Podcast: Boeing’s Latest 737 MAX Headache
Power unit glitch forces new MAX groundings and adds to quality control woes. But is it a storm in a teacup? Listen in as Aviation Week’s editors analyze Boeing’s latest challenge.
Here's a rush transcript of the Check 6 podcast for April 15, 2021.
Joe Anselmo: Welcome to the Check 6 podcast. I'm Joe Anselmo, editorial director for the Aviation Week Network.
Boeing seems to be a company that just can't shake off bad news. Late last year, the 737 MAX was cleared by U.S. regulators to return to service, just as the company had to halt deliveries of its 787 wide bodies due to quality control issues. 787 deliveries resumed in late March, but now 16 MAX customers have been forced to temporarily ground their airplanes due to production issues with power units.
Certification of the 777X wide body has been delayed by a last-minute problem with the design of the aircraft's flight control system. And on the military front, Boeing continues to write off losses on the Tanker program, and was just ousted from a three-way competition to build the next generation of ground-based US missile interceptors.
It's safe to say Boeing's leadership's team and its board are on the hot seat as the company prepares for its annual meeting on April 20th. Joining me to make sense of all this are four Aviation Week editors: Sean Broderick, Michael Bruno, Guy Norris and Jens Flottau. Sean, let's start off with you. This latest MAX problem has nothing to do with the two crashes and the 19-month grounding that followed. So what's going on? How many airplanes are effected? And how long is this going to take to get resolved?
Sean Broderick: First of all, that's absolutely right. This latest production/design issue, and we'll talk a little bit more about that in a minute, predates both accidents. It dates to early 2019, and it has to do with grounding and wire bonding in a standby power control unit. So backup emergency power, let's call it, when the airplane is either on the ground and has no power or more critically when it's in flight. A change having to do with fasteners used --details are a little still not publicly known at this time -- but suffice it to say that Boeing made a couple of changes in early 2019 that resulted in airplanes rolling out either without these units properly grounded or with the potential of there being a grounding issue very early in service.
We're talking about a population of more than 450, including about 370 that Boeing still has in storage. Of course, Boeing continued to produce the MAX, during that grounding, but didn't deliver them any from mid-March 2019 to early December 2020. So there's your backlog. About 90 of them are in service, those are the ones with 16 operators that are currently on the ground based on a Boeing recommendation, no regulatory mandate.
So far the regulators, the FAA, is still trying to understand the extent of this issue, trying to understand the ramifications of the issue. At least I hope this is going to be a peculiar situation, not the new normal, Boeing has said, "Put the airplanes on the ground until we figure it out." That was last Thursday. And as of now, Boeing is, I know they're working on some service instructions, including an inspection, a potential temporary repair, and of course a permanent repair.
But as of this morning, none of that was approved by regulators. And so operators remain in limbo and there are about, like I said, 90 airplanes on the ground, most of them with Southwest [which] has 30, United has I think 17 and American has 16 something like that. Most of them are with the U.S. majors, and we don’t know -- it doesn't look like it's a major problem in terms of keeping airplanes on the ground for a long time, but when you look at what's happened on this program, and it definitely begs some questions. Any time you have 450 airplanes that probably would have all been grounded, had they been released into service, I guess, it's not an insignificant issue. And it's really a head-scratcher considering how much scrutiny that program went under during the grounding. Why this wasn't found, it'll be interesting to hear what Boeing has to say if indeed they revisit that and talk about how this passed the quality control rechecks.
Joe Anselmo: Michael Bruno, these quality control issues at Boeing, are these just a bunch of random issues at a very large company, or is this some larger sign of systemic issues with Boeing's culture?
Michael Bruno: Yeah, that's the $64 billion question. And there are certainly a lot of people out there, not just within the aerospace community, but within the Wall Street community, within the regulatory community, the legislative communities, who are thinking that there is a bigger problem. There's a culture that has set in perhaps some allege, of cutting corners. So this can come for many reasons, it could have been complacency with being at the top or on the top of being an aircraft OEM for so long. It could have come with complacency of just having produced so many great aircraft time and time again, where they were continuing to look to take costs out as any company should throughout a process, technology gets better, the learning curve on building an aircraft should improve over the decades, so they should be able to take some costs out. And perhaps they just got too aggressive in applying some of their cost saving measures.
What we do know, that's debatable. And it's going to be debatable probably for another several years, perhaps as long as 5-10 years before Boeing can really prove that it's making a couple of products back to back new products that have relatively few quality escapes in them. What we do know now as you mentioned, Joe, at the top of the broadcast is that, this is one hit after another for Boeing. So obviously this latest electrical snafu comes on top of the bigger issue with the 737 MAX crisis, which wasn't just a crisis for the 346 people killed in the initial accidents, but also a crisis for the supply chain, for the manufacturing side, the MRO parts of this aerospace industry, to crisis for everybody involved there, to crisis for the regulators.
