The financial markets have finally woken up to Boeing's criminal behavior around the certification of the 737 MAX:
Boeing shares were falling in premarket trading Monday after analysts from at least two firms cut their ratings and price targets in light of recent revelations about the Chicago aerospace giant's grounded 737 MAX jetliner. Credit Suisse analyst Robert Spingarn cut Boeing to neutral from outperform and pared his price target to $323 from $416 after publication of instant messages by an ex-senior test pilot at the company that he "unknowingly" misled safety regulators about a 737 MAX control system.
"We can no longer defend the shares in light of the latest discoveries, [which] significantly increase the risk profile for investors," Spingarn said in a note to investors.
Boeing was the Dow's biggest loser on Friday, closing down 6.8% to $344.
At 1:00PM EDT Boeing was down to $330. Since the second deadly MAX crash Boeing's share price decreased by more than 18%. On Wednesday Boeing will reveal its quarterly results and may well announce billions more of losses.
The bad news for Boeing continues to come in.
Consumer advocate Ralph Nader, whose grandniece died in a 737 Max crash, says that Boeing CEO Muilenburg and the entire board need to go. Nader says that the plane should never fly again.
There are signs that Boeing will reduce or even completely stop the production of new 737 MAX at least until its re-certification is assured. Currently Boeing still produces 42 MAX per month without delivering any to its customers.
The downgrading of Boeing comes after a three years old exchange between two MAX project pilots came to light:
The exchange of messages in 2016 between the two lead technical pilots on the Boeing 737 MAX program was released Friday after regulators blew up at the company for belatedly disclosing the matter. The messages reveal that the flight-control system, which two years later went haywire on the crashed flights, was behaving aggressively and strangely in the pilots' simulator sessions.
"It's running rampant in the sim on me," 737 Chief Technical Pilot Mark Forkner wrote to Patrik Gustavsson, who would succeed him as chief technical pilot. "I'm levelling off at like 4000 ft, 230 knots and the plane is trimming itself like craxy. I'm like, WHAT?" (Spelling errors in the original.)
"Granted, I suck at flying, but even this was egregious," Forkner added.
In the Nov. 15, 2o16, message exchange, Forkner tells Gustavsson that MCAS is now active down to Mach 0.2 - meaning at low speed, not just in the high-speed maneuver for which it was originally designed. He adds that it will now be necessary to update the description of the system, presumably referring to material Boeing provides the FAA.
"So I basically lied to the regulators (unknowingly)," he texted.
Another document released by DeFazio's committee Friday is an email Forkner sent to an FAA official just over seven months earlier, on March 30, 2016, asking that MCAS be omitted from the pilot manuals and not mentioned in pilot training.
Forkner, who is now with Southwest Airlines, is using his 5th amendment right on the issue. He does not do so because of the above exchange. Until that point he indeed lied unknowingly. But even after he had experienced the brutal power of MCAS he worked to keep it out of the pilot manuals:
In a separate email to an FAA official in mid-January 2017 - two months after the text exchange when he had noted the "egregious" behavior of MCAS - Forkner suggests two changes to the "differences training" that pilots were to undergo in order to move from flying the prior 737 model to the MAX.
The first change was to delete a reference to MCAS.
"We decided we weren't going to cover it" in the flight manual and training course, he reminded the FAA official.
The Seattle Times reported in March that the FAA was not fully informed of a major design change to the MCAS system when Boeing expanded it to cover certain low-speed flight situations. It further reported that this change was not updated in the System Safety Assessment that Boeing submitted to the FAA during certification of the MAX.
MCAS was completely left out of the pilots flight manuals and training materials. The maintenance manual described MCAS with four short sentences but falsely says that it only acts at higher speeds.
Boeing now claims that the 'egregious' behavior was just a simulator issue and that the FAA was fully informed of all MCAS issues. But the Seattle Times finds that the claim does not hold up as the two pilots also talk about the need to change the flight manual with a description of the issue:
This interpretation that it was the simulator program that was at fault is certainly not "obvious" from the full transcript of the messages.
Boeing's assertion that the FAA was fully informed of this crucial design change directly contradicts the findings of an international panel of regulators - the Joint Authorities Technical Review (JATR) - released earlier this month.
That panel of experts found that as MCAS evolved starting in March 2016 "from a relatively benign system to a much more aggressive system," it was not properly evaluated in the certification documents that Boeing submitted to the FAA.
The technical pilots Mark Forkner and Patrik Gustavsson are not test pilots. Specially trained test pilots fly the real plane beyond the limits of its flight envelope. They acquire the data used in the simulators. The technical pilots fly the plane in the e-cab engineering simulator within its flight envelope to evaluate subsystems and to collect data needed for the flight manuals and certifications.
In the case of the MAX the test pilots did not communicate well with the technical pilots:
"Why are we just now hearing about this?" Forkner asks.
