TheEconomistDecember 21st 2019 891C
ommercial aviation makes up the
bulk of Boeing’s revenues. Military-
minded top brass of its large defence arm
would be excused for seeing that business
as a case study in tactical and strategic fail-
ure. After two crashes of its 737 max airlin-
ers, which killed 346 people and were
linked to a defective flight-software sys-
tem, the bestselling model was grounded
around the world in March. Yet Boeing con-
tinued to make the plane even though it
could no longer deliver new ones to cus-
tomers. Now it is in retreat. On December
16th, with around 800 new and used flight-
less jets lying idle, the firm decided to halt
production in January until the max is per-
mitted back in the air. The upheaval may at
last force a rethink at Boeing—and at Air-
bus, its European rival.
For months Boeing seemed to treat the
max’s travails as a brief spell of turbulence
that passengers forget as soon as the drinks
trolley arrives. It continued to pay a hand-
some dividend even as it converted em-
ployees’ car parks into storage space for un-delivered planes. It repeatedly reassured
airlines that the aircraft would be back in
the air in no time—and was proved wrong
again and again. Dennis Muilenburg, criti-
cised for his handling of the crisis and re-
lieved of his role as Boeing’s chairman in
October, remains chief executive.
Mr Muilenburg’s decision to keep the
max supply chain up and running, report-
edly hoping to ramp up production from 42
to 57 planes a month by 2021, will torch
$4.4bn of cash this quarter, according to
Jefferies, a bank. Calling a halt should save
half of that. Boeing promises to provide fi-
nancial details regarding the suspension in
January, when it next reports quarterly
earnings. Those results are sure to be grisly.
Boeing has around 5,000 orders for the
troubled aeroplane, which Goldman Sachs,
an investment bank, reckons would ac-
count for a third of the company’s revenues
over the next five years. But it will not be
fully paid until these can be delivered.
In the first nine months of the year rev-
enue fell by 19% relative to 2018 and freecashflow turned negative (see chart on
next page). Gross debts ballooned to $25bn
from $14bn at the start of the year. After rak-
ing in profits of over $5bn from January to
September 2018, its airlines division lost
nearly $4bn in the same period in 2019.
Boeing as a whole eked out a small profit
courtesy of its defence and services arms.
In July it set aside $5.6bn to cover compen-
sation to suppliers and airlines. That figure
is now likely to double, says Jefferies. Since
March Boeing’s market capitalisation has
shed a quarter, equivalent to $65bn.
The date for the max’s return to service
remains up in the air. The crisis revealed a
cosy relationship between Boeing and the
Federal Aviation Administration (faa), the
regulator responsible for certifying its
planes in America. That has turned frosty.
Boeing may have thought that it could
speed the return of the max by publicly
putting forward a timeline. In the summer
the firm talked of recertification in Sep-
tember and a return to service soon after.
The faa is instead taking its time. In a
letter to congressmen it complained about
the “perception that some of Boeing’s pub-
lic statements have been designed to force
the faa into taking quicker action”. The
likelihood now is that the plane will be re-
certified in February. Regulators elsewhere
are in no hurry, either. Recommissioning
and delivering planes will take more time,
as will retraining pilots. On December 12th
American Airlines said that it would putAerospaceBoeing going wrong
The American planemaker’s bet that the 737 maxwould fly again soon has failed.
The fallout may lead it—and its rival Airbus—to build a new generation of aircraftBusiness
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