It's got everybody in Washington rethinking, “How do we make sure that we stay on top of not just Boeing, but any OEM that comes at us”. And we rely on them to some degree to have an ability to tell us, "Okay, these things are okay, you don't have to look at them so closely, you can trust us on it." Well, people are rethinking that measure of it.
With Boeing, it goes across their whole spectrum. In defense, the Boeing defense division is haunted by the KC-46 situation that's going on right now. The company has taken charges more than $5 billion on a pre-tax level. One way to look at it is, that is actua`ly basically the same as the initial contract award on the KC-46. And they've had to take that amount of charges to fix what was supposed to be a mild derivative of an already commercially proven platform.
Then of course in space, there was the very public failure in late 2019 of the CST-100 Starliner spacecraft that's supposed to send a crew to the International Space Station. For everybody who remembers the leadership change at Boeing, Dennis Mullenberg getting fired essentially, that was the straw that broke the camel's back. When that happened, there was a belief that, we've just got too many problems under the singular leadership that we have, change needs to happen. People continue to think about more change needs to happen. We've got the annual shareholder meeting coming up and there are already calls by some within the investment community to make more changes at the board level.
Joe Anselmo: What are you expecting at that meeting? It's April 20th, next Tuesday. Are you expecting fireworks from shareholders at that meeting?
Michael Bruno: I will be honest, I am not expecting fireworks in the end. I think there are always fireworks in what gets proposed. If you look about at any major financial company leading on a stock index, anywhere in the world, anytime you go to the annual shareholder meeting, there's always a couple of activist type proposals that are there, somebody wants the company to get out of some business, or they want an overhaul in leadership, they want them to diverse their money's in some other industry. That always exists and they very rarely get passed, and even less rarely then get passed do they get implemented.
Because remember, just because shareholders passed something within the laws of corporate governance, that doesn't necessarily mean that the companies have to do it. Long story short, I don't really think there's going to be a large shareholder revolt that leads to in the end, a major change in Boeing leadership. But what this does is, it continues to set the tone of an expectation of change. If something doesn't get passed this year, maybe next year, because at least the signal had been sent that, some degree of shareholders are just not satisfied and want to see more change.
Joe Anselmo: Okay. Thanks, Michael. Guy Norris, last weekend I was watching the breaking news of this new MAX electrical problem in the mainstream media. And I cringed several times, because so many of these reports mentioned the crashes of the MAX, and MCAS, and made no distinction that these were separate issues. Do you think this electrical problem they have is being overblown? And is this something they're going to get through fairly quickly?
Guy Norris: Yeah, good point. Joe, obviously this is certainly a setback for Boeing, obviously there's no doubt about that, and the MAX. But it's clearly not in the same category as MCAS of course, as we've alluded to throughout this podcast. I think it would definitely do need to step back and view this from a broader perspective.
Just a matter of days ago, for example, Boeing was seeing its 737 family, the MAX, returning to operational levels of almost 400 flights a day and seeing fleet performance that was sort of nearing and actually exceeding performance or expectations. Remember these aircraft have all been awoken from a deep sleep and not all of them were expected to get out of bed on the right side as it were. There were definitely worries that they were going to see all sorts of issues, which they weren't actually seeing.
Boeing was kind of pleased with what it was seeing, and on top of that, as we've sort of also mentioned the net orders were starting to come back in. So the program, they were starting be belief that they were seeing, not just a recovery, but actually growing momentum again on the program, which you haven't seen for more than two years. This is a setback, but it's also a sign of the hair trigger status of the industry. Boeing itself, the airlines, the regulators, they're all on their hair trigger over the Max. And it's fair to say that, pre MCAS, none of this probably outside the operators and OEMs would have known this was even happening at this kind of level. But after MCAS, obviously everything's changed including Boeing's response.
They're trying to get out ahead of it and recommending actions. Everyone is being ultra cautious. There's thousands of eyes on every word of this service bulletin that's being prepared, that Sean was mentioning. Not just a few, as a few years ago, and the fix itself, that's an indication of really relative simplicity of what we're dealing with here. We're probably likely talking about the addition of a few bonding strips to ensure there's good grounding path, a few screws and the nuts to keep them in place. It's no riddle or mystery about what's involved to fix it, and how. So, yes, it was an oversight and something that Boeing itself deserves the scrutiny, of course, but in terms of the long game in the next decade of the MAX, I can put money on this, that a few months from now, nobody will even remember this whole power unit discussion. I can bet you that.
Joe Anselmo: Sean.
Sean Broderick: Yeah. Adding to Guy’s call for perspective, it is important when evaluating the entire situation with Boeing to look at things as they happen in a linear fashion and judge Boeing based on, in terms of whether it's evolving, how it handles these situations. Even though we just found out in Boeing said, it just really discovered this newest issue in the past couple of weeks, it dates to early 2019.
What you have to look at is, how is Boeing handling this situation, same with the 787 issues. Those issues were discovered, depending on which one we're talking about, but you thought about the skin-smooth, that was in August of 2019. A couple of months later, they stopped delivering all their 787, and they have meticulously gone through engineering and inspections every airplane that they've had, over 80 that are in backlog. Boeing would say, "We understand that we may have moved too fast or, we weren't prudent enough in the past..." And particularly with the MAX, some of the design issues and the things that have been covered at infinitum buyers and others.
