Boeing’s 737 Max will return to devastated aviation industry
The first half of the year was not kind to the 737 Max. Boeing froze production of its beleaguered plane from January through much of May as customers canceled hundreds of orders, and deals for hundreds more were put at risk by delays in the plane’s return to the skies and the coronavirus pandemic.
But Boeing is back to work on the Max and, if it passes regulatory scrutiny, the plane could fly again as soon as the end of the year. When it does, it will return to an industry that was hammered by the coronavirus and faces a yearslong recovery.
The Max crisis has already wrecked Boeing’s bottom line. In January, the company said it expected the grounding to cost more than $18 billion, which didn’t account for the ruinous effect the pandemic would have on airlines. In April, it announced plans to cut about 16,000 jobs, or one-tenth of its workforce, because of the pandemic’s impact.
The aerospace manufacturer said this week that its customers had canceled 373 Max orders in the first six months of the year. Another 439 are considered at risk, including nearly 100 that Norwegian Air, a struggling low-cost carrier, recently said it no longer planned to buy.
Boeing still has several thousand pending orders for the Max, but analysts expect that to shrink somewhat as more customers back out of deals. And even though the company plans to increase production of the jet and other 737 variants to 31 planes per month sometime next year, that is about half the rate Boeing had targeted before the Max was grounded.
Globally, airlines are losing hundreds of millions of dollars by the day, and most experts predict it will be two to five years before the industry sees as many passengers as it did in 2019. After the Sept. 11 attacks and the financial crisis a decade ago, airlines recovered before the overall economy, according to Boeing, which expects the opposite this time around.
In the United States, a limited recovery in domestic travel has stalled in recent weeks as virus infections soared and states and cities reimposed restrictions on travel and business activity. And more than one-third of the world’s passenger planes — more than 8,000 aircraft — remain parked and unused, according to Cirium, an airline data firm.
Yet experts said the 737 Max would survive because many airlines still saw value in it as they fought for what few passengers remained.
“It’s not phenomenal, but I don’t think it’s all that dire for the Max, despite COVID and everything else,” said Sheila Kahyaoglu, an aerospace and defense analyst with Jefferies, an investment bank.
A new plane can last a generation, and the Max’s efficiency matters a lot because fuel can account for about one-fifth of an airline’s operating costs. Boeing said the plane uses at least 14% less jet fuel than its predecessors. That could yield double-digit increases in profits for airlines, said Vitaly Guzhva, a professor of aviation finance at Embry Riddle Aeronautical University. “There’s still a pretty strong business case for the Max.”