Category: Airbus/Boeing

Sweeping Failures and Insufficient Oversight Led to Boeing 737 Max Crashes, Scathing House Report Finds

Airbus/Boeing, Airplane Industry, Airway Companies, Industry/Tech

Sweeping failures by Boeing engineers, deception by the company and significant errors in government oversight led to the two fatal crashes of the 737 Max, congressional investigators have concluded.

A 245-page report issued Wednesday provides the most scathing account so far of the miscalculations that led to 346 deaths, the grounding of Boeing’s best-selling jet and billions of dollars in losses for the manufacturing giant.

“The Max crashes were not the result of a singular failure, technical mistake or mismanaged event,” the report by the House Transportation and Infrastructure Committee said. “They were the horrific culmination of a series of faulty technical assumptions by Boeing’s engineers, a lack of transparency on the part of Boeing’s management and grossly insufficient oversight by the” Federal Aviation Administration.

The report — the result of five investigative hearings, a review of about 600,000 pages of documents, interviews with top Boeing and FAA officials and information provided by whistle-blowers — makes the case for broad changes in the FAA’s oversight of the aircraft industry.

It offers a more searing version of events than the sometimes technical language in previous crash reports and investigations, including one conducted by the Transportation Department’s Inspector General.

The conclusions were drawn by the majority staff under committee Chairman Peter DeFazio. The report cites five main reasons for the crashes:

  • Pressures to update the 737’s design swiftly and inexpensively
  • Faulty assumptions about the design and performance of pilots
  • What the report called a “culture of concealment” by Boeing
  • Inherent conflicts of interest in the system that deputizes Boeing employees to act on behalf of the government
  • The company’s sway over top FAA managers

DeFazio said he found it “mind boggling” that Boeing and FAA officials concluded, according to the report, that the plane’s design had complied with regulations in spite of the crashes.

“The problem is it was complaint and not safe — and people died,” he said. “Obviously, the system is inadequate.”

Lawmakers are drafting legislation designed to reform how the FAA oversees companies such as Boeing and reviews aircraft designs. The Senate Commerce Committee plans to vote on a bipartisan bill on Wednesday. DeFazio, an Oregon Democrat, hasn’t yet unveiled his legislation.

Republican leaders on the House committee took issue with the report’s findings, saying they represented partisan overreach that went beyond what other reviews have found.

“Expert recommendations have already led to changes and reforms, with more to come,” said a joint statement from Sam Graves of Missouri and Garret Graves of Louisiana. “These recommendations — not a partisan investigative report — should serve as the basis for Congressional action.”

Boeing said in a statement it had cooperated with the committee’s investigation and had taken steps at the company to improve safety.

“We have learned many hard lessons as a company from the accidents of Lion Air Flight 610 and Ethiopian Flight 302, and from the mistakes we have made,” the company said. “Change is always hard and requires daily commitment, but we as a company are dedicated to doing the work.”

The FAA said in a statement late Tuesday night that it was committed to working with the committee to make improvements. “We are already undertaking important initiatives based on what we have learned from our own internal reviews as well as independent reviews of the Lion Air and Ethiopian Airlines accidents,” the agency said in the statement.

But tensions between the committee staff and the FAA were clearly evident. Ali Bahrami, who oversees safety at the agency, came under repeated criticism in the report for what the committee called his lack of awareness of issues surrounding the Max and the accidents. The committee staffers declined to provide him with questions before the Dec. 5 interview, which made it difficult for him to recall documents and events, an FAA counsel warned at the start of the interview, according to a transcript.

While DeFazio and other lawmakers haven’t called for a permanent grounding of the jet, the father of a woman who died in the Ethiopia crash said the report raised questions about the plane’s return to service.

“The FAA should immediately halt the recertification process for the 737 Max in light of this report,” said Michael Stumo, father of Samya Stumo. He accused Boeing and the FAA of withholding information from the families of victims in an emailed statement.

The 737 Max was grounded March 13, 2019, three days after the second crash involving a safety feature on the plane that malfunctioned and repeatedly sent the planes into a dive toward the ground.

Boeing and regulators had approved the design under the assumption that flight crews could recognize and override a malfunction of the system within a few seconds. Even though the system could have been disabled by flipping two cockpit switches, pilots on a Lion Air flight departing from Jakarta on Oct. 29, 2018, and an Ethiopian Airlines plane leaving Addis Ababa on March 10, 2019, became confused, lost control and crashed.

The feature, known as Maneuvering Characteristics Augmentation System, was designed to make the Max feel exactly the same to pilots as the earlier family of 737s known as the Next Generation. However, the system was triggered erroneously by a single sensor that failed in both crashes and it continued to push the nose down repeatedly.

The FAA has tentatively approved multiple design changes to prevent such an accident in the future and the plane could be certified to resume operations in the fall.

The House report identifies numerous instances in which it alleges the company should have known that MCAS was potentially dangerous.

For example, a Boeing test pilot during the early development of the plane in 2012 took more than 10 seconds to respond to an erroneous MCAS activation, a condition the pilot concluded could be “catastrophic,” the report said.

“The reaction time was long,” one Boeing employee told another in an email on Nov. 1, 2012, which was viewed by Bloomberg. The unidentified employee asked whether the rating of the system’s risks should be raised, which may have prompted a more thorough safety review.

Those concerns “were not properly addressed” and the company “did not inform the FAA,” the report said.

Boeing ultimately concluded that flight crews would react far swifter to an MCAS failure, typically within four seconds.

The report also said the responses by Boeing and the FAA to the first accident — warnings to pilots issued in early November 2018 — weren’t adequate to prevent a second crash.

“Both Boeing and the FAA gambled with the public’s safety in the aftermath of the Lion Air crash, resulting in the death of 157 more individuals on Ethiopian Airlines flight 302, less than five months later,” the report said.

The guidance on how to avoid an accident during an MCAS failure detailed the symptoms pilots would see and reminded crews how to shut it off. The committee criticized Boeing and the FAA for not mentioning the system’s name.

FAA officials have said they debated whether to include MCAS in the directive, but opted not to because it wasn’t mentioned in pilot flight manuals. Boeing within days sent additional guidance to airlines on MCAS and how it worked. Details on MCAS were also widely reported in the news media and internal airline documents obtained by Bloomberg show that it had been explained to Ethiopian Airlines pilots before their crash.

‘Undue Pressure’

A key finding involves a long-standing practice — which was expanded by Congress several times — to deputize Boeing employees to act in behalf of FAA while reviewing aircraft designs.

According to a 2016 survey obtained by the committee, 39% of Boeing’s Authorized Representatives, senior engineers who conducted reviews for FAA, at times perceived “undue pressure” on them from management.

One such senior engineer knew that Boeing was delivering Maxes to customers without a required alert in 2017 and 2018, yet didn’t notify FAA, the report said. The lack of such an alert was cited by Indonesian investigators as a factor in the Lion Air crash.

