its revenue flow and its earnings flow, but for its reputation,” said Jim Corridore, director of industrial equity research for CFRA Research. “It needs to be rectified sooner rather than later.”
The company should be able to resolve the problem within three months, said Richard Aboulafia, vice president of analysis at the Teal Group.
“If they can’t, it’s a real drag on engineering resources, management resources, and investor confidence, to say nothing about becoming the mother of all production traffic jams,” Aboulafia said.
Boeing faces a public reckoning
Congress already had the first of what could be multiple hearings into the process. It announced an investigation into potential connections between inadequate training and certification of aviation safety inspectors who may have participated in the evaluation of the Boeing 737 Max.
How will the 737 Max hurt Boeing’s business?
Boeing will report first quarter deliveries and orders on April 9. Analysts expect that the numbers will be hurt by the halt of deliveries of the 737 Max, even as Boeing continues to build the plane in Renton, Washington.
On April 24, the company will report financial results for the first three months of the year. Boeing will probably include an estimate for how much the grounding will cost for compensation to its airline customers. Boeing’s executives will then face shareholders on April 29 at its annual meeting in Chicago.
But Boeing is already trailing Airbus by some measures in the competition for single-aisle jet sales. And if airline passengers aren’t comfortable flying the 737 Max when it returns to the air, it will hurt the airlines that have already committed to the planes. Boeing is counting on those airlines for future orders.
It’s a negative turn for a company that had been performing incredibly well for most of the last two years. By the end of 2018, Boeing had orders for 5,000 of the 737 Max.
“Boeing has significant financial resources to weather the effects of the groundings,” said Moody’s when it confirmed its A2 long-term credit rating.
The company’s shares, which ballooned 140% from Muilenberg’s April 2017 call with Wall Street through the beginning of this March, are down 9% since the Ethiopia crash. That shaved $20 billion off of its market cap.
But what probably helps Boeing as much as anything else is it has an effective duopoly — along with rival Airbus — when it comes to passenger aircraft.
“Certainly we don’t discount the human tragedy of these two crashes,” said Corridore of CFRA Research. “But Boeing has an excellent track record. It is in a business where it is one of two manufacturers, with a strong demand, huge demand from China.
“We think 2019 is not going to be a great year financially for this company,” he said. “But we think longer term, they’re going to be OK.”
Source : Nbcnewyork
