Will Boeing Regain Trust?
When thinking of commercial air travel and what type of passenger you are, most people fall within two categories: Terrified flyer or comfortable flyer. In the last 7 years the number of uneasy passengers has soared after 346 people died in two similar crashes: Lion Air Flight 610 on October 29, 2018, and Ethiopian Airlines Flight 302 on March 10, 2019 (Wikipedia 2019). After years of stock market losses, a grounded fleet, a Netflix documentary and endless embarrassing media publications, the manufacturer of these 737 Max aircrafts remains in turbulent weather. Boeing was regaining confidence in the travelling public and aviation industry. This was until January 5th, 2024 when Alaska flight 1282 lost a door plug shortly after takeoff. The preliminary investigations showed the door plug was not properly installed by the manufacturer. With the travelling publics skepticism on the Max aircrafts and Boeings quality assurance, the aviation industry is also under watchful scrutiny by the FAA. FAA administrator Michael Whitaker stated in a hearing “Our findings during inspections of those aircraft showed that the quality system issues at Boeing were unacceptable and require further scrutiny,” (Forbes, 2024)
This poses the question, is Boeing going to bounce back from this?
Impact to Reputation
Prior to the grounding of the Max, the aircrafts continued to fly for three days following Ethiopian flight crashed killing all 157 people on board. These incidents involving the 737 Max 8 caused the travelling public to be concerned for the safety of the aircrafts and did not have confidence to fly on the 737 Max 8. During this time, passengers and flight crew members were refusing to fly on the Max aircrafts as the confidence in safety had diminished causing fear in the travelling public and aviation employees. Since 2019’s grounding of the Max 8 fleet that lasted until November 18, 2020, Boeing and the FAA/Transport Canada had to regain the confidence from the travelling public and airline customers. Dennis Muilenburg the Boeing CEO communicated to the public and aviation community on March 18, 2019 and said “Safety is at the core of who we are at Boeing, and ensuring safe and reliable travel on our airplanes is an enduring value and our absolute commitment to everyone”. (Boeing, 2019) Looking at Boeing’s response to the tragic accidents in 2019, they communicated often to the public and aviation community to regain the trust we all once had. The company implemented and built upon recommendations from the Board of Directors and implemented additional actions to the engineering function to strengthen Boeing’s culture.
Fast forward to January 2024 and Boeing is making headlines again when the door plug off Alaska flight 1282. Once again Boeing is in a tough spot, with a new CEO communicating to the public to assure the safety of their aircrafts. The new Boeing President and CEO Dave Calhoun said, “Whatever final conclusions are reached, Boeing is accountable for what happened. An event like this must not happen on an airplane that leaves our factory. We simply must do better for our customers and their passengers. We are implementing a comprehensive plan to strengthen quality and the confidence of our stakeholders. It will take significant, demonstrated action and transparency at every turn — and that is where we are squarely focused.” Is the travelling public confident in Boeing’s public apologies and statements?
Kayak, a popular booking tool implemented a new filter in 2019 following the Max 8 accidents, where users were able to filter by aircraft type. Kayak reported a 1500% surge in filter usage in the week immediately following the door panel blowout on January 5th 2024. (Forbes 2024) Air carriers are now left to manage the outcome of the Boeing’s failures to eliminating change and cancellation fees ensuring the public has flexibility to change flights due to these incidents.
The grounding of the Max 9’s has immensely affected the two air carriers Alaska Airlines with 65 aircrafts post incident and United having to cancel thousands of flights in order to get the aircrafts inspected per the FAA directive. Forbes magazine reported that these groundings have taken a large financial toll on the airlines themselves with Alaska incurring roughly $150 million in lost revenue during the three-week grounding. (Forbes 2024). Forbes also reported in a recent article that a survey of 170,000 people, the trust in the aircraft manufacturer has dropped 12% in the US after the latest January incident. (Forbes 2024). This shows significant evidence that the public has yet to regain the trust in the aircraft manufacturer or their Max aircrafts.
Financial Effects
The grounding of the first Boeing 737 Max 8 aircraft fleet had significant financial effect on the aviation industry. A review of the 2019 annual report showed that throughout the grounding of the 737 Max fleet Boeings revenue decreased by $24,568 million in 2019 compared with 2018 primarily due to lower revenues with Business — Commercial Aviation (BCA), and partially offset by higher revenues at BGS. (Boeing, 2019) The lower BCA revenues were mostly driven by lower 737 MAX deliveries associated to the 737 MAX grounding.
A review of Boeing’s 2022 annual report showed that the BCA revenues increased by $3,331 million. This was primarily driven by higher 737 MAX deliveries due to recertification and return to service and the absence of $498 million of 737 MAX customer considerations which prior to the most recent January incident, Wall Street was predicting a good fiscal year for Boeing for 2024.
2024 Outlook
Boeing is projected to deliver around 700 aircrafts in 2024 and more on order which is an increase compared to the 530 in 2023. Wall Street Journal stated that they were projected cash flow roughly $6 billion this year, double from what last year’s $3 billion. (Wall Street, 2024). After the latest Max 9 door plug incident, multiple news agencies reported Boeing shares were down around 8% as investors received the news the following Monday morning. (CNBC 2024) Stocks continued to decline to nearly 20% since the January incident closing at the price of 200.52 on January 16th, 2024. The stock remains at a loss as of February 26th, 2024, with the closing price of 200.54. (Yahoo Finance 2024)
Boeing’s competitor Airbus on the other hand, with a better safety record and reputation over the last 5 years, is projecting to deliver 800 aircrafts in 2024. In 2023 Airbus was successful in delivering 735 aircrafts, this is an increase of 11% compared to 2022’s deliveries of 661 aircrafts. As seen in Airbus’s 2022 annual report, Airbus points out that the “A320neo family retains an approximate 60% market share of the backlog against Boeing’s 737 Max family” (Airbus 2022). Boeings projected aircraft sales in 2024 increasing compared to 2023, it was meant to be successful fiscal year. With the market share advantage leaning with Airbus, Boeing is now in a negative space as they re-focus their 2024 projections to the safety of their manufacturing following the January event.
It is yet to be determined what financial impact this most recent door plug issue has had on the fiscal projections and aircraft deliveries until Boeing releases their Q1 results. The Q1 report is expected to be released in March 2024.
Boeing’s Ethical Responsibility to Safety & Transparency
As one of the largest aircraft manufacturers in the world second to Airbus, Boeing employs over 170,000 people across their network. The commercial aircraft sector alone employees over 47,000 employees. (Boeing, 2023) Being the second-largest aircraft manufacturer in the world, Boeing has an ethical responsibility to regain the trust of the public and aviation community by making changes to their commitment to safety.
In the response to the 737 Max accidents/ incidents both on the 8 series and 9 series Boeing has dedicated a large portion of their safety focus on the fleet. Following the Max 8 accidents in 2019 Boeing introduced additional safety criteria around knowledge of the Maneuvering Characteristics Augmentation System (MCAS) which was the cause of both 2018–2019 crashes, Pilot training reviewed and validated by the FAA and returning the fleet to service.
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As of 2022 Boeing had not yet implemented a Safety Management system into their core policies. This comes to a shock being such a large manufacturer however was never mandatory. The work began voluntarily in 2019 and in 2023 Boeing accepted the FAA proposal to make SMS mandatory for all aerospace design and manufacturing organizations. This movement is a big step towards a safer future for aerospace and manufacturing. A well-integrated SMS program provides a systematic approach to managing safety risks and therefore reduces risks. Boeing reported on their website that in May 2022, they had an external survey sent to their employees, with 71% of employees who responded, there was a significant number of responses to improved culture around integrity however 24.1% had concerns about retaliation for reporting concerns. (Boeing 2023) A review of the company’s SMS policy shows that “all employees understand the requirement to report a safety hazard, incident or concern and can do so without fear of retaliation” (Boeing 2023)
Following the January 737 Max 9 events, Boeing took immediate actions to the quality of their Max 9 aircrafts. Boeing released on February 6, 2024, one month following the Alaska airline incident that they will be introducing the following actions:
Final Thoughts
With the implementation of a Safety Management System (SMS), internal and external scrutiny, additional quality assurance in the manufacturing checks it is quite possible Boeing will survive this turbulent time. Aviation has been under a lot of scrutiny during the last decade and still remains the safest mode of transportation available. The International Aviation Transportation Association (IATA) claimed in their 2022 airline safety performance report that the fatality risk declined to 0.11 from 0.23 in 2021 and 0.13 for the five years, 2018–2022. (IATA 2023) This means that on average one person would need to fly every single day for 25, 214 years to experience a 100% fatal accident. Most air carriers we know and fly with regularly not only get audited by their governing agencies, but they are also audited by IATA’s top of the line International Operational Safety audit (IOSA) and must report all incidents to IATA.