Both House and Senate legislation is expected to seek reforms of the so-called delegation system, which the report said is riddled with “inherent conflicts of interest.”

Boeing opted almost a decade ago to update the 737 to compete against a similar redesign of the Airbus SE A320 family. It faced intense pressure to ensure that — just as Airbus promised — pilots transferring from earlier 737 models didn’t need expensive additional simulator training.

Simulator Training

The company had agreed to pay Southwest Airlines Co. $1 million per aircraft if Max pilots had to train in the simulator before transitioning to the new plane, which could have cost it between $200 million to $400 million.

The push to avoid simulator training led to multiple poor decisions by Boeing, the committee alleged. The manufacturer rejected adding a sophisticated safety system that might have helped in the accidents at least in part because it would have required additional training.

The company also deemphasized MCAS to the FAA as a result. In a 2013 company document, Boeing said it would describe MCAS to the FAA as an add-on to an existing system. “If we emphasize MCAS is a new function there may be a greater certification and training impact,” the memo said.

The broad failure to fully explain MCAS was a critical issue because the system was made more powerful midway through its development, but many within the FAA didn’t know and the agency delegated the final safety approvals to the company, the report found.

“The combination of these problems doomed the Lion Air and Ethiopian Airlines flights,” the report said.

By Alan Levin / Bloomberg

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Speaking out for the first time, Ed Pierson tells NBC News that he tried to sound the alarm over the conditions at the Boeing plant in Reston, where he says a push to increase production of the 737 Max planes created a factory in chaos. » Subscribe to NBC News: http://nbcnews.to/SubscribeToNBC » Watch more NBC video: http://bit.ly/MoreNBCNews NBC News Digital is a collection of innovative and powerful news brands that deliver compelling, diverse and engaging news stories. NBC News Digital features NBCNews.com, MSNBC.com, TODAY.com, Nightly News, Meet the Press, Dateline, and the existing apps and digital extensions of these respective properties. We deliver the best in breaking news, live video coverage, original journalism and segments from your favorite NBC News Shows. Connect with NBC News Online! NBC News App: https://smart.link/5d0cd9df61b80 Breaking News Alerts: https://link.nbcnews.com/join/5cj/bre… Visit NBCNews.Com: http://nbcnews.to/ReadNBC Find NBC News on Facebook: http://nbcnews.to/LikeNBC Follow NBC News on Twitter: http://nbcnews.to/FollowNBC Follow NBC News on Instagram: http://nbcnews.to/InstaNBC Boeing Manager Says He Warned Company Of Problems Months Before 737 Max Crashes | NBC Nightly News

British Airways Flight Crosses the Atlantic in Less Than 5 Hours

Airbus/Boeing

For the first time in years, a commercial passenger plane has flown across the Atlantic in less than five hours.

A British Airways flight landed early Sunday morning at Heathrow Airport in London after leaving John F. Kennedy International Airport in New York just four hours and 56 minutes earlier.

That set a new speed record for subsonic — or slower than the speed of sound — commercial aircraft to fly between the two cities, according to Flightradar24, which tracks global flights.

The previous record was held by a Norwegian Air flight, which flew between the two cities with a flight time of five hours and 13 minutes.

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The flight had been expected to take 102 minutes longer. The recent average flight time between New York and London is 6 hours and 13 minutes, according to Flightradar24.

The wind and air currents were ideal for a fast flight, said Ian Petchenik, Flightradar24’s director of communications. “In the winter, the jet stream dips down a bit,” he said. “It’s kind of in a perfect spot for flights across the North Atlantic to take advantage of it.”

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British Airways just narrowly beat out a Virgin Atlantic flight, which arrived in London at around the same time but one minute slower.

British Airways confirmed the flight time for the Boeing 747 plane, saying the company prioritizes safety over speed.

The supersonic Concorde flights used to fly across the Atlantic in just over three hours, but stopped flying in 2003.

By Associated Press February 10, 2020

Source: British Airways Flight Crosses the Atlantic in Less Than 5 Hours

British Airways has officially broken the record for the fastest flight time from New York to London. BA 112, a Boeing 747-400, flew from New York to London in 4 hours and 56 minutes beating Norwegian’s previous record of 5 hours and 13 minutes. Additionally, two Virgin Atlantic A350-1000s flew from New York to London in under 5 hours but not as short as British Airways 112. This record was broken thanks to Storm Ciara’s 200 mph tailwind. ✈ Ishrion Aviation is an Aviation Channel bringing you premium trip reports/reviews and the latest aviation news and developments to your fingertips. ▶️ If you enjoyed this video, make sure to subscribe for more interesting aviation content! https://www.youtube.com/c/IshrionAvia…

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The Problem With Suing Boeing For Its 737 MAX: Consequences

Airbus/Boeing

Airlines and leasing companies were trying to promote competition amongst aircraft manufacturers before the sector further consolidated with Airbus buying Bombardier’s C Series and Boeing proposing a majority stake in Embraer’s commercial division. That firmly leaves the aircraft pipeline, excluding the long-term emergence of China and Russia, to an Airbus-Boeing duopoly.

It is a calculated risk for a 737 MAX buyer to sue Boeing. No matter how right the purchaser is found to be, it risks infuriating Boeing in a best case scenario. Worse is the lawsuit against Boeing from Dublin-based lessor Timaero Ireland Ltd., a subsidiary of Russia’s state-owned VEB Leasing JSC.

Timaero claimed to the federal court in Chicago this month that Boeing in this 737 MAX crisis was motivated by greed, knowingly committed fraud, has “rendered the aircraft worthless,” and “the public has lost complete confidence in the safety of the 737 MAX.”

Besides seeking $185 million in damages for its order book of 22 MAXs, Timaero asks for unspecified compensation for lost profit, and for punitive damages to be calculated at three times the amount of compensatory damages.

Timaero also wants its contract with Boeing cancelled. Airbus, knowing it is the only alternative, might not have to price so aggressively. Loss of negotiating leverage on future aircraft orders is not the sole downside for 737 MAX buyers considering legal action against Boeing. They worry about the Boeing aircraft they already operate and which will need the airframer’s support for years and potentially decades to come.

Some concerns: Boeing support not covered under contract may not eventuate, or be given at a high price. This covers not just engineering work but also other areas including regulatory, legal and if the aircraft changes owner. Previously contracted support may be provided at the minimal level of service while taking the maximum length of time permitted.

The sector is paying more attention to aftermarket support with a flurry of activity, including Boeing in 2017 establishing its own aftermarket division, Boeing Global Services, which aims to grow revenue from $14.6 billion to $50 billion within a decade. Boeing Global Services CEO Stan Deal was made CEO of Boeing Commercial Airplanes in October, replacing Kevin McAllister.

Airlines ranging in size from Southwest to Icelandair have reached compensation agreements with Boeing. There are reports numerous airlines and lessors are unhappy with Boeing offering minimal compensation, preferring to give a discount on future orders rather than upfront cash, and that Boeing is discouraging lawsuits with the quip that only lawyers win. Turkey’s Demirören said Turkish Airlines was preparing a lawsuit.

