Note: At the date of publishing, on Wednesday 8 January 2020 a Boeing 737-800 aircraft flown by Ukraine International Airlines crashed shortly after takeoff from Tehran International Airport in Iran. All 176 passengers were killed, including 82 from Iran, 63 from Canada, 11 from Ukraine, 10 from Sweden, 4 from Afghanistan, 3 from Germany and 3 from the UK. This was the third fatal plane crash in 15 months involving a Boeing aircraft. At the time of writing this, the cause of the crash was still unknown.
Last year, I wrote an article about the two fatal Boeing crashes (see here):
AVIATION: IMPACT OF BOEING CRASH
Nearly a year later, since the last Boeing 737 MAX 8 plane crash in Ethiopia in March 2019, the story continues. The aircraft model suffered two fatal crashes killing 346 people. At the time of the crash, it was difficult to estimate the full blow to Boeing, to the aviation industry, and to the US economy, but it was certain it would be a massive blow. We now know more.
Boeing's shares are down by more than 20% since March 2019, and economists estimate that the impact of the crisis could cost the US economy at least half a percentage point in Q1 2020. So far, the crisis has cost Boeing over USD 9bn in customer compensations and other costs, and the financial damages are growing.
In December 2019, Boeing's CEO, Dennis A. Muilenburg, was fired following two congressional hearings and company board meetings, causing further damages to the company's reputation. Furthermore, the US Department of Justice has launched a criminal investigation.
A total of 387 aircraft at 43 airlines worldwide has been grounded. As of January 2020, the planes are still grounded. This is by far the biggest crisis in Boeing's 103-year history. Experts estimate that the planes will not return until March 2020 the earliest, but some civil aviation authorities around the world argue it could be much later.
The impact of the prolonged grounding of the MAX 737 planes is rippling through the US economy, damaging the country's trade balance and causing extensive disruption to the international aviation industry, not to mention causing serious worries for the tens of thousands of workers. In January 2020, Boeing announced it would reassign 3,000 workers in Renton, Seattle, the home of the MAX 737 manufacturing, to other jobs across the country, but that still leaves thousands of workers unsure about their futures.
Whilst the planes have been grounded, Boeing has continued producing the 737 MAX jets at a rate of 42 a month (they have over 5,000 orders to be delivered). This has led to hundreds of planes waiting to be delivered and the company is running out of storage. In December 2019, Boeing was forced to halt all production at the Renton plant. This shutdown will hit Boeing's global suppliers, including CFM International (engine supplier), Senior (airframe supplier), QinetiQ (fire detector system supplier), Melrose Industries (windows supplier), and Ultra Electronics (wing ice protecting system supplier).
The USD 188bn company is one of the most important businesses in the US and the company is also politically significant. Boeing has donated millions of dollars to politicians over the years, USD 1mn of which went towards President Trump's inauguration. The company is America's largest manufacturing exporter. The Boeing crisis is hitting US exports, investments and inventories and concerns about a manufacturing and economic recession are escalating.
In October 2019, commercial aircraft shipments ("non-defence aircraft") were down by 40% compared to 2018. This shows the effect of the Boeing crisis on the overall aviation industry in the USA, which accounts for more than half of the global aviation industry.
The Federal Aviation Authority (FAA) in the US said that Boeing was "not realistic" in thinking the MAX 737 planes would be back in operation during the summer of 2019. Others have argued that Boeing is being fairly treated and that the pilots were at fault, not the aircraft design. Whilst the fate of Boeing and MAX 737 is unknown, one thing is certain, we still need to keep an eye on developments around Boeing, as this crisis should not be underestimated.
Despite the checks and balances in place, unforeseen tragedies can occur. Ensure you get the latest updates on insurance regulations when these and other events occur with our regulatory alerts.
The aviation journalist, Christine Negroni, commented on Boeing in a recent article: "Boeing knows that the 737 Max cannot survive another event with this MCAS system. So nobody wants the fix to work more than Boeing. We can rest assured that its desire is there. Is it capable of understanding all the potential faults, all the potential pathways, and all of the required remedies and instituting them is the next question. I think it is probably 60/40 that Boeing commercial aircraft will recover from this. But I definitely think that they've been shaken up enough to know they have to change their ways".
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