Aftermath of Boeing 737 Max crisis


The American planemaker was well on their way to their claim that the 737 MAX would revolutionize the industry and would boost the company's fortune. However, when Max 8 crashed on March 10, 2019, all of that would end abruptly.

Boeing is the world’s leading aerospace company. If any company was built to withstand a crisis like this, it could have been Boeing. The company now has the opportunity to step up and maintain that perception. Boeing must respond with a solution that gives the FAA and the public the belief that they are taking this crisis seriously and did not compromise their moral position for the sake of company profits. 

Below are some challenges that may continue to haunt Boeing after the 737 Max Crisis.

Global Grounding

Boeing 737 Max jets got grounded and will remain grounded for an undermined amount of time which is likely resulted in the company to lose approximately $1billion. This is after two deadly crashes that claimed 346 lives. The fatal incidents triggered investigations across the globe engulfing the American-based company into one of the largest crises in its aerospace history. During the first quarter earnings report, Boeing publicized that it had halted its financial outlook for 2019 to allow it to deal with the crisis that had befallen them.

Boeing's CEO and chairman, Dennis Muilenburg, emphasized that the company's core goal was to get 737 MAX back in the airspace. It was a sharp reversal announcement from the aerospace company from its previous earnings report, where they had planned to deliver approximately 905 jetliners throughout the year. The plans have shifted from boosting sales and revenue to damage control, minimizing financial loses and recovery of safety standards.

The crashes caused aircraft regulators and the Federal Aviation Administration to ground 737 MAX. The company's cordial relation with Federal Aviation Administration has however raised some queries, with FAA being scrutinized on its role in the certification of Boeing.

Reduced Production of 737 MAX Aircraft

Boeing announced that it had cut the monthly production of 737 MAX close to 20% as it prioritizes on getting the 737 MAX aircraft back in the air. Boeing's deliveries became frozen after the Ethiopian Airline crash claimed the lives of 157 people. The company reduced MAX jet production from 52 to 42 airliners per month. However, the airliner said it would not lay off workers due to the new production rate. But it will work on strategies that will help them curtail financial impact.

In the meantime, Boeing has established a committee to evaluate how the organization develops, designs, and maintains aircrafts. It's also working on upgrading the 737 MAX software to prevent future incidents. It was reported that the company's shares had fallen by 1%.

Financial Crisis

Generous cash payouts to stockholders and high sales of the Boeing commercial jets have made the company a darling to many airlines. But currently, the aerospace biggest company is preparing for the worst financial earnings in nearly two years. The halted production of the 737 MAX and worldwide grounding is likely to jeopardize jet airliner’s future cash generation.

Bloomberg predicts a fall in the adjusted earnings by 11%. The American-based aircraft organization might tell shareholders about its inability to predict the financial performance due to thousands of stalled orders of 737 Max aircraft.

The JPMorgan analyst, Seth Seifman, said that 2019 would be the worst year for Boeing in terms of financial performance. The grounded aircraft brings $1.5B to $1.8B in lost cash flow. Cash flow is the primary metric used by Wall Street in judging the fiscal stability and forecasted capability as a jet airliner company. Therefore, current cash flow challenges the upcoming year will likely be felt by existing shareholders for several years. 

Managerial Crisis

Before the annual investors' meeting that was held on April 29, the aerospace giant CEO was caught off guard after he was asked if he is considering resignation over the Boeing 737 MAX crisis. Dennis Muilenburg took a moment before asserting that he intends to continue to serve with quality and integrity. 

However, the Seattle-area airliner analyst, Scott Hamilton said the question was a matter of YES or NO. Muilenburg is undoubtedly a performer. He boasts of Person of the Year award by Aviation Week. They termed him as The Transformer due to his stellar performance in Boeing and aviation industry. Under his leadership, Boeing has boosted investors’ value.

However, Dennis oversaw the final development of 737 MAX, and he is criticized for the way he handled the crashes. He failed to concede that the MCAS original design had significant limitations and only suggested improving the software system.  Leaders in this situation typically have 2 paths to take…being empathetic to loss that compromise financial obligations and stakeholder equity by getting ahead of potential safety concerns or come across as being only profit focused, downplaying the impact to the public and minimizing liability and negligence.  The decision made by the leader on the path is not an easy one, but it will likely define the leader going forward, determine their ongoing involvement and whether the public perception is going to hold them accountable for the crisis. 

Software fixes are part of any company’s daily regiment and when it comes to the software fix that Boeing is faced with regarding the 737 MAX, billions of dollars and company profits are in play, as well as, the safe travel of passengers going forward. Although Boeing has a tremendous amount of work to do to put a software solution in place and re-establish safety perceptions by travelers, the analysts remain hopeful that American plane maker will survive the aftermath and continue to be a leader in the aerospace industry.

Back to Learning Center