Timaero makes statements Boeing has already agreed with or which could be fair. But there are also sweeping views Boeing may find contentious. Rather than the lawsuit be a formula for more MAX buyers suing Boeing, Timaero may be an outlier due to its unique commercial situation.

There is a view lessors over-ordered aircraft at the peak of the recent cycle and were eager to reduce their backlog prior to the MAX crisis. Timaero has further challenges. Parent owner VEB in 2014 placed an order for 20 MAXs, which it planned to lease to Transaero, the Russian airline that went out business in 2015. That left VEB exposed to the 20 MAXs and an order for 20 Airbus A320neos that VEB also planned to lease to Transaero. VEB increased its MAX order to 22 in 2016 by converting two 737 NGs to MAXs. Russian media say VEB made pre-delivery payments, at least 10% of contract price, on all 42 aircraft.

Timaero has received only two MAXs, at least one of which is leased to Eastar Jet in Korea via VEB. Eastar has encountered financial problems from the MAX grounding as well as the wider changes in the Korean market as a result of a downturn in travel to Japan and weaker consumer sentiment from the strengthening Korean won. Rival Jeju Air agreed in December to buy 51% of Eastar.

Timaero may be willing and able to cancel its MAX order, recoup pre-delivery payments and perhaps other costs. But other lessors as well as airlines need to receive the best outcome while continuing to have competition between Airbus and Boeing.

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Will Horton

I have been covering airlines and aerospace in Asia-Pacific for 10 years. I am particularly interested in aeropolitics, cross-border investments, partnerships, transformations, new revenue growth and start-ups. I am originally from New York City, graduated from the University of Melbourne, and now live in Hong Kong.

Source: The Problem With Suing Boeing For Its 737 MAX: Consequences

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Last week the Aircraft manufacturer Boeing’s apologised for two deadly crashes involving its 737 MAX model. This week a group of Indonesians whose relatives were killed in the first crash is going to be suing Boeing for compensation. An Ethiopian Airlines 737 MAX 8 crashed shortly after take-off on March 10, killing all 157 people on board. The same Boeing model was involved in a Lion Air plane crash in Indonesia in October that killed 189 people. To give us a sense of what these developments mean for the planemaker we are now joined by aviation expert from Fraymedia Desmond Latham. For more news, visit: sabcnews.com

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News & Politics

 

Boeing Loses Patience With Muilenburg, But Calhoun May Be No More Than A Short-Term Fix As CEO

Airbus/Boeing

Amid mounting criticism over CEO Dennis Muilenburg’s handling of the 737 MAX crisis, Boeing on Monday said that he would be replaced by chairman and longtime board member David Calhoun.

While Calhoun may do a better public relations job than Muilenburg, some observers questioned whether he represents a real change in direction for the embattled company.

CFO Greg Smith will serve as interim CEO until Jan. 13 while Calhoun exits non-Boeing commitments.

“The Board of Directors decided that a change in leadership was necessary to restore confidence in the Company moving forward as it works to repair relationships with regulators, customers, and all other stakeholders,” the company said in a statement.

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The move comes nine months after global aviation safety regulators grounded the 737 MAX, Boeing’s best-selling plane, after the second of two deadly crashes. Muilenburg has been faulted for a leaden public response to the crisis, angering the families of the deceased, lawmakers and members of the public with his reluctance to acknowledge that faults with the plane’s flight control system were responsible for the crashes, which killed 346.

Under Muilenburg’s leadership, Boeing repeatedly promised airlines and investors that it was near winning approval for fixes for the flight control system and other changes that would allow the plane to return to service.

Two weeks ago, Muilenburg was upbraided by FAA Administrator Stephen Dickson, who summoned Boeing’s CEO to a meeting in Washington to address concerns that the company was attempting to publicly pressure the agency to move more quickly.

Last week, Boeing announced it would halt 737 production in January, with roughly 400 planes in storage that it had produced since March that it has been unable to deliver to customers.

Calhoun is well-respected, having spent 26 years as an executive at Jack Welch-era General Electric, including a stint running the aircraft engines unit, and he helped guide Caterpillar through a delicate time recently as chairman of the board when the heavy machinery maker was under investigation by the IRS over its accounting and facing troubles in China.

A much more comfortable speaker, Calhoun should be a more effective face for the company than Muilenburg with Congress and the public, and help improve its strained relationship with airlines and the FAA.

While that might be a solution for Boeing’s short-term problems, Richard Aboulafia, an aerospace analyst with Teal Group, cautions that Calhoun’s recent experience doesn’t lend confidence that he has the skills Boeing needs long-term. Calhoun has spent the past five years in private equity as a managing director at Blackstone Group, and before that eight years as head of the market research firm Nielsen. “[It] is perhaps the wrong toolkit for an engineering company that needs to restore its capabilities and reputation,” he says.

Given that Calhoun has been on Boeing’s board since 2009, it’s questionable whether he can offer a fresh approach, analyst Ronald Epstein of Bank of America/Merrill Lynch wrote in a client note. “We wonder if appointing from within, especially an insider that has been with the company for 10 years, signals more of the same from Boeing vs. an outside appointee who may have offered more of a change of pace and culture.”

Calhoun, who was appointed chairman in October when the title was stripped from Muilenburg, will be replaced as chairman by Lawrence Kellner, a board member since 2011 who was CEO of Continental Airlines from 2004 through 2009.

Boeing has a mandatory retirement age of 65 and Calhoun is 62. While the board could be amenable to giving Calhoun an extension, CFO Smith may be in position to take the job eventually, says Jeffrey Sonnenfeld, a professor at the Yale School of Management. “This gives him runway to be an appropriate successor.”

Boeing shares rose 2.9% to close at $337.55 on Monday on the New York Stock Exchange.

It’s an abrupt end for Muilenburg, who spent his entire 34-year career at Boeing, starting as an intern and rising to run the defense division before he was tapped to become CEO in 2015.

Until this spring, Boeing seemed to be going from strength to strength on Muilenburg’s watch, riding a boom in aircraft orders amid a historic expansion in air travel. Like his predecessors Jim McNerney and Harry Stonecipher, Muilenburg rewarded shareholders handsomely, devoting roughly 95% of operating cash flow to the company’s steadily rising dividend and share buybacks. Boeing shares climbed fourfold from February 2016 to a peak of $446 at the beginning of March, compared with a 63% rise for the Dow industrials over the same period.

However, critics have charged that the focus on financials has served to erode the primacy that engineering concerns used to have at the company.

The seeds of the 737 MAX crisis were sown well before Muilenburg was involved with the commercial airplanes division, with the decision in 2011 by Boeing to develop an updated version of the aging 737 with larger, more efficient engines rather than build an all-new single-aisle plane. Those larger engines changed how the 737 handled, prompting Boeing to develop software called the maneuvering characteristics augmentation system (MCAS) to automatically push the plane’s nose down in certain situations. MCAS’ design flaws are believed to be primary causes of the two deadly crashes in Indonesia and Ethiopia.

However, Boeing’s response to the crisis has been seen as squarely Muilenburg’s responsibility. He came under fire for public statements that were seen as scripted, lawyerly and lacking in empathy for the families of the deceased. Airlines and regulators have accused Boeing of being slow to share information, including the fact that the company knew in 2017 that an alert wasn’t working on most MAX aircraft that was intended to warn of a disagreement between the plane’s angle of attack sensors, which played a key role in the crashes.

It’s indicative of a corporate identity that under Muilenburg’s leadership “has been less than humble,” analyst Robert Stallard of Vertical Research wrote in a client note Monday, pointing also to the decision to raise production of the 787 Dreamliner to 14 planes a month, which has been walked back, and a strategy that seemed to assume that the historic boom-bust pattern of the aerospace sector is a thing of the past.

Muilenburg was widely seen as on his way out, with the ideal scenario being that he would depart sometime after the 737 MAX had returned to service. But with commentators increasingly calling for Muilenburg’s head last week following the announcement that the company would idle 737 production, the company suffered a stinging embarrassment Friday when a test launch of its Starliner space capsule went awry. Because a timer was set incorrectly, it was unable to reach an orbit to rendezvous as planned with the International Space Station.

The union representing Boeing engineers welcomed the leadership transition, saying in a statement that under Muilenburg, the company’s reputation for quality had “been unquestionably tarnished.”

Michael Stumo, who has become a prominent critic of Boeing since his daughter Samya Stumo’s death in the Ethiopia crash, said, “Mr. Muilenburg’s resignation is a good first step toward restoring Boeing to a company that focuses on safety and innovation.” He called for “underperforming or underqualified” board members to resign as well.

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Jeremy Bogaisky

I help direct our coverage of autos, energy and manufacturing, and write about aerospace and defense. Send tips to jbogaisky[at]forbes.com

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CNBC’s Phil LeBeau reports that Boeing’s board removed CEO Dennis Muilenburg as chairman so he can focus on running the company after the 737 Max crisis.

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News & Politics

 

 

Boeing To Halt 737 Output In January In Move That Will Strain Its Supply Chain

Airbus/Boeing

Since the grounding of the 737 MAX following the second of two deadly crashes in March, Boeing has sought to keep the production line moving and to minimize disruptions to the intricate web of smaller companies it relies on to supply roughly 80% of the components that make up its best-selling plane. However, with the Chicago-based company’s hopes dashed of winning approval by year-end for the 737 MAX to return to service, it has decided to halt assembly of the plane in January.

That could have far-reaching consequences for Boeing’s suppliers depending on the duration of the production freeze. The company didn’t address how long it could last.

“This decision is driven by a number of factors, including the extension of certification into 2020, the uncertainty about the timing and conditions of return to service and global training approvals, and the importance of ensuring that we can prioritize the delivery of stored aircraft,” the plane maker said in a statement Monday evening.

No layoffs are planned. The company said that the 12,000 workers at its Renton, Washington, factory will continue 737-related work or will be temporarily reassigned to other factories in the Puget Sound area.

Layoffs or furloughs could be forthcoming, however, at some suppliers. Among those that could face the greatest stresses are its aerostructures suppliers, chiefly Spirit AeroSystems, which makes the fuselage for the 737 MAX, analysts say.

The airframe is the largest portion of a plane, but building it is one-off work, with none of the highly profitable maintenance and repair sales that suppliers of other components enjoy. And smaller aerostructures suppliers have been left financially stressed as they tooled up to prepare to raise production of the 737 MAX while Boeing stretched out payment terms to 90 to 120 days, says Kevin Michaels, a consultant with Aerodynamic Advisory.

If it’s more than a one-month production pause, “Boeing and Spirit would need to be prepared to intervene to make sure small, vulnerable suppliers are there on the other side of this,” he says.

Boeing has been burning through $5.5 billion a quarter as it has built roughly 400 737 MAX aircraft it can’t deliver because of the worldwide grounding of the plane, and its balance sheet can no longer sustain that rate of spending, Bank of America/Merrill Lynch analyst Ronald Epstein said in a research note earlier Monday.

No deliveries means precious little revenue for Boeing: It typically only collects 1% to 5% of the purchase price of a plane as a down payment, with the final 50% due on delivery and the balance coming in payments as the delivery date approaches.

The darkening skies for airlines also were likely a factor in Boeing’s decision to halt output. Airlines placed thousands of orders for new airplanes while passenger numbers were expanding briskly this decade, peaking at 7.6% growth in 2017. This year passenger growth has slowed sharply, to a rate of 3.4% in October, and airlines aren’t likely to go out of their way to help Boeing expedite delivery of new planes next year for fear of adding unnecessary capacity, says Richard Aboulafia, an aerospace consultant with Teal Group.

Boeing had been planning to ramp up 737 production this year from 52 planes a month to 57. Instead, in April it reduced output to 42 a month, but it had Spirit continue to build 52 fuselages a month in what may have been a concession to the more sensitive condition of aerostructures suppliers. With no aftermarket revenue, they require certainty and consistency in delivery schedules to make the business work, says Michaels. “It’s a ballet that’s choreographed,” he says.

Spirit is working with Boeing to determine what the freeze means for the company and what steps it will take to mitigate the impact, a spokesperson told Forbes. In its second-quarter earnings call, Spirit CEO Tom Gentile said the company had game-planned pausing or reducing output in the event that Boeing halted 737 production.

Spirit furloughed thousands of employees one day a week for 10 weeks over the summer to cut costs.

Another public aerostructures supplier that stands to be squeezed is Ducommun, which makes spoilers, engine inlet bulkheads and exhaust fairings for the 737 MAX using titanium that it orders 12 months in advance. The 737 accounted for roughly 16% of Ducommun’s revenue in 2018.

Boeing didn’t respond to questions on what steps it would take to support suppliers through the freeze.

If suppliers halt production, Boeing will need to pay some to keep capacity in place, says Aboulafia.

The decision to halt production rather than slow the rate promises to make it more difficult for Boeing and its suppliers to raise output when it’s over. “Think of it as a standing start versus a running start,” says Aboulafia. A complete halt “puts enormous pressure on their supply chain and makes it hard to get back to 42 a month, let alone 52 or 57.”

Layoffs would further complicate the picture given the strong job market.

General Electric and Safran, which produce the MAX’s LEAP-1B engines through their joint venture CFM International, could be forced to adjust production rates. Engine component makers could most likely handle a short production pause, but it remains the most stressed part of the supply chain, Michaels said, amid teething problems for the LEAP and Pratt & Whitney’s geared turbofan. GE and Safran might need to help out some that are dependent on the LEAP, he says.

Interiors suppliers stand to be hurt a little more than other sectors by a production halt, he says, due to the lower share of aftermarket work in their revenues, he says. Collins, Recaro, Safran and Hexcel are among the interiors suppliers on the MAX.

Boeing warned in its October earnings report that it might halt or slow production if it were unable to win approval this year from safety regulators for revisions to the 737 MAX flight controls and related training changes.

FAA Administrator Steve Dickson told the House transportation committee last week that he would not clear the plane to fly until 2020, and summoned Boeing CEO Dennis Muilenburg to a meeting in Washington to address concerns that the company was attempting to publicly pressure the agency to move more quickly.

Dickson has stated repeatedly that he has no timeline for when the 737 MAX will return to service. Boeing made no mention of a date in its statement Monday. Bank of America analyst Epstein is forecasting March 1, but warns it could slip to April or May given uncertainties on Boeing’s progress toward meeting certification requirements and regulators’ deliberate approach.

Boeing shares fell 4.3% to close at $327.00; Spirit dropped 1.6% to $78.88.

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Jeremy Bogaisky

I help direct our coverage of autos, energy and manufacturing, and write about aerospace and defense. Send tips to jbogaisky[at]forbes.com

Source: Boeing To Halt 737 Output In January In Move That Will Strain Its Supply Chain

473K subscribers
Dec.16 — Boeing Co. is reportedly weighing temporarily halting production of the 737 Max as regulatory clearance for the grounded jet’s return looks increasingly likely to move beyond January 2020. Bloomberg’s Benedict Kammel reports on “Bloomberg Surveillance.”

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News & Politics

 

Airplane Deicing: The How & Why

Airbus/Boeing, Aviation/Pilot Training

If you’ve traveled by air in wintry weather, you’ve probably looked out your window before takeoff and seen vehicles circling the plane, spraying deicing fluid on the wings. Passengers often ask me why it’s so important to make sure the aircraft is free of snow and ice accumulation.

Not just removing, but also preventing a build-up of snow and ice on the wings and tail of an airplane is crucial for a safe take-off. A plane’s wings and rear tail component are engineered with a very specific shape in order to provide proper lift for flight. Snow and ice on these areas in essence changes their shape and disrupts the airflow across the surface, hindering the ability to create lift.

Whenever snow, ice, or even frost has accumulated on the aircraft, the pilots call on the airport deicing facility to have it removed. Deicing fluid, a mixture of a chemical called glycol and water, is generally heated and sprayed under pressure to remove ice and snow on the aircraft.

While it removes ice and snow, deicing fluid has a limited ability to prevent further ice from forming. If winter precipitation is falling, such as snow, freezing rain or sleet, further action needs to be taken to prevent ice from forming again on the aircraft before takeoff.

In these cases, anti-icing fluid is applied after the deicing process is complete. This fluid is of a higher concentration of glycol than deicing fluid. It has a freezing point well below 32 degrees Fahrenheit or zero Celsius and therefore is able to prevent the precipitation that falls into it from freezing on the plane’s surface.

Anti-icing fluid also has an additive that thickens it more than deicing fluid to help it adhere to aircraft surfaces as it speeds down the runway during takeoff.

Pilots temporarily disable the aircraft’s ventilation system during the deicing/anti-icing process to prevent fluid fumes from entering the cabin. Although the fumes are considered nontoxic for inhalation, we try to keep the odor out of the cabin regardless. Sometimes the scent, similar to maple syrup, does find its way into the aircraft cabin.

As the anti-icing fluids lose their effectiveness in flight, the aircraft is still equipped with systems that prevent frozen precipitation from building on the wings, tail and various sensors around the airplane. These systems are not only important in the winter months, but also in the summer months, because at higher altitudes, the temperature is well below freezing year-round.

Typically aircraft systems prevent ice buildup in one of two ways. On most jet aircraft, hot air from the engines is routed through piping in the wings, tail and engine openings to heat their surfaces and prevent icing.

Preventing ice formation in the engine openings is important, as ice here could dislodge and cause damage as it’s ingested into the engine. This occurrence would be similar to throwing a rock into a running washing machine — clearly not a good idea.

On propeller driven aircraft, balloon-like devices attached to the wings and tail are inflated and deflated with air from the engines, breaking up any ice accumulation.

We can’t promise your trip to the airport will be ice-free, but there won’t be any icy buildup on the plane getting you to your holiday destination.

By Daniel E. Fahl

Source: Airplane deicing: The how and why

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A snowstorm left snow piled on top of this Norwegian 737-800 bound for Copenhagen, Denmark from Oslo, Norway. The video features pushback, taxi, de-ice, and takeoff. It’s certainly not something you see everyday. Enjoy! Please LIKE & SUBSCRIBE to support my channel!

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Autos & Vehicles

How Airlines Are Defending Dormant 737 MAX Jets From The Ravages Of Corrosion, Insects And Time

Airbus/Boeing

Boeing 737 MAX planes have been stuck on the ground now for five months. With the likelihood rising that they won’t return to service before the winter, some airlines may soon have to deal with the danger that the planes could literally become stuck to the ground.

Tires of planes that are parked for long periods of time can freeze to the tarmac during subzero weather, warns a Boeing maintenance manual for the previous generation of 737 aircraft. It advises maintenance workers to place sand or a coarse fiber mat under the tires and covers over the wheels and brake assemblies to protect them from the corrosive effects of rain and snow.

With the end of summer drawing closer, Air Canada is considering moving its 24 737 MAX planes south to the gentler climes of a desert storage yard, a spokesperson told Forbes. WestJet says it’s content to keep its 13 planes in Canada, spooling up the engines every week and taking them for a spin on the apron around their hangars.

Airlines have had 387 MAX planes sitting quietly at airports and storage facilities around the world since March, when the second of two horrific crashes led aviation authorities worldwide to ground Boeing’s best-selling plane. Boeing is storing roughly another 200 that it has assembled but can’t deliver.

Planes are built to move. Making sure these aren’t damaged from their prolonged grounding has become the mission of a small army of maintenance staff. The longer the planes’ wings are clipped, the more needs to be done. Among the main tools, as prescribed by the 737 manual: copious amounts of yellow 3M vinyl tape No. 471 to seal off gaps and sensors, and an array of lubricants.

Southwest Airlines, the largest operator of the 737 MAX, is storing its fleet of 34 planes in the dry heat of the high Mojave desert at an airfield in Victorville, California. Once a week, maintenance workers power up the Leap-1B engines, which their maker, CFM International, a partnership between General Electric and Safran, recommend should be idled for 15 to 20 minutes to vaporize any moisture that may have collected in the oil and fuel systems and to cover engine parts with a new coat of oil to prevent corrosion. Southwest technicians also boot up the flight computers and auxiliary power units weekly.

The doors of planes stored in the desert are generally opened during summer days so the cabins aren’t damaged by the heat, says David Querio, president of Ascent Aviation Services, which operates at Pinal Airpark in Arizona, one of the largest aircraft storage yards in the world.

Birds sometimes nest on a plane, and, rarely, an animal will take advantage of an open door to take up residence inside. “They’re removed the same day if they’re stupid enough to do that,” says Querio.

As the timeline for the 737 MAX’s return has receded further over the past few weeks, some airlines could decide to put their planes into a state of deeper storage, with the engines preserved and batteries and other sensitive parts removed, says Tim Zemanovic, president of the Minnesota aircraft disassembly firm Fillmore Aviation. Because it requires fewer regular maintenance tasks, this type of storage generally runs half the cost of active storage, at roughly $1,000 a month per plane, he says, but it means it would take more time to ready the planes to fly again when aviation regulators sign off on Boeing’s fixes for the 737 MAX.

In long-term storage, the engines, the single most valuable part on an airliner, are “pickled”: The oil is drained and replaced with an oil mixed with a corrosion prevention solution, and desiccant bags—larger versions of the moisture-removing silica packets put in consumer goods—are placed in the inlets, with gauges that monitor humidity levels. Then the ends are covered to keep out the elements, animals and insects, says Zemanovic, who used to run a storage and maintenance facility at Pinal Airpark.

When planes are dormant for more than two months, Boeing’s 737 maintenance manual calls for gaps in the fuselage to be sealed with vinyl tape and screens placed over drain holes. A protective coating is sprayed onto unpainted metal surfaces. The cabins go dark, with the window shades closed and cockpit windshields covered with aluminum foil tape or other reflective material. Cotton covers are put over the seats and runners protect the carpets.

Planes at a storage yard typically get visited at least once a day to make sure the exterior coverings are intact, says Querio.

The 737 manual lays out a schedule of maintenance procedures to be done at regular intervals that’s heavy on lubrication of myriad parts.

Every week the plane should be scanned for corrosion; every two weeks, electrical systems powered up for two hours. Every 30 days the plane should be moved a third of a wheel’s turn, to prevent the tires from getting flat spots; carpets and seats checked for mildew; and water drained from the sumps of fuel tanks to prevent growth of bacteria or fungi, which can have the consistency of mayonnaise and plug fuel filters.

Every 90 days, the flaps, rudder and other control services need to be exercised.

If the grounding extends to a year, the landing gear may need to be flexed, says Zemanovic, with the plane propped up on giant jacks placed under the wings and the nose. Boeing and Airbus recommend that some models should be restored to operating condition after a year before being shut down again, says Querio.

Boeing expects aviation regulators to sign off on its fixes for the 737 MAX and a revised training regime early in the fourth quarter, but given previous delays and new technical issues that have arisen over the past few months, some industry watchers think the plane’s return to service could slip further. Southwest Airlines has taken the 737 MAX off its flight schedule till January 5; Air Canada has scrubbed the plane through January 8.

A Southwest spokesman said that once the U.S. Federal Aviation Administration declares the model airworthy, the airline expects it will take 120 hours of work on each plane to get them ready to fly again, and 30 to 60 days for the airline’s whole fleet.

One giant task: cleaning the planes. Dust can collect inside planes stored in the desert if the doors are vented, requiring a thorough vacuuming, says Zemanovic, and if the storage facility doesn’t have a concrete wash pad with drains to properly dispose of large amounts of soapy water, workers may have no choice but to wipe down the plane by hand, a laborious process that he says could require a “couple hundred” man hours. Two necessities for the job: 27-foot high work platforms and a mammoth supply of cleaning wipes.

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Jeremy Bogaisky

I help direct our coverage of autos, energy and manufacturing, and write about aerospace and defense. Send tips to jbogaisky[at]forbes.com

 

Source: How Airlines Are Defending Dormant 737 MAX Jets From The Ravages Of Corrosion, Insects And Time

Won’t You Please Buy A Used Airbus A380?

Airbus/Boeing, Airlines, Content Marketing

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Are you looking for a great new entrepreneurial opportunity? Why not buy some used Airbus A380s and start your own airline? Second-hand aircraft have been a launching pad for billionaires from Sir Richard Branson, who started Virgin Atlantic with a used 747, to the late Kirk Kerkorian, who turned a used DC-3 into an airline asset he later parlayed into ownership of MGM.

Such an opportunity may be here again for the right (and well-financed) entrepreneur. Since Airbus announced the coming end of A380 manufacture, airlines like Singapore, Lufthansa and most recently Air France have been rushing towards the exits of A380 ownership. Recent reports about possible wing cracks in early models (again) may provide added impetus. Reports are that seven Airbus A380 aircraft are in storage in France, almost 3% of the total of 238 manufactured. A pair have reportedly been scrapped.

Still, all the potential airline mogul needs to do is create a start-up airline (or charter, or, possibly, a freight carrier) with routes that can keep a 500-seat A380 or two packed full. With seven planes parked and more coming, (Lufthansa is returning its aircraft to the manufacturer as part of a deal for new aircraft) Airbus will no doubt cut you a sweet deal on a used A380, original list price $446 million.

There’s just one problem. The budding airline entrepreneur will need to figure out how to make money with the airplane, apparently something that neither most airlines or Airbus have figured out. (An exception may be Emirates, which owns 111 of the world’s 238 A380 aircraft and has aggressively used them to build traffic through Dubai Airport, which leads the world in annual international travelers with 88 million.)

Ironically, Virgin Atlantic, the creation of entrepreneur Sir Richard Branson, was a launch customer for the A380, ordering six in 2001. It finally canceled the order in 2018 without ever taking delivery.

While entrepreneurs willing to take a chance on the A380 can no doubt get a substantial discount off the $446 million list price, the plane’s costs of operation and maintenance remain substantial. You’ll still need a large crew (Qantas operates the plane with three in the cockpit, 21 in the cabin), and pay a cost of operation estimated at $26,000 to $29,000 an hour, one of the highest in the airline industry. Those four engines are thirsty; that cost included roughly $17, 467 worth of fuel.

Simple Flying quoted the Australian Bureau of Infrastructure, Transport and Regional Economics , “To achieve break-even at 80% seat factor (440 seats occupied including first class and business class), average ticket price should be about $700 one way and $1400 return.”

Compounding the usability problem, only a relative handful of world airports are specifically designed to accommodate the A380. The Top 20 airport list is led, of course, by Dubai. Most of the world’s busiest airports are on it, including Los Angeles, Tokyo, London Heathrow, Paris, New York JFK, Beijing, Shanghai, and Frankfurt. Not on the list is the world’s busiest, Atlanta’s Hartsfield-Jackson, reflecting the fact that no US carrier has ever operated the A380.

Other airports can accommodate the A380, but at many, operations will create complications. Not only does the aircraft weigh more than a million pounds when fully loaded with passengers, luggage, cargo and fuel, it needs a special jet bridge to efficiently handle loading of its double-decker configuration.