When reviewing Boeing’s outstanding orders & deliveries, it is evident that Boeing still has the confidence of the aviation community with other 6,189 aircrafts on order, 4,775 of those being 737 aircrafts. Boeing has recorded 27 aircraft deliveries in January 2024 and has 1,407 737 Max aircrafts still unfulfilled to be delivered between USA and Canada. (Boeing 2024) Canada’s top two airlines Air Canada and WestJet being two on the registered list awaiting aircraft deliveries. Time will tell if Boeing regains the trust of the travelling public after its fatal Max 8 history and the Max 9 recent Alaska airlines incident.
References
Airbus. (2023). Airbus annual Report 2022. https://www.airbus.com/en/investors/financial-results-annual-reports#annualreports
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Boeing. (2023a). 737 updates. Boeing 737 MAX Updates. https://www.boeing.com/737-max-updates/index.html
Boeing. (2023b). 2022 Annual report. The Boeing Company Official Website. https://www.boeing.com/company/annual-report/index.page
Boeing. (2023c). General information — Employment Data. General Information. https://www.boeing.com/company/general-info#employment-data
Boeing. (2023d). Our Safety Journey. https://www.boeing.com/resources/boeingdotcom/principles/safety/SMS_Policy.pdf
Boeing. (2024). Commercial Outlook. Orders & Deliveries . https://www.boeing.com/commercial#orders-deliveries
Daily Mail. (2024, January 17). Boeing loses $30B in market valuation after Alaska Airlines mid-air blowout — as new report warns FAA investigation will open “whole new can of worms.” Daily Mail Online. https://www.dailymail.co.uk/news/article-12973955/Boeing-stock-FAA-max-safety-investigation.html
FAA. (2024, January 17). Updates on grounding of Boeing 737–9 max aircraft. Updates on Grounding of Boeing 737–9 MAX Aircraft | Federal Aviation Administration. https://www.faa.gov/newsroom/updates-grounding-boeing-737-9-max-aircraft#:~:text=January%206%2C%202024,FAA%20Administrator%20Mike%20Whitaker%20said.
IATA. (2023). IATA releases 2022 Airline Safety Performance. https://www.iata.org/en/pressroom/2023-releases/2023-03-07-01/
Johnson, E. M. (2019). Boeing aims to strengthen engineering oversight after panel review. Reuters Business. https://boeing.mediaroom.com/2019-09-25-Boeing-Chairman-President-and-CEO-Dennis-Muilenburg-and-Boeing-Board-of-Directors-Reaffirm-Companys-Commitment-to-Safety
Kelleher, S. R. (2024, February 19). 94% of Boeing Max 9s are back in the air, says FAA. Forbes. https://www.forbes.com/sites/suzannerowankelleher/2024/02/06/boeing-max-9-return/?sh=60b0b5885161
Root, A. (2024, January 16). Boeing stock drops again as 737 MAX problems open ‘whole new … https://www.barrons.com/articles/boeing-stock-price-downgrade-4746e1b5
Wikimedia Foundation. (2024, February 19). Financial impact of the Boeing 737 max groundings. Financial impact of the Boeing 737 MAX groundings. https://en.wikipedia.org/wiki/Financial_impact_of_the_Boeing_737_MAX_groundings
Yahoo Finance. (2024, February 27). The Boeing Company (BA) Stock Historical Prices & Data. https://finance.yahoo.com/quote/BA/history/
