Boeing Max 9 accident sends its reputation into a tailspin

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

So much for Boeing’s comeback year. Five days into the new year Dave Calhoun, head of the US aerospace group, finds himself returning to crisis management.

On Friday, an unused emergency exit door — known as a door plug — flew off a Boeing 737 Max 9 plane operated by Alaska Airlines in mid-flight. US regulators immediately ordered 171 of the 217 Max 9 fleet grounded. Boeing shares dropped 7 per cent on Monday.

Under Calhoun, Boeing has tried to return a stalled 737 Max programme following a pair of fatal crashes five years ago. The Max resumed flight in late 2020 but the crisis blackened the company’s reputation and cost it tens of billions of dollars in damages, government fines and lost orders. Rival Airbus has since extended its lead in the lucrative market for single-aisle aircraft.

Boeing’s share price remains down 50 per cent from its pre-crisis peak. Saddled with about $47bn in long term debt, it has not made a profit since 2018.

This terrifying incident could cause much less damage to Boeing. Experts believe the blowout was the result of a manufacturing not a design error. A hopeful Boeing will point to this accident as a one-off, rather than a fleet-wide issue. 

The 737 Max is Boeing’s top-selling product. The family of jetliners accounts for about three-quarters of its commercial orders. Analysts at Melius reckon the fleet could bring in nearly $27bn in sales in 2024, about 28 per cent of forecast Boeing group sales.

Within this, the Max 9 — the only variant that allows for a plugged door — accounts for a small portion of 737 revenue. Of the 4,526 outstanding orders for 737 planes, only 103 — or 2 per cent — are for the Max 9.

Boeing will still have to compensate airlines for the grounding of the Max 9. United Airlines and Alaska operate the most, with about 144 planes between them. Using FAA guidelines of four to eight hours of inspection per jet and assuming all can be completed within a week, the compensation would cost Boeing about $18mn, according to Jefferies. This even the lossmaking Boeing should manage. It had expected to earn $3bn-$5bn in free cash flow in 2023.

Longer term, the incident must renew scrutiny over Boeing’s safety and quality control records. Deliveries of another Boeing plane, the twin-aisle 787 Dreamliner, stalled after production flaws were found. 

Then there is China, a large buyer of 737 Max aircraft. While Beijing has allowed Max aircraft delivered before the recent grounding to fly again inside China, new deliveries (and the associated cash flows) have remained on hold. Boeing down time could last a while longer yet.