March 12, 2019 / 8:49 PM / 8 months ago

Breakingviews - Boeing needs to think faster than its watchdog

The first Boeing 737 MAX 7 is unveiled in Renton, Washington, U.S. February 5, 2018. REUTERS/Jason Redmond

NEW YORK (Reuters Breakingviews) - Boeing may need to ground its own aircraft. Europeans joined the Chinese and others in suspending flights of the 737 Max 8 after two crashes in recent months, and two U.S. senators called on the Federal Aviation Administration to follow suit. Boeing’s stock lost a further 6 percent, lopping off $14 billion or so of market value, on Tuesday. Rather than waiting for its regulator, the company could get ahead of the crisis.

Such a step would be unconventional for an industry steeped in detailed rules and procedures. Boeing’s close relationship with the FAA may be part of the problem, though. The company persuaded the agency that its 737 Max line, the latest iteration of its best-selling workhorse, was similar enough to predecessors that airlines wouldn’t have to retrain pilots or inform them about changes to the flight control system, according to the New York Times.

Investigators examining the crash of a Lion Air jet outside Jakarta in October have focused on the possibility that an automated flight system may have brought it down. The superficially similar-looking circumstances when an almost new Ethiopian Airlines 737 Max 8 also crashed minutes after takeoff on Sunday prompted Chinese authorities to take the lead grounding the aircraft.

The FAA says it’s too soon to tell if the accidents had a similar cause, but that Boeing would be upgrading the 737 Max 8’s software and updating training requirements and flight crew manuals.

It’s understandable Boeing isn’t rushing to disrupt the 737 program, which accounts for 55 percent of its commercial aircraft revenue and probably more of its profit. The company also can’t technically ground an airplane. But it could recommend that action – and reassure airlines it’s working to discover the cause of the accidents and offer to compensate them.

Morningstar analysts reckon the FAA’s three-month grounding of the 787 in 2013 cost Boeing $500 million, and estimate a similar suspension of the 737 could cost three times as much.

Yet that’s very little compared with the $27 billion wiped off Boeing’s market value in two days. There could be a deeper problem, of course. But assuming any issue that’s found is simple to address, with over 4,600 737 Max orders in hand the company can quickly get back in its stride. A reputational hit, by contrast, could cause lasting damage. Boeing needs to move faster than its watchdog.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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