Since our last Supply Chain Matters update regarding the ongoing Boeing 737 MAX global grounding crisis and the consequent stripping of chief executive Dennis Muilenburg’s role as company Chairman, there have been some significant and perhaps far reaching developments.

In our view, they have strong potential impact in product development accountability and in commercial aircraft product design, supply and customer demand network dimensions for years to come. Boeing 737 MAX 8

 

Latest Developments

Last week, suddenly surfaced reports of a transcript of text messaging stream that occurred in 2016 between Boeing’s then chief technical pilot for the 737 MAX and his other colleagues caught the attention of business news media, the Federal Aviation Administration (FAA)  and U.S. Congressional regulators.

In the exchange of messaging, the chief pilot complained that the MCAS flight control system was causing a control chaos situation within the aircraft’s flight simulator. In turn, colleagues complained that they were, according to reports: “so damn busy and getting pressure” from program office managers overseeing aircraft development, they did not have the time to further investigate the condition. According to published reports, the chief pilot than complained that he unknowingly misled regulators about certain operating aspects of the flight control system.

According to reporting by The Wall Street Journal (WSJ) reported earlier this week:  “In a January 2017 email to an FAA official, he argued that the system known as MCAS should be taken out of manuals because it activates “way outside the normal operating envelope,” and therefore cockpit crews would practically never experience it.This email has reportedly been turned over to a U.S. House of Representatives Transportation and Infrastructure sub-committee.

This same committee is reportedly further looking into results of an internal employee survey conducted in 2016 where one in three employees indicated ‘undue pressure’ from managers regarding safety-level approvals by regulators across an array of Boeing commercial aircraft programs. According to reporting: “Workload and schedule were cited as important causes.” Boeing has reportedly declined to comment to various publications regarding the results of this survey. The WSJ indicated that a Boeing board member indicated that the board’s prior internal review found no indications that undue pressure compromise safety.

Boeing had also indicated that the company did not believe it was appropriate to share this added information with regulators sooner, because of continuing criminal investigations.

This stream of new information over the past few days has negatively impacted shares of company’s stock because of rising concerns by regulators of a perceived corporate culture that has since provided little lack of accountability in prior decisions related to MAX’s flight system design, operation and oversight. At a hearing scheduled later this month, chief executive Dennis Muilenburg is scheduled to testify about the company’s internal culture and perceived lack of demonstrated accountability thus far in the crisis. What seems to be the most prominent building concern is the dual role that Boeing engineers had to serve, both as aircraft designers and as designated FAA signoffs to the safety of aircraft systems and operations.

In addition, an exclusive report published today by the WSJ, citing informed sources,  indicates that European air regulators officially informed Boeing and the FAA last week that the agency will differ from the FAA in a desire for a global-wide coordinated global return to service of the MAX aircraft. This report indicates that such a decision has both symbolic and operational implications. Symbolic in that it continues to undercut the FAA’s stature among international regulatory agencies and operational in that it potentially undermines efforts for the broadest global cooperation to assure the flying public of the eventual safety of this aircraft when it returns to service.

According to the report: “FAA leaders have been told that their European counterparts will take perhaps as much as four weeks longer than the U.S. to allow the MAX back into service, these people said.” Further noted is that European regulators intend to conduct their own independent flight simulator tests to inform and gain support from legislators and national aviation authorities.

A Boeing spokesperson told the WSJ that the company is cooperating with the FAA-led effort but each of the regulators will determine their own timelines when they certify the MAX.

The European decision further adds to speculation as to whether other global regulators, including those in China, Canada and the Middle East will follow the lead of EASA or the FAA.

 

Supply Network Implications

The long-rumored separate independence of EASA along with potential for other global regulators to follow suite with added delay in aircraft approval sheds a new light on how much Boeing can sustain the current 737 MAX monthly production schedule. An added four-week delay might be considered manageable given that the aircraft’s grounding has about to surpass nearly eight months. with completed aircraft continuing to take up storage space. If the grounding extends itself for several additional months, Boeing may have little choice but to initiate a further temporary production cutback.

The sheer logistics of retrofitting hundreds of grounded 737 MAX aircraft with updated flight control software along with performing required return-to-service aircraft maintenance checks will take additional time and resources.

More important for the overall program will be perceptions by global flyers that this aircraft is indeed deemed to be safe to fly and that pilots are adequately prepared and trained to deal with any emergency.

At this point, Boeing reportedly is in the final stages of completing overall software fixes in order for regulators to begin their respective testing of the aircraft’s modified flight control systems. Internal FAA estimates reportedly have a timeline for lifting the grounding by year-end. That will be followed by respective U.S. airline customer retrofits of grounded previously operational aircraft in their phasing into flying schedules. The latter is not expected to be completed until some time in Q1 of 2020.

That leaves open the question of when non-U.S. airlines will get the green light for retrofitting and operational preparation, along with provisions for all of the stored previously manufactured aircraft sitting on storage runways to be prepared for delivery. By our lens, such efforts can realistically extend through Q2-2020 and beyond.

Finally, there has to be consideration for the growing groundswell related to Boeing accountability for past design decisions and what that implies for commercial aircraft industry oversight going forward. Here again, this will be where political and business forces once gain collide, with the outcome highly uncertain at this point.

One thing is certain and that is the overall industry and regulatory stakes of the overall 737 MAX grounding have taken a concerted turn in a matter of days. That is sure to have impacts on commercial aircraft design, supply and customer demand networks for many months hence.

 

Bob Ferrari

Addendum

Hello Everyone,

After we posted our Boeing 737 MAX crisis update noted above, with the implication of an increasing groundswell of executive accountability for prior executive decisions- both The Wall Street Journal and business network CNBC are now reporting that Kevin McAllister, Boeing’s head of the Commercial Aircraft line-of-business unit will be departing the company.

McAllister joined Boeing in 2016 as head of the Boeing Commercial after a long career at General Electric rising to the level of head of General Electric’s Aviation business unit. His operations management and Six-Sigma Black Belt background has been credited with improving the overall production system for ramping-up Boeing’s monthly production and supply chain support cadence.

According to reporting by The Wall Street Journal, McAllister faced criticism from some airlines over communications surrounding the grounding of the MAX and efforts to return the aircraft to service. According to reporting by CNBC, McAllister will be replaced by Stan Deal, a three-decade Boeing employee who most recently led the manufacturer’s Global Services business, according to Boeing.

Boeing’s new chairman David Calhoun, a former General Electric executive, indicated in a statement that the Boeing board “fully supports” the new appointment.

This development is obviously ongoing and fast moving.

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