Boeing's killer B737 Max ungrounded, but Spicejet need not celebrate yet
DGCA is studying FAA's clearance and it would take some more time before Spicejet can put its B737 Max planes in the air
Boeing's killer B737 Max, which has been caught in a storm following two deadly crashes, has been cleared to fly again by the US Federal Aviation Administration (FAA). This comes after a 20-month grounding of the plane -- the longest in aviation history -- and intense scrutiny.
This has cost Boeing about $20 billion, according to Reuters, and led to a loss of face for the aerospace giant, the aircraft, and frayed US leadership in global aviation. The grounding of B737 Max also came as a body blow for the airlines flying the aircraft and also suppliers of parts.
Lot at stake for Spicejet
The Indian airline that would be particularly interested in the ungrounding of the B737 Max is Spicejet. The budget carrier is the sole operator of the B737 Max in India, and when the aircraft was grounded in March 2019, Spicejet was operating 12 such planes. A Times of India report points out that the airline has 200 more B737 Max planes on order. Apart from Spicejet, the grounded Jet Airways used to operate the B737 Max aircraft, but it remains to be seen if Jet comes back and more importantly, if the new owners choose to use these planes.
The Spicejet stock soared nearly 14% to hit a high of Rs 75.40 in the Bombay Stock Exchange (BSE) on November 19, 2020, as the news of the B737 Max ungrounding started to filter in. The rally meant that the airline's shares have surged 38.4% on the BSE compared with a gain of 1.6% in the Sensex index in the past four trading sessions, Business Standard reported.
According to a Flightglobal report in July, Spicejet has incurred a cost over Rs 6.7 billion due to the grounding of the Max, and Spicejet's annual operating loss stood at Rs 9.3 billion, which was an increase of more than thrice of the Rs 2.4 billion loss reported in fiscal 2019.
A Southwest Airlines Boeing 737 Max-8. Image courtesy: Wikipedia
This had added to the losses the financially frail Spicejet had been copping due to the Covid-induced travel bans. In an interview to Reuters earlier this year, Spicejet co-founder and chairman Ajay Singh acknowledged that the Max grounding could lead to a "substantial" dent in profit, which he expects to be covered by compensation from Boeing.
"Despite its inability to undertake revenue operations, the group continues to incur various costs with respect to these aircraft," Singh said in a note to the airline's financial statements for the nine months to December.
The Indian airline has sought a huge compensation of about Rs 950 crore from Boeing. It has been booking income on expected compensation from Boeing in the past few quarters. In the September quarter of 2020-21, it has recognised Rs 138 crore of the claims from Boeing as other income, according to a Moneycontrol report.
Had the airline not done that, its reported loss for the quarter would have been higher by Rs 120 crore, the airline's auditor said. A Bloomberg report added that Spicejet has penned down Rs 860 crore as other income from compensation and related foreign exchange in the past five quarters. However, the interim offer from Boeing was higher than what was recognised by Spicejet earlier.
Spicejet's overall loss, however, reduced to Rs 112.6 crore in the second quarter of FY21, as compared to a loss of Rs 462.6 crore in Q2 of FY20. The airline's total revenue narrowed to Rs 1,305 crore from Rs 3,074 crore over the same period.
No immediate return to service
However, while the ungrounding of the Max is certainly encouraging news for Spicejet, there is a catch. When asked about the FAA clearance, the Directorate General of Civil Aviation (DGCA) chief Arun Kumar told The Indian Express, "We will study and react. It will take some time.” India has made it clear that regulators here would be doing their own studies to ascertain if the Max is fit enough to fly over the Indian skies.
The FAA has asked for stringent upgrades before the Boeing 737 Max flies again. Image courtesy: Twitter/@Boeing
The FAA also does not envisage the Max to "return immediately to the skies". "The FAA must approve 737 Max pilot training programme revisions for each US airline operating the Max and will retain its authority to issue airworthiness certificates and export certificates of airworthiness for all new 737 MAX aircraft manufactured since the FAA issued the grounding order. Furthermore, airlines that have parked their Max aircraft must take required maintenance steps to prepare them to fly again,” the FAA said in a statement.
Dilution of US heft
Not only the Indian DGCA, leading regulators in Europe, Brazil and China would also issue own approvals after independent reviews, Reuters reported. It indicated a sort of dilution of the heft of the once US-dominated aviation safety system that saw countries across the world by and large following the FAA.
However, FAA administrator Steve Dickson, who signed the order lifting the Max ban, told Reuters that the agency had done "everything humanly possible to make sure these types of crashes do not happen again" and that he was "100% confident" about the safety of the Max.
There have been allegations that the FAA was hand-in-glove with Boeing, and a US House of Representatives report in September castigated Boeing for failing in its design and development of the B737 Max and hauled up the FAA for lax oversight and certification. It also hammered Boeing for withholding crucial information from the FAA, its customers and pilots, including "concealing the very existence of MCAS from 737 Max pilots", according to the Reuters report.
Now, a wary FAA has said that it would not allow Boeing to sign off on the airworthiness of around 450 B737 Max planes that had been built and parked during the Covid-induced flight ban. The FAA now plans in-person inspections. This would mean that airworthiness certifications would take a year or more to complete, pushing back the aircraft's delivery further.
