Today, October 29, 2019 represents a historic day for the Commercial Aircraft industry from two different perspectives.

The day marks the first anniversary of the tragic crash of a Lion Air Boeing 737 MAX 8 aircraft resulting in the loss of 189 souls. Relatives and friends of the victims scattered flowers and memorials on waters where the aircraft plunged to the sea.

Last week, Indonesian air safety officials had finally released the report on the findings of that accident, pointing to faulty aircraft design control by Boeing, inadequate training of the pilots and lapses in aircraft maintenance as principle contributing factors. The report further chastised the U.S. FAA for its certification of the aircraft.  Boeing 737 MAX 8

As noted in our last Supply Chain Matters update on the ongoing grounding crisis involving the 737 MAX, the spotlight on Boeing’s dealings with the FAA, its self-certification processes and its perceived corporate arrogance are beginning to take a discernable toll on the perceptions of the safety of this aircraft and on the company’s leadership to resolve the ongoing crisis.

Today, Boeing CEO Dennis Muilenburg began two days of testimony at U.S. Congressional hearings. Members of the Senate Commerce Committee reportedly challenged the company’s internal handling of concerns regarding the design of the aircraft’s MCAS system as well as the now released 2016 text messages indicating that test pilots raised initial concerns about that system. One Senator asked the CEO why the 2016 exchange was nor brought to his attention earlier, or why he had not spoken to employees to learn what that exchange signified. His response was that he had not.

A report published by the New York Times over the weekend, Before Deadly Crashes, Boeing Pushed for Law That Undercut Oversight, (Paid subscription or metered view) opened with the following: “With a few short paragraphs tucked into 463 pages of legislation last year, Boeing scored one of its biggest lobbying wins: a law that undercuts the government’s role in approving the design of new airplanes.” The report goes on to describe Boeing’s direct influence on Capital Hill.

Further, a report published by the Washington Post (Paid subscription or metered view) indicates that FAA lax oversight played a part in the crashes while the agency continues to become more “industry-friendly” in self-regulating aircraft. One statement in this report reads:

Boeing was so hungry to create an aircraft that wouldn’t require current 737 pilots to go through expensive retraining that it ran an active company effort to remove information about the MCAS from the Flight Crew Operating Manual, according to congressional officials and copies of Boeing emails.”

Last week. Boeing reported financial performance for the September ending quarter, indicating profits were slashed by a half coupled with a 21 percent drop in total revenues. The cost of the overall grounding now exceeds $9 billion with an estimated additional $5.6 set aside for airline customer compensation. CEO Dennis Muilenburg finally acknowledged that there would be an additional lag in returning the 737 MAX to operational service with most carriers not expecting MAX flights to resume until early next year.

And in a separate but related developments, the CEO of Southwest Airlines, the original launch customer of the 737 MAX aircraft, which has operated an all-Boeing fleet since its founding, told analysts on the airline’s recent financial performance briefing that the grounding has forced the airline to re-examine its strategy of an all-Boeing fleet. In a separate development, the labor union representing Southwest Airlines pilots, filed a lawsuit against Boeing for upwards of $100 million, alleging the aircraft grounding cost pilots lost wages.


One Market Response- Largest Ever Single Aircraft Order

The second noteworthy perspective is that today, Airbus confirmed what was described as the largest commercial aircraft order from a single airline, exceeding a previous stated record.

India’s budget airline IndiGo placed a firm order for a total of 300 Airbus A320-neo Family aircraft worth upwards of $300 billion at list prices. The order reportedly includes the recently announced Airbus A321XLR extended range aircraft and follows what is described as a fierce competition among Airbus and Boeing for landing such an order. Boeing was offering the 737 MAX.

Airbus has been a long-time aircraft supplier to IndiGo with the first A320neo aircraft being delivered in March 2016. Since then, the airline’s fleet of A320neo family aircraft has grown into the world’s largest with 97 A320neo aircraft, operating alongside 128 A320ceos.

According to Reuters, many of the aircraft covered in this order are not expected to be delivered until mid-way through the next decade.

The former milestone of the single largest aircraft order was in 2017 when private equity firm Indigo Partners placed a $49.5 billion order  for 430 Airbus aircraft on behalf of four separate airlines.


Implications to Industry Supply Networks

On the one-year milestone of that tragic crash of a Lion Air Boeing 737 MAX 8, the industry supply networks aligned with Boeing and Airbus face very differing market developments and future supply network impacts.

On the Boeing side are growing concerns relative to a timely resolution to the grounding crisis and that Boeing will be able to overcome its now tarnished industry image and customer relationships. Concerns are already building relative to added impacts to wide-body backlog and product levels.

On the Airbus side are networks flat out with ramping-up to desired monthly production levels and with aircraft order backlogs that continue to grow. The IndiGlo order alone theoretically adds the equivalent of another full year of overall backlog if not considerably more.

Where there is a capacity shortage in the market, another aircraft producer usually takes advantage of such an opportunity. However, the current elongated Boeing crisis coupled with the notions of a market duopoly portend some further developments to come.

As noted in our prior update, the ongoing industry developments are sure to have impacts on commercial aircraft design, supply and customer demand networks for many months hence. It will be further interesting to watch for a switch in supplier loyalties.


Bob Ferrari

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