Boeing... You’re Grounded

What’s going on here?

Boeing’s best-selling 737 Max Aircraft has been grounded by the US Federal Aviation Administration (FAA) after its second crash in six months

What does this mean?

After 2 fatal crashes and 45 other nations banning the aircraft, the FAA is the next jurisdiction to join the long line of others that have chosen to keep the “most successful jet aircraft of all time” out of the sky. As of right now, the cause for the most recent disaster, involving an Ethiopian Airlines flight, remains unknown. US regulators have noted that the model will be grounded until at least May. With that being said, the pressure is mounting on investigators to find answers – and fast.

Following the decision by the FAA and other regulators to ground the new aircraft, the 737 fleet is no longer being delivered for the time being. However, Boeing has made it clear that they will continue to manufacture the planes in an attempt to deliver on its backlog of orders (ironically, most of the backlog is for the 737 model).

What’s the big picture effect?

This string of issues concerning Boeing’s flagship product has clearly hurt the company. Since the crash, Boeing’s share value dropped by around 10% — that’s already $25bn of the company’s market value down the drain! While the short-term impact is crystal clear, the long-term consequences are still up in the air. In reality, the long-term effect on Boeing will depend on the answer to this mystery – namely, the cause of the disaster. One thing’s for sure, these successive accidents have tainted passenger confidence and Boeing now has a mountain to climb if it wants to restore its reputation as the leading manufacturer of commercial jetliners.

Boeing is not the only aircraft manufacturer going through tough times. After slow demand, the company’s competitor, Airbus, ended production of its A380 superjumbo model — a move which put many UK jobs at risk. Boeing’s issues could offer its rival a lifeline as some of its customers are planning to switch to Airbus’ A320 Neo (the preferred alternative to the Boeing plane). Just recently, Garuda Indonesia (the country’s national airline) has stated that it may cancel its purchase for 20 Boeing planes and Kenya Airways has echoed a similar message.

Although these airlines have made their intentions clear, ditching Boeing is not without its problems. According to Robert Stallard (an analyst at research firm Vertical Research Partners), the option to switch from Boeing to Airbus is “theoretically possible”. However, it’s highly impractical as it could lead to "roughly a three-year wait time” as new orders would be “at the back of the Airbus queue”.

We’ll have to wait and see what the long-term impact of these issues are for Boeing. For now, it’s clear that the company is going through a turbulent patch.

Report written by Joshua L.

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