Gustavsson responds: "The test pilots have kept us out of the loop." He then adds that "It's really only christine that is trying to work with us, but she has been too busy." This appears to be a reference to Christine Walsh, who was engineering test pilot on the MAX program.
Forkner concurs about the test pilots: "They're all so damn busy, and getting pressure from the program."
More of Boeing's internal messages will certainly be revealed in the myriad of law suits the company is now facing. Boeing has so far played tough and admitted no guilt. The financial analysts finally recognized that this makes Boeing's position only more difficult.
After the two deadly accidents Boeing behaved arrogantly towards the regulators, pilots and the public. This arrogance is just as apparent in the compensation offers to its customers:
Boeing's opening compensation offers to airlines and lessors affected by MAX pretty much sucks.
To airlines, Boeing's opening position is to offer credits for work by Boeing Global Services and discounts (described as steep) on 787 orders. (The 787 skyline falls off a cliff in 2022.) But no discounts on 737 or 777 orders.
Airlines are not, to put it mildly, very receptive.
Boeing's initial offer to lessors is to reschedule MAX deliveries to 2023/24 (lessors were finding a supply-demand imbalance even before the grounding)-but pre-delivery payments and price escalations still have to be paid.
The lessors are less receptive than the airlines.
Finally, as LNA reported months ago, Boeing is also taking the position that the grounding is an "excusable delay" that protects Boeing against compensation claims. Go ahead and sue if you disagree.
Boeing also takes the position that once the FAA recertifies the MAX, this stops the clock on any claims because the FAA, not EASA, CAAC or any other agency, is the governing agency.
The airlines have real losses caused by the criminal decisions Boeing made during the development of the 737 MAX. To get offered compensation in form of rebates for a jet type one does not want to buy is cringeworthy. This will have long time consequences for Boeing. Airbus should seriously think about opening another A-320 series production line. A lot of Boeing's customers would surely like an opportunity to buy elsewhere.
In our last piece about Boeing issues we also discussed an unexpected fatigue issue found in the 737 MAX predecessor, the 737 NG:
During the conversion of a 737 NG passenger jet into a freighter plane Boeing found serious defects on a structural component that was supposed to have a longer lifetime than the plane.
The cracks in the so called 'pickle fork' occurred in some 5% of the older planes:
Each plane will take three weeks to repair. But the supply of replacement parts for the cracked component is limited and it may take longer to produce new ones.
A knowledgeable source says that the cause of the cracks has been found:
The actual cause of the pickle fork cracks is because of the the holes being over drilled by around 6 thousands. The holes are grossly oversize and the bolts that run through the part and the fail safe strap are not supporting the part. The bolts are supposed to be snug fit so when a plane lands the bolts and part share equal stress and not have a stress issue. The bolts are not touching the sides of the holes hardly at all therefore any gap between the bolt and the part contributes to all stress being put on the fork part and fail safe strap, which has holes where the bolts are.
The results (pdf) of these production mistakes are cracks in an important structural part. The affected planes have been grounded as such cracks tend to grow and a failure of the structure would likely end catastrophically.
When airplanes are put together the parts that need to be fixed to each other get aligned in some fixture. Then holes are drilled, deburred, reamed and even coldworked to prevent any possible cracks appearing around them. After an inspection the rivets, fasteners or bolts are pressed in, tightened and again inspected. There are about 600,000 bolts and rivets that hold each 737 together. To install them can be a repetitive and boring task. But it is important that it is done correctly.
Since it started to emphasize shareholder value Boeing experienced many quality issues within its production lines. Foreign object debris was found on new tanker planes delivered to the airforce. Qatar Airlines does not accept any 787 planes produced at Boeing's non-union factory in Charleston, South Carolina because of frequent production problems in that plant. The 737 NG was already known to have misfitted parts (vid). Now we learn that other parts were installed incorrectly.
Some 7,000 737 NG have been produced and most of those are still flying. As some 5%, or 350 of them, need to be reworked for three weeks each, the bill Boeing will have to pay for this issue will also be significant.
On Wednesday Boeing will publish is quarterly results. October 29 is the first anniversary of the Lion Air 604 accident. The full accident report will be published around that time. On October 30 CEO Muilenburg will be questioned in Congress hearings.
Boeing's name and the 737 MAX issue will stay in the news for some time, and not in a positive way. While I am not a financial analyst the Credit Swiss price target to $323 seems extremely optimistic to me. Even if the MAX is allowed back into the air, maybe by next summer, it will have difficulties to get accepted:
Nearly half of the 2,000 respondents said they would pay more to avoid the MAX.
Boeing needs to change. Unless it does its share price will continue to fall.
Previous Moon of Alabama posts on Boeing 737 MAX issues:
Posted by b on October 21, 2019