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'Worst case scenario' sees Boeing's newest plane become its biggest headache

Boeing's newest version of its best-selling airliner ever was supposed to boost its fortunes for years to come.

Instead it has turned into the company's biggest headache, with more than 40 countries — including the US, which had been one of the last holdouts — grounding the 737 Max 8 after a second fatal crash proved one too many.

Today, the US Federal Aviation Administration issued an emergency order keeping the planes on the tarmac after refusing to do so in the days immediately following the crash of a Max 8 operated by Ethiopian Airlines that left 157 people dead.

The agency said what made the difference was new, enhanced satellite tracking data and physical evidence on the ground that linked the Ethiopian jet's movements to those of an Indonesian Lion Air flight that plunged into the Java Sea in October and killed 189 people.

"That evidence aligns the Ethiopian flight closer to Lion Air, what we know happened to Lion Air," said Daniel Elwell, acting FAA administrator.

Officials at Lion Air have said sensors on their plane produced erroneous information on its last four flights, triggering an automatic nose-down command that the pilots were unable to overcome on its final voyage.

Since debuting in 2017, Boeing has delivered more than 350 of the Max in several versions that vary by size. Dozens of airlines around the world have embraced the plane for its fuel efficiency and utility for short and medium-haul flights.

The groundings will have a far-reaching financial impact on Boeing, at least in the short term, said John Cox, a veteran pilot and CEO of Safety Operating Systems.

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    The US President says the safety of the American people is of "paramount concern."

    In addition to the planes that have been grounded, there are more than 4,600 Boeing 737 Max 8 planes on backlog that are not yet delivered to airlines.

    "There are delivery dates that aren't being met, there's usage of the aircraft that's not being met, and all the supply chain things that Boeing so carefully crafted," Cox said.

    "If they can't deliver the airplanes, where do they put the extra engines and the extra fuselage and the extra electrical components?"

    Impacted airlines also may come knocking on Boeing's door claiming damages. Norwegian Airlines said it would pursue reimbursement from Boeing for lost business and if other carriers follow suit, that could be costly.

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      TVNZ’s John Campbell explains, following the aviation disaster on March 10. Source: 1 NEWS

      Whether airlines would be successful with such claims depends on the details of the contracts those carriers have with Boeing, said Dan Rose, partner at Kreindler & Kreindler, an aviation law firm. .

      "One way or another, whether there's a contractual provision that covers it or not, there are almost certainly going to be claims made against them," Rose said.

      In a research note earlier this week, Morgan Stanley called the grounding of the fleet a "worst-case scenario" that would disrupt near-term profitability because the 737 covers 70 percent of Boeing's commercial production.

      The Max fleet was expected to make up most of the 737 deliveries this year and all deliveries over the next three years, according to data compiled by Morgan Stanley.

      Shares in Chicago-based Boeing ended up $US1.73 or about 0.5 percent, at $US377.14 Wednesday after they lost more than 11 per cent in the first two days this week. The stock is still up 17 per cent for the year.

      Boeing issued a statement saying it supported the FAA's decision even though it "continues to have full confidence" in the planes' safety.

      The company also said it had recommended the suspension of the Max fleet after consultations with the government.

      FILE - This March 21, 2018, file photo shows Boeing didn't tell airline pilots about features of a new flight-control system in its 737 MAX that reportedly is a focus of the investigation into last month's deadly crash in Indonesia, according to pilots who fly the jet in the U.S. (AP Photo/Elaine Thompson)
      Boeing's first 737 MAX 9 jet at the company's delivery centre before a ceremony transferring ownership to Thai Lion Air in Seattle. Source: Associated Press