Just three years after the crash of Lion Air Flight 610 shortly after takeoff from Jakarta precipitated a chain of events leading to the worldwide grounding of Boeing’s flagship 737 Max 8 plane, a strange thing is happening.
The single-aisle jet — whose crashes in Indonesia and, less than five months later, outside Ethiopia’s capital, Addis Ababa, “exposed fraudulent and deceptive” behaviour and criminal misconduct by Boeing employees, in the words of the US Department of Justice — is looking more and more like becoming a commercial success story.
Mumbai-based startup Akasa Air announced an order for 72 of the jets at the Dubai Airshow, a deal worth $9 billion at list prices. Indian budget carrier SpiceJet Ltd said it had settled claims with Boeing and could resume taking deliveries from its 155-strong order. FlyDubai, at one point the Max’s biggest customer, is still considering the aircraft for future orders, Chief Executive Officer Ghaith Al-Ghaith said.
Singapore Airlines will soon start flying the Max to destinations including Indonesia. China, where about a third of the 370 completed planes are destined for delivery, may be preparing to clear it to fly again.
Boeing’s conduct through the development of the 737 Max was unconscionable, as Peter Robison’s deep reporting in the current issue of Bloomberg Businessweek illustrates. The five months of stalling and obfuscation that followed the deaths of 189 passengers and crew in the Lion Air crash was still more shameful, endangering tens of thousands of people until the deaths of another 157 on Ethiopian Airlines Flight 302 finally forced a worldwide grounding of the model.
At the same time, investors are well-known for their brutal lack of sentiment. The only question they care about right now is: Will it make money?
On that front, the news is oddly promising. Boeing’s year-to-date orders for single-aisle jets at the end of October were running at about double the level notched up by Airbus SE — an important consideration when profitability is all about efficiencies of scale. If that lead is maintained, it will be the first time since 2016 that the US manufacturer has run ahead of its arch-rival in this most important segment of the market.
With aviation returning to something like normal over the coming 12 months (especially on the domestic routes where smaller jets like the 737 dominate), the bigger risk to Boeing right now is not that they don’t have customers for the Max, but that they won’t be able to deliver them fast enough once the current inventory is dispatched. The 737 program will “shift from what used to be a demand problem to more of a supply problem in the course of the next calendar year,” CEO David Calhoun said.
“All of the trends are in our favour on that front.” New customers can’t expect to see the sorts of discounts on sale prices that the airlines affected by the Max’s worldwide grounding have received, he added.
Compared to the 787 Dreamliner so beloved of air passengers and the hotly-anticipated 777X, the 737 is a bright spot for Boeing. Under the program accounting rules it uses to amortise multibillion-dollar development costs over the lifetime of an aircraft model, the 787 was $1.8 billion short of breaking even at the end of September. A $6.5 billion writedown of the 777X program after the Covid-19 pandemic and other problems delayed its delivery by three years means that twin-aisle jet will also struggle to get back into the black.
The 737, however, is still forecast to stay just on the right side of profitability — and with thousands of deliveries to make up those costs compared to just hundreds for the bigger planes, there’s ample opportunity to keep and exceed that promise.
The harsh truth of the aviation market is that carriers fear an Airbus untrammeled by commercial competition far more than they fear for the safety of the 737 Max — especially after it’s gone through years of checks under the eye of a newly-empowered regulator. Given the ongoing
delays, certification and supply-chain problems faced by the only other serious competitor on the horizon, Commercial Aircraft Corp of China’s C919, the risks of Airbus dominance are greater still. The cost-cutting considerations that contributed to the Max’s failures also loom large.
David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the
Financial Times and the Guardian