HomeNewsGuidesReadsPodcastsTRANSFIN. EOD
  1. Reads
  2. Lite

Boeing 737 Max 8 Crash: An Escalating Crisis

Professor of Financial Economics and Part-time Value Investor, Transfin.
Mar 16, 2019 4:12 AM 3 min read

Background: Less than six months after the crash of the Lion Air flight which killed over 189 people, Boeing finds itself in hot water yet again. This time around post the unfortunate crash of the Ethiopian Airline-operated aircraft last Sunday, which left no survivors.


Not the First: The Ethiopian Airline-operated flagship model 737 MAX 8 carrying 149 passengers aircraft heading for Nairobi crashed barely six minutes after its takeoff. The same model was involved in another crash late last year when a Lion Air flight from Jakarta crashed into the Java Sea killing all 189 passengers onboard. The proximity of these two crashes coupled with the questionable MCAS (Maneuvering Characteristics Augmentation System) anti-stall flight control system has put the spotlight back on Boeing.


Boeing 737 Max 8 Crash: An Escalating Crisis


Big Earner: The 737 MAX series launched by Boeing in 2016, was built with the aim of providing better fuel economy for short distance fights, in a bid to take on its rival - Airbus A320neo - a similar offering, which then dominated the market. The 737 MAX series has been the most popular of Boeing’s offerings with airlines around the world, having delivered 354 of the jets globally, and with 2,912 still on order. However, it needs to be noted that many of the orders in line may now have been put on hold or been cancelled in the aftermath of the tragedy.


Faulty System: As per the  US Federal Aviation Administration, at the center of both the crashes is the MCAS (Maneuvering Characteristics Augmentation System) anti-stall mechanism, a system that takes in data from various sensors to adjust flight parameters in order to ensure that the engines do not stall and the plane keeps flying. 


After the first crash, it was found that the system could be triggered by erroneous data from sensors, which could have led it to operate in an unintended manner. Data from the second crash also shows evidence that faulty inputs from the system might have contributed to the crash. If investigations could conclusively prove that MCAS had a hand in the crash, all 737 MAX models would need to be grounded. This could mean serious trouble for Boeing for whom the 737 MAX series of aircraft have been the most successful. It has been estimated that Boeing’s more than $600bn worth orders for its 737 MAX models hang in balance as customers threaten to reconsider their purchases.


Boeing 737 Max 8 Crash: An Escalating Crisis


Pilots Unaware: Another grim picture is painted by the pilots who have previously flown the 737 and claim that the MCAS was not included in the training program, and that most of them came to know of the system only after the first crash. This would mean that pilots operating a 737 flight would not have had adequate knowledge or training to correct any deviation caused by the MCAS.


But the MCAS might not be the only malfunctioning component of the 737. Some pilots report that they had other issues with the plane concerning the autopilot system, which is independent of the MCAS. This could mean that there could still be some unknown variable other than MCAS which is affecting the aircraft.


Dire Consequences: In light of the incident, several countries including US, EU, China, Indonesia, India and Ethiopia have grounded all MAX aircrafts. Boeing is likely to be the most affected by the ban in China as more than half of the 737 MAX orders come from the country. Analysts predict that if investigations lead to grounding of all 737 models, Boeing could lose up to $5bn, which amounts to 5% of the company’s annual revenue. Ironically, Boeing stock had recently ridden to nearly a record high on the 737 Max’s early sales.


Meanwhile, rival Airbus stands much to gain from Boeing’s affliction, whose similar offering - the A320neo has had a better service history than the 737.


(We are now on your favourite messaging app – WhatsApp. We strongly recommend you SUBSCRIBE to start receiving your Fresh, Homegrown and Handpicked News Feed.)