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Since the Boeing (BA) 737 MAX was grounded in March 2019, it has been heavily discussed when the Boeing 737 MAX would be allowed to return to service. What we observed is that in April, Boeing started positioning itself for a Q4 return to service and that’s also what AeroAnalysis was told by Boeing employees, though in this report we will explain why we expect the Boeing 737 MAX schedule to slip.

In order to determine the impact on Boeing’s financials, AeroAnalysis developed a tool that provides estimates based on grounding durations. Early in April, we already used an optimistic input of a seven-month grounding in our model, while at the time Boeing was still telling airline executives that a return to service in July was a possibility. Key to a seven-month grounding assumption (as I discussed in an exchange with a member of The Aerospace Forum six months ago) was a phased return to service for the Boeing 737 MAX and significant redesign of the flight control system.

A seven-month grounding would put the costs of the grounding including implications for production at nearly $8B excluding insurance coverage and costs accounted for in the accounting quantity for the Boeing 737 used to streamline reported profits. A nine-month grounding would lift this cost estimate to $12B as the “unrealized production” and their associated profits become more and more dominant in the cost structure. However, what I also noted is that I wasn’t particularly convinced about a Boeing 737 MAX return in Q4 2019 and a return in Q1 2020 is certainly a possibility.

In this report, we are going to have a look at the timeline and share our thoughts on why it’s taking Boeing “so long” to get the fix ready.

Fundamental changes

Afbeeldingsresultaat voor 737 westjet storage

Source: CBA.ca

One thing I do often hear is the following:

If the software fix was so easy for Boeing to do, why is it taking them so long?

Some blame the FAA for delaying a fix, some say the Boeing 737 MAX will never be certified again. In between those extremes you have a lot of views.

The fact is that what Boeing is working on are fundamental changes to the system. In April 2019, Boeing completed the first engineering flight with updated MCAS software, and in May 2019, development of the MCAS software update was completed. From that point onwards things started to deviate from the planning. Allowing 4-6 weeks for the FAA to review the MCAS update, by mid-July or the end of July the Boeing 737 MAX could be cleared for service. Which fully fits what was told to Indian carrier SpiceJet, namely that the Boeing 737 MAX would fly again in July 2019. In June, FAA test pilots performed flights in Boeing’s engineering simulator testing several flight conditions and scenarios. The deviation is that, in late June, the FAA required additional changes to be made.

In a press release Boeing said the following about that:

CHICAGO, June 26, 2019 – The safety of our airplanes is Boeing’s highest priority. During the FAA’s review of the 737 MAX software update and recent simulator sessions, the Federal Aviation Administration identified an additional requirement that it has asked the company to address through the software changes that the company has been developing for the past eight months. The FAA review and process for returning the 737 MAX to passenger service are designed to result in a thorough and comprehensive assessment. Boeing agrees with the FAA’s decision and request, and is working on the required software. Addressing this condition will reduce pilot workload by accounting for a potential source of uncommanded stabilizer motion. Boeing will not offer the 737 MAX for certification by the FAA until we have satisfied all requirements for certification of the MAX and its safe return to service.

Boeing also filed an 8-K form on the same day:

The Federal Aviation Administration has asked The Boeing Company to address, through the software changes to the 737 MAX that the company has been developing for the past eight months, a specific condition of flight, which the planned software changes do not presently address. The Boeing Company agrees with the FAA’s decision and request, and is working on the required software to address the FAA’s request. Boeing will not offer the 737 MAX for certification by the FAA until we have satisfied all requirements for certification of the MAX and its safe return to service.

Note: Author altered the text from the filing as the actual filing misspells “Federal Aviation Administration” as “Federal Aviation Administration”.

From the press release as well as the filing, it’s clear that the reason for the delay is not the MCAS software which was completed in May 2019, but the additional issue that should be fixed. The additional issue has been explained by Dominic Gates from The Seattle Times. According to the report, Boeing has redesigned the Boeing 737 MAX flight control software architecture in such a way that it will take inputs from both flight control computers (FCC) with each FCC depending on their own set of sensors. That’s a huge change that requires effort and time.

The changes on the Boeing 737 MAX are no longer just changes to the MCAS software that has been redesigned such that it takes data from two vane measurements, compares them and turns off the system if the values from the left and right vane differ by a threshold value. The changes that have delayed the recertification are more extensive and change the Boeing 737 MAX flight control system software such that it takes dual inputs simultaneously.

So where are we in the timeline?

Afbeeldingsresultaat voor 737 max close up

Source: Aviatica

At this point, we are on the 1st of October (the time of writing). All text and dates above this line differentiate MCAS software updates from the Flight Control System Software changes and show how a July 2019 estimate for a return-to-service turned into early Q4.

The problem now seems that we are in Q4 and September passed without Boeing presenting a software and training package for certification.

As recently as the 30th of September, Dennis Muilenburg, CEO of The Boeing Company, said their progress is matching a return-to-service in early Q4.

From a report from Julie Johnson published on Fortune:

The final steps to lifting the ban are clearly defined, and timing will be determined by the FAA, Muilenburg said. Once a final version of the flight control computer update is ready, Boeing will invite airline pilots to test fly it in the company’s engineering simulators known as e-cabs. A separate team of pilots will review the company’s updated training material. After that FAA pilots will test the changes in a Boeing 737 Max bristling with sensors and other flight-testing equipment.

“That’s the certification end game,” Muilenburg said. “We’re still marching to a timeline of return to service early in the fourth quarter, but I want to reiterate the timing will be determined by regulators.”

Gