Analysts Predict the Return of Boeing 737 Max in Q2 2020

Published December 18th, 2019 - 07:14 GMT
Analysts Predict the Return of Boeing 737 Max in Q2 2020
737 MAX program continues to have a strong order backlog of more than 4,400 airplanes. (Shutterstock)
The troubled airplane is expected to resume commercial operations in the second quarter

Boeing has decided to suspend the production of its best-selling aircraft, the 737 MAX, from January as the US Federal Aviation Administration said that its review of the grounded planes would continue into next year.

The Chicago-based manufacturer, which cut troubled aircraft production by 20 percent in April to 42 a month after regulators ordered airlines to stop flying the planes, is confident of regaining the trust of regulators, airlines, and passengers when the 737 MAX returns to the skies next year.

Analysts and aviation sources said that the troubled airplane is expected to resume commercial operations in the second quarter, after clearance from the US Federal Aviation Administration (FAA) and the respective regulators of each country where the airline is registered.

"We are focused on earning the trust of our customers around the world and supporting them in every way possible to ensure complete confidence in the 737 MAX and a safe return to commercial flight," a Boeing spokesperson told Khaleej Times on Tuesday. 

The century-old manufacturer produced more than 400 of its beleaguered aircraft since the 737 MAX grounding, which is now in its 10th month. It said that halting production would help deliver the stored planes when the grounding is lifted.

About 400 MAX planes were involved in commercial operations when regulators grounded the planes in mid-March after two fatal crashes in a span of five months, causing 346 casualties.

"We have decided to prioritize the delivery of stored aircraft and temporarily suspend production on the 737 program beginning next month," Boeing said in a statement.

The US airplane manufacturer said that the FAA and global regulatory authorities determine the timeline for certification and return to service.

"We remain fully committed to supporting this process. It is our duty to ensure that every requirement is fulfilled, and every question from our regulators answered. We know that the process of approving the 737 Max's return to service, and of determining appropriate training requirements, must be extraordinarily thorough and robust, to ensure that our regulators, customers, and the flying public have confidence in the 737 Max updates," the statement said.

Flydubai spokesperson said that the airline is aware of the latest statement issued by Boeing regarding the grounded MAX aircraft.

"With the continued grounding of the MAX, we are taking every effort to minimize disruption for our passengers," a spokesperson said, adding that the certification of the MAX aircraft is a matter for the regulator.

Strong order book

Boeing spokesperson said that the 737 MAX program continues to have a strong order backlog of more than 4,400 airplanes. "We continue to see healthy, long-term market demand for the 737 MAX family. About 5,000 MAX airplanes have been ordered from 107 customers and we have delivered 387 MAXs to 48 customers through the end of March," the spokeperson said.

Saj Ahmad, chief analyst at London-based StrategicAero Research, said that the decision to suspend MAX production is to prevent any more inventory build-up and preserve cash. "As of now, Boeing is building MAXs with no revenue coming in since none can be delivered, so the suspension will prevent further capital expenditure," Ahmad told Khaleej Times on Tuesday.

For big MAX buyers like flydubai, this production cessation further adds to the uncertainty as to when exactly the 737 MAX will be re-certified and when it can re-enter service. It's increasingly likely that 737 MAX entry into service is going to slide well into the second quarter of 2020, meaning more than a year without the aircraft in its fleet, he said.

Vote of confidence

Boeing said that the 737 MAX 10 that rolled out of Boeing's Renton factory on November 22 has over 550 orders and commitments from over 20 customers around the world.  "The 737 MAX 8 received a vote of confidence at the 2019 Dubai Airshow from Air Astana announcing its intention to order 30 of the aircraft while Turkey's SunExpress signed an agreement for eight of the 737 MAX8s," a spokesperson said.

Earlier in the year, IAG announced its intent to purchase 200 of the MAX airplanes that would include a combination of 737 MAX8 and MAX 10 jets.

"We have been in constant contact with our customers to support them during this difficult time and our decades-long relationships are very important to us," the Boeing spokesperson said.

Ahmad of Strategic AeroResearch said that regulators and the wider industry is not rushing to clear 737 MAX for commercial operations. "Diligence, testing and thorough examination of all aspects of Boeing's production and certification and quality processes are under immense scrutiny - and when the 737 MAX does finally get back into service, it will be the most rigorously tested and safest machines to ever take to the skies," Ahmad said.

Moreover, airlines and operators will get due compensation for grounding their 737 MAX fleet, however, there is nothing finalized at the moment, aviation sources said. "We do not comment on our arrangements with particular customers, we will continue to work closely with them to reach a fair and reasonable outcome," a Boeing spokesperson said.

The spokesperson said that potential concessions and other considerations for customers could come in many forms, not necessarily cash payments (delivery timing, features, services, etc.), and will likely be spread over time. "Timing, amount and form of potential concessions and other considerations will be unique for each customer," the spokesperson said.

Ahmad said that flydubai and other 737 MAX customers and operators have been candid about how they have lost tens of millions of dollars in potential revenue.

"It's unclear what the precise cost to Boeing has been, given that we're fast approaching the one-year mark of the MAX being grounded," he said.

In a note to clients, JPMorgan analysts said that the US aircraft manufacturer has been incurring huge losses due to the 737 MAX crisis. "We estimate that Boeing is burning nearly $1 billion per month on the MAX, but this will not drop to zero during the halt," JPMorgan analysts said. 

Meanwhile, Boeing's shares fell more than one percent in early trading on Tuesday, while its top supplier, Spirit AeroSystems Holdings, slumped nearly three percent to $75.65. Boeing shares dropped 4.3 percent on Monday. It has fallen 24% since the March 10 crash of a Max flown by Ethiopian Airlines.

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