The A380 was designed to fly huge numbers of passengers to various “hub” cities. The idea was that once they arrived, passengers going elsewhere would board another plane and fly to their destination. However, most passengers prefer flying point-to-point, which is now possible in much smaller, more efficient aircraft. Travelers heading from New York to Singapore, for example, no longer must fly to Los Angeles or San Francisco and switch to a different aircraft. Singapore Airlines now offers a 19-hour direct flight, using Airbus’ own twin-engine A350 900ULR.

While there is an almost non-existent used market for A380 aircraft, there is still demand for an even older jumbo, the Boeing 747. However, that market is driven by demand for dedicated air freighters. While a cargo version of the A380 was designed, production delays frustrated launch cargo customers FedEx and UPS to the point where they cancelled their orders.

Without freighter orders, Airbus decided to concentrate on the passenger craft, so no freighter was ever built. It is unclear whether conversion of existing passenger aircraft to freighter configuration would even be possible, let alone economic.

Just as no airline at this point seems to buy a new A380, few to want to buy, lease or rent a used one. But entrepreneurs won’t be stopped, so there is at least one exception, the Portuguese-based charter operator Hi Fly. Hi Fly became the first charter airline with an A380 in 2018.

The operator was busy last summer bailing out customers like Norwegian and Air Austral. Both airlines had similar problems; Boeing 787 Dreamliners grounded for engine checks during the height of the tourist season. Each contracted with Hi Fly to supply a “wet lease” A380, complete with crew and maintenance . But this summer, One Mile At A Time says the Hi Fly A380 is “Still Doing A Whole Lot Of Nothing.”

Nonetheless, the CEO of Hi Fly, Paulo Mirpuri, is sanguine about the future of the A380. He told Forbes.com, “The aircraft is performing well, flying all over the world, the main markets out of Europe so far being in Africa, USA, and South America. Other than for planned maintenance over the last winter, the aircraft has been operationally available with a high degree of dispatch reliability.”

Like a true entrepreneur, Mirpuri clearly believes in his product. “Hi Fly plans to expand further its fleet of A380s. It is a technically very advanced aircraft, loved by the passengers and it fits well in a number of missions and routes.”

Boeing May Have To Cut 737 MAX Production Again

Airbus/Boeing

With the timeline for ending the grounding of the 737 MAX pushed further out, the potential that Boeing will reduce the production rate of its flagship plane has risen, analysts say.

The company is beginning to show the financial strain of the crisis, announcing Thursday that it would take a $4.9 billion charge in its second-quarter earnings to cover compensation to buyers of the plane, who have been forced to wait for delivery as Boeing works with aviation safety regulators to fix the problems that led to two deadly crashes that killed 346 people.

In April, Boeing dropped 737 output from 52 planes a month to 42, but that production still comes at a considerable cost that isn’t being matched by incoming revenue. Boeing typically only collects 1% to 5% of the purchase price of the plane as a down payment, with the final 50% due on delivery and the balance coming in payments as the delivery date approaches. Boeing also said Thursday that the smaller production runs had raised production costs for the program by $1.7 billion. Meanwhile, undelivered planes are stacking up in temporary storage, presenting Boeing with logistical and maintenance headaches.

“I’d be very surprised if there weren’t another rate cut ahead,” says Richard Aboulafia, an aerospace analyst with the Teal Group. “Probably down to 36 or so.”

Boeing kept the 737 production line fully staffed after its April rate cut, but furloughs would be a possibility this time, he says.

There may be signs of a pending slowdown already in the supply chain. Chris Olin of Longbow Research said in a note Thursday that small aerospace parts suppliers his firm canvasses reported a sharp drop in orders in July. That’s “seen by some high-level executives as a leading indicator for additional [737] production cuts” in the second half, Olin wrote.

General Electric and France’s Safran, which produce the plane’s LEAP-1B engine through a joint venture, could decide to lower LEAP production independently for 2020, Olin says. He downgraded his rating of the shares of the specialty metals producers Arconic and Allegheny Technologies to neutral over uncertainty in demand ahead.

Kevin Michaels, managing director of AeroDynamic Advisory, sees a “30% to 40%” chance of a rate cut if the 737 MAX’s return to service slips to December or January. “It would be modest because it needs to keep the supply chain warm,” says Michaels. “Perhaps something like 36.”

Boeing has given no indication that a slowdown is in the offing. In the announcement of its $4.9 billion charge, the company said it was planning to gradually raise production from 42 planes a month to 57 in 2020.

In May, it was thought that Boeing was on track to receive approval from the U.S. Federal Aviation Administration to end the grounding of the 737 MAX by late June, but the timeline has slipped amid an exhaustive review of the safety of the plane that has turned up new areas of concern. Late last month, FAA test pilots discovered a data processing problem in the plane’s flight control computer that could occur in the event of a microprocessor failure, which Boeing is hoping to address through a software modification.

Boeing said Thursday it’s assuming that it will receive regulatory approval by early in the fourth quarter for its fixes for that issue and the MCAS flight control program implicated in the two crashes. Speculation had risen earlier in the month that return to service could be delayed to early 2020.

Over the past week, American Airlines, United and Southwest scrubbed the 737 MAX from their schedules through early November.

Airbus could be poised to benefit if Boeing reduces 737 production again, Olin believes. That would open up production capacity in the supply chain that could help Airbus ramp up production of the competing A320neo to 70 a month.

The 737 MAX is the linchpin of Boeing’s commercial aircraft business, with a backlog of 4,547 orders. With the order book dwindling for the 737 NG, it can’t sustain the 737 line on that alone. Boeing only delivered 24 in the second quarter, and it lists just 49 outstanding orders for the 737-800 and 737-800A, and five for business jet versions.

Boeing shares rose 4.5% to close the week at $377.36, with investors apparently happy that the company provided concrete numbers on the extent of the financial damage from the MAX crisis. Boeing shares have fallen 11% since the crash of Ethiopian Airlines Flight 302 on March 10, but the stock is still up 16.5% on the year.

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Jeremy Bogaisky

I help direct our coverage of autos, energy and manufacturing, and write about aerospace and defense. Send tips to jbogaisky[at]forbes.com

Source: Boeing May Have To Cut 737 MAX Production Again

Plane Talk: 737 MAX In Focus For Boeing Q2, With F-35 Top Of Mind At Lockheed

Airbus/Boeing
Getty Images
Getty Images

Key Takeaways:

  • Lockheed and Boeing are reporting Tuesday and Wednesday
  • Boeing’s troubled 737 MAX likely to be in spotlight
  • Lockheed navigating geopolitical issues

It’s a tale of two planes this week as Boeing (BA) and Lockheed Martin (LMT) earnings line up on the runway.

After months of grappling with 737 MAX troubles, Boeing (BA) doesn’t seem likely to get much of a lift from earnings season when it reports Wednesday. Thanks to BA’s announcement last week of a nearly $5 billion charge related to the situation, some of the financial mystery surrounding the crisis is out of the way as earnings approach.