Deadly crashes and MCAS
The FAA has called for software and wiring changes and pilot training to handle stall-prevention system called Manoeuvring Characteristics Augmentation System (MCAS), which investigators blamed for the two crashes involving the Max. The MCAS is a safety system installed on the B737 Max to control the plane's tendency to tilt nose-up because of the size and placement of the engines, a Live Mint report pointed out. It repeatedly shoves the nose of the plane down if the plane perceives it is in a stall.
In both the crashes, erroneous sensor data triggered the MCAS and strongly pushed the nose of the plane down so much so that it went out of the pilots' control, sending the nearly brand-new jets into deadly plunges.
The MCAS has now been altered to prevent it from getting repeatedly activated and has been re-engineered to limit how sharply it can dive, Bloomberg reported. Redesigning of the plane’s flight-control computer has been done to improve redundancy as well.
The 737 Max would be key to Boeing recovering from the crisis it currently faces. Image courtesy: Boeing website
On October 29, 2018, a Lion Air B737 Max-8 plunged into the Java Sea 13 minutes after takeoff from Indonesia's Soekarno-Hatta International Airport, killing all 189 people onboard. A few months later, a B737 Max-8 flown by the Ethiopian Airlines crashed six minutes after takeoff from Addis Ababa en route to Nairobi. All 157 people onboard died. These two crashes led to a flurry of criticism, investigations and grounding of the Max planes.
Upgraded version of B737
The B737 MAX is the fourth generation of the narrow-body B737 airliner. It succeeds the Boeing 737 Next Generation (NG). To put things into perspective in the Indian context, Air India Express entirely flies on the B737 NG.
The Max is a re-engined and fuel-efficient version of an aircraft that was first flown in the 1960s and rivals Airbus's A320 Neo as a workhorse for airlines around the world. Nearly 400 B737 Max planes were in operation worldwide when they were grounded.
The Max is based on earlier 737 designs and boasts of more efficient CFM International LEAP-1B engines, aerodynamic changes, including its distinctive split-tip winglets and airframe modifications.
Why Boeing badly needs Max
Not only Spicejet and the airlines flying the Max, but the manufacturer Boeing also has a lot at stake on the aircraft returning to the skies. It is important not only for Boeing to earn back its lost repute, but help it rebound after a crippling coronavirus crisis.
Boeing would be hard-pressed to mend ties with customer airlines, flight crews and passengers alike.
According to a report in CNBC, airlines have been put off by the fuel-efficient B737 Max not being available during the peak summer travelling season as a result of the grounding.
Flight crews have been complaining that Boeing sprang an unpleasant surprise on them with changes to the new planes before they were delivered. Pilots have said that they did not have any idea about the MCAS until the Lion Air crash.
Moreover, passengers are expected to hesitate to fly again on an aircraft with a dark history. According to a UBS survey mentioned by CNBC, 70% of the respondents said they were undecided about booking a Max flight. One-fifth of the people polled wanted to see the Max fly with any incident for six months before travelling on it.
In fact, a study by travel consulting firm Atmosphere Research Group found that 40% of the respondents were willing to even book costlier and longer connecting flights than travel on the B737 Max. Major US airlines like Southwest Airlines and United Airlines have even given passengers the option to change their flights free of charge if they are scared about flying on the Max.
Boeing had hoped that it would gain back some its prestige with the Boeing 777X, the world largest twin-engine plane, following its test flight at the start of the year. However, the Covid-19 crisis put a spanner in the works and now the debut of the behemoth aircraft has been pushed back.
According to an Indian Express report, the B737 Max makes up 80% of the planemaker's backlog of 5,121 orders. Apart from the B737 and B737 Next Generation (NG), it is Boeing's only offering in the important single-aisle market, with costlier twin-aisle aircraft like the 787 Dreamliner not being in demand in this time of gloom in the aviation industry that has been pummelled by the Covid-19 crisis, and when many airlines like Spicejet are fighting to survive.
Boeing had become a so-called 'zombie' company during the Covid-19 pandemic, earning less than interest expense. Max sales would help it to clear more than $30 billion in debt that Boeing had taken earlier this year to cope with the pandemic.
The company could earn $12 billion by selling the 450 Max planes built during the pandemic-induced flight ban, said George Ferguson, an analyst with Bloomberg Intelligence. Boeing has also burned through over $22 billion in cash since the Max planes were grounded.
The Max returning to the skies is also important to fund a future narrow-body aircraft Boeing would need to counter arch-rival Airbus's A321 Neo, which is the largest single-aisle plane at present and which has already received rave reviews.
Airbus currently occupies 60% of the single-aisle market, the Express report pointed out. Again to see this in an Indian context, IndiGo, which controls about 60% of the Indian domestic market, flies mainly Airbus A320, A320 Neo and A321 Neo single-aisle planes.
"We will never forget the lives lost in the two tragic accidents that led to the decision to suspend operations," said David Calhoun, chief executive officer of The Boeing Company. "These events and the lessons we have learned as a result have reshaped our company and further focused our attention on our core values of safety, quality and integrity," he added.
Stan Deal, president and chief executive officer of Boeing Commercial Airplanes, said, "We will continue to work with regulators around the world and our customers to return the airplane back into service worldwide."