But there say, look, we took whatever it was, three months, five months of no deliveries of 787s. Now we're telling you as much as we know about the 737 issue, and we're being very meticulous in developing the service instructions that the airlines are going to have, and we told the operators to ground the airplanes just to be safe. So when we're judging or when we're evaluating Boeing's progress, it's important to put the things in the proper order as they learn them, and evaluate how they are handling them versus simply just tallying up this many issues and this many airplanes on the ground, with this certain program.
Joe Anselmo Well, this discussion would not be complete without hearing from the leader of our commercial aviation team. Let's jump across the Atlantic to Jens Flottau in Germany. Jens, how are you viewing all this?
Jens Flottau: Talk about pressure and rights! Well, this is an observation, as you say, from across the Atlantic and also from someone who's not as close to the Boeing details as the three gentlemen who've just spoken. So bear with me there, but I do have some observations of course. Some of the same questions that have already been asked, why wasn't this found during the grounding? If you find that your aircraft is okay, why are still not allowed to fly until there is a fix? Then what is that fix? But the big question that I'm asking myself and that a lot of other people are asking themselves, I guess is, about the MAX and how confidence can be reestablished for the aircraft after the grounding.
And the answer was, too soon to tell, because we have not seen it fly enough. Guy mentioned the performance was good in the initial weeks. We have not seen enough passengers flying it, or more importantly avoiding it. We have a pandemic and no one wants to order any aircraft anyway, so it's really hard to judge the level of orders. Then again, a lot of lessors have canceled MAX orders last year, but I don't think they did that because they lost confidence in the safety of the MAX, but they did because they could. It was again too soon to tell whether... That was their view of the market in general that, that market would be smaller or that the MAX market share will be smaller within that smaller market.
If I had to guess, then there was an element of not being exposed to an asset whose long-term perspective isn't clear. Then on the other hand, we had the big Southwest order, which I think is also no sign of returning conference, but simply an indication Southwest wants to replace its 737=700s, and it's now moving away from larger aircraft. Remember they placed some -8 orders with -7, which I found really interesting. Will this issue have another impact? It's certainly not helpful if you ask me. But as Guy said, past experience shows that these things tend to be forgotten soon.
And then again, looking at it from the outside, these disruptions at Boeing do happen too often right now, and I'm not talking about the grounding, but the other things, the quality control issues, the quality issues that we've seen across other programs. If I compare that to Airbus, I do not see that, at least not at the same frequency over here, these days. One final point that's been raised before, but I just wanted to mention, because I think it's important, whether there is a connection between the accidents and the grounding and the way Boeing has reacted now, by putting the fleet on the ground so far fast. And to me, it really just seems that they do not want to take any chances at all on this aircraft, and be absolutely safe.
Joe Anselmo: Sean, now let's give you the final word. Do you agree with Jens, Boeing's being hypersensitive here?
Sean Broderick: Without knowing more about the ramifications of the technical fault they were talking about here, it's hard to say that they're being overly sensitive. It may be that, you don't want airplanes flying around without the ability to have standby power. And so if it's that big a threat, then I think they have no choice, but to put the airplane on the ground.
The peculiar way that this has been done, is it was done without deliberation with the regulator, with the FAA really. They just said, "Look, here's what we're doing." And the FAA is like, "Okay, well, explain to us what the problem is. And then explain to us how we're going to fix it." And Boeing said "Fine." And the operators, partially because of COVID, I guess, they're pretty much okay with it. Some are canceling some flights and Southwest said, "Look, it's really not that big a deal because we have airplanes on the ground." So it's sort of strange.
One last note about confidence, we're going to report today, plugging our data people that, Boeing booked 185 Max orders last month, that's not news. But about a third of them were for airplanes that were already in their stored inventory. Now you can say that they may be giving those airplanes away and that's fine. But if you're airlines like United and Alaska Airlines, that placed orders for those airplanes, you're not going to take them if you don't have confidence in the company and in that airplane program. And they did, and so that to me says a lot about where operators see the MAX, or at least where they saw it before this latest snafu put airplanes on the ground. So I guess we'll see what happens in the coming weeks if that changes at all.
Joe Anselmo: Well, on that note, we will wrap it up because we're just about out of time. Sean, Guy Norris, Michael Bruno, Jens Flottau, thanks so much for taking the time to share your insights with our listeners. That is a wrap for this week's Check 6 podcast, which is now available for download on iTunes, Stitcher, Google Play, and Spotify.
Special thanks to our producer in Washington, D.C., Donna Thomas. Join us again next week for another Check 6, when Aviation Week’s Jen DiMascio and Irene Klotz will be joined by a special guest to talk about NASA's imminent attempt to fly a helicopter on Mars, which also happens to be the cover story in the April 19th edition of Aviation Week & Space Technology magazine. Thanks for your time and stay safe.