Sunday, July 7, 2019

Boeing’s 737 Max woes just cost it a $5.9 billion order

The Boeing 737 Max hasn’t been taking off, neither literally nor figuratively. The jets have been grounded worldwide since this spring after two fatal crashes—one last October in Indonesia, and another in Ethiopia in March—that killed 346 people and raised serious questions about the plane’s features.

Now, Boeing is facing cancellation of a lucrative contract to sell 20 Max 737s to a Saudi Arabian airline, signaling that the company’s troubles are far from over.

Boeing announced on Sunday that Flyadeal, a subsidiary of state-owned Saudi Arabian Airlines, canceled a provisional order for 20 of its Max 737 jets over concerns about Boeing’s ability to deliver the planes in timely fashion. “We understand that flyadeal will not finalize its commitment to the 737 MAX at this time given the airline’s schedule requirements,” a Boeing spokesperson said, according to Reuters.

The deal would have earned the company billions of dollars. The list price for the 20 Max 737s, each of which costs about $117 million, would normally run $5.9 billion, though Flyadeal would have gotten an undisclosed discount.

Boeing’s loss is Airbus’s gain. The budget Saudi airline is going instead with the Airbus 320. Flyadeal announced in a statement today that it will run an all-Airbus 320 fleet in the future and expects to add 30 such jets to its current collection by 2021, Reuters states.

Meanwhile, Boeing is trying to pick up the pieces after a disastrous year. Last week, the company announced that it would pay out $100 million to a fund for families of victims of the crashes, separate from any lawsuits over the matter. The fund would to support ”education, hardship and living expenses for impacted families, community programs, and economic development in impacted communities,” according to a statement by Boeing CEO Dennis Muilenberg. He apologized to the victims’ families, saying, “We at Boeing are sorry for the tragic loss of lives in both of these accidents and these lives lost will continue to weigh heavily on our hearts and on our minds for years to come.”

In June, ahead of the Paris Air Show, Muilenberg admitted for the first time that his company mishandled concerns over its 737 Max aircraft and that mistakes were made in how it communicated about the planes, especially after the accidents. He said that Boeing is focused on rebuilding trust after the crashes, which he called a “defining moment” that will result in a “better and stronger” organization. He noted, too, that he didn’t expect to see many orders for 737s at the air show but expected global aviation regulators to allow the plane, grounded since March, to fly again before the end of the year.

On June 18, things seemed to be looking up for Boeing. IAG, which owns British Airways, signed a letter of intent to purchase 200 Max 737 jets from Boeing. It wasn’t a firm deal but was widely seen by industry insiders as a vote of confidence and a sign that the company would soon recover from its recent woes. “We have every confidence in Boeing and expect that the aircraft will make a successful return to service in the coming months having received approval from the regulators,” wrote IAG CFO Enrique Dupuy de Lôme in the letter.

But it seems that this confidence isn’t shared by all, as evidenced by the Flyadeal cancellation. In April, Boeing had said it would slow production of 737s, scaling back from 52 to 42 jets per month. Judging from the recent news, the slowdown was merited.

(Ephrat Livni - Quartz)