At LMT, geopolitics are a potential challenge for sales of the popular F-35 jet fighter and might be a discussion point on its earnings call Tuesday.

Boeing Quarter to See No Contribution from Key Airliner

For BA, Q2 is the first this year to fully reflect the complete grounding of the troubled 737-MAX plane after two deadly crashes.

Last Thursday, Boeing said it will record an after-tax charge of $4.9 billion, or $8.74 per share, connected with its estimate for potential concessions and other considerations to customers for disruptions. This charge will result in a $5.6 billion reduction of revenue and pre-tax earnings in the quarter. The entire estimated amount will be recognized as a charge in Q2.

The good news—if you can find any in a situation like this—is that BA also said it expects to get the plane back into service by early in Q4, which is earlier than some analysts had expected. Before BA’s announcement, some media reports speculated it wouldn’t get into the air again until next year. Also, the charges might look relatively small compared to BA’s $210 billion market capitalization.

Big Drop in Q2 Deliveries for Boeing

Maybe even harder to swallow for BA and its investors is the competitive impact of the crisis. Deliveries of BA’s airliners slid 37% in Q2, even as Europe’s Airbus (EADSY)—the world’s other leading aircraft manufacturer—made solid strides.

Airbus said it delivered 389 planes in the first half, up 28% from 303 a year earlier. It’s on pace to deliver a record number of planes this year. Meanwhile, BA’s deliveries went the wrong way in the first six months of 2019, falling to 239, from 378 a year earlier. Deliveries of the company’s 737 model fell by more than half.

BA reported no orders of the 737-MAX in June for the third-straight month since the separate crashes that killed 346 passengers earlier this year and in 2018. The company continues to work through software issues with the troubled jet, including another flight control issue involving failure of a microprocessor announced by the Federal Aviation Administration (FAA) last month.

BA’s earnings conference call is probably going to sound more like a “737-MAX” conference call, so consider listening closely for any updates on fixes to the jet. Some analysts say BA is doing the right thing by not focusing too much on timetables and emphasizing a quality outcome over timing.

Even if BA can satisfy the government that it’s taken all the necessary steps to make the plane safe again, airlines would need more than a month in many cases to get the planes back into flying condition, The Wall Street Journal reported recently. Several airlines have now pushed back their estimates of when they can get the 737 MAX back into their rotations, with Southwest (LUV) the latest to do so. Last week, LUV pulled the plane off of its flight schedule into early November, a month longer than it had expected in June. LUV is the largest U.S. operator of the jet.

BA’s Q1 earnings report barely reflected the 737-MAX issue, because the plane wasn’t grounded until nearly the end of that quarter. In Q2, it was on the tarmac for all three months, so now investors can get a sense of the full impact.

However, even in Q1 things weren’t all that positive, with BA noting then that cash flow fell nearly 10% from a year earlier due to lower 737 aircraft deliveries. Revenue came in slightly below expectations in Q1 and fell $500 million from the same quarter in 2018.

This time around, struggles could get worse, if analysts are correct. Beyond that, BA—like other industrial companies—faces the challenge of higher materials costs due in part to U.S. tariffs on steel and aluminum from China. These are important components of aircraft building.

If you’re looking for any good news from BA, perhaps it’s worth noting that the company did deliver a record 18 of its 787 Dreamliner jets in June, with monthly production of that jet now at 14.

Boeing Earnings and Options Activity

When BA releases results, it is expected to report adjusted EPS of $1.78, down from $3.33 the prior-year quarter, on revenue of $19.99 billion, according to third-party consensus analyst estimates. That revenue would represent a 17.6% drop from a year ago. These earnings projections don’t reflect the charges announced by BA last week.

The options market is implying about a 3.1% stock move in either direction around the upcoming earnings release. Implied volatility was at the 22nd percentile as of Monday morning.

Looking at the July 26 weekly expiration, put volume has been light overall, but heaviest at the 365 and 370 strikes. Call volume has seen a little more action, most heavily at the 375 and 380 strikes.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

No Turkish Delight for Lockheed

Like BA, Lockheed Martin (LMT) faces a possible headwind from tariffs on materials it uses to build products. It also has its own issues with a plane, though arguably they’re nowhere near the level of BA’s concerns.

LMT’s F-35 fighter jet, which makes up about 30% of the company’s sales, recently came into the spotlight when the U.S. government halted delivery of two F-35 planes to Turkey. This was in response to Turkey making a multi-billion dollar deal to buy a Russian missile system. The issue becomes more serious for LMT because Turkey also faces the forfeiture of 100 promised F-35 jets, CNBC reported.

Complexities build for LMT when you consider that the F-35 is financed and manufactured partly by Turkey. That means LMT could need to replace the manufacturing done in that country.

For now, LMT sounds hopeful about its fighter jet despite the Turkey controversy.  “We continue to see strong demand both from our existing partners and potential new international customers and are confident the F-35 program will continue to grow,” a company official told the WSJ.

However, the company’s earnings call tomorrow could include questions from analysts about any deeper financial impact LMT might face.

A couple other factors to consider going into the call include whether the recent strong dollar is having an impact on foreign demand for LMT products, and whether business is seeing any impact from the U.S./China tariff situation.

There’s a sense that LMT and other defense companies could be getting helped by rising defense budgets, including in the U.S. However, the U.S. defense budget for next year remains contested in a battle between Democrats who control the House of Representatives and President Trump and congressional Republicans. Democrats in the House passed a $733 billion defense budget bill earlier this month that Trump and Republicans oppose. Trump had proposed $17 billion more in spending.

The House and Senate have a few weeks left to reconcile their competing versions of a defense bill. Any delay on a new budget agreement might raise questions about demand for LMT’s products in the coming months.

Lockheed Earnings and Options Activity

Lockheed crushed estimates in Q1, with earnings up 49% from a year earlier. At the time, LMT updated its forecast for 2019 financial results, with earnings anticipated between $20.05 a share and $20.35 a share. Expected full year revenue was also increased, to a range between $56.8 billion and $58.3 billion.

One thing to watch when LMT reports tomorrow is whether any of that guidance changes.

Lockheed Martin is expected to report adjusted EPS of $4.77, up from $4.05 in the prior-year quarter, according to third-party consensus analyst estimates. Revenue is projected at $14.2 billion, up 6% from a year ago.

The options market is implying about a 2.5% stock move in either direction around the coming earnings release. Implied volatility was at the 18th percentile as of Monday morning.

thinkorswim chart

TREADING WATER: Boeing shares (candlestick) have basically been treading water for a few months now, as this year-to-date chart shows, while Lockheed shares (purple line) have retreated from recent highs. Data Source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

thinkorswim

TD Ameritrade® commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.

JJ Kinahan

I am Chief Market Strategist for TD Ameritrade and began my career as a Chicago Board Options Exchange market maker, trading primarily in the S&P 100

Source: Plane Talk: 737 MAX In Focus For Boeing Q2, With F-35 Top Of Mind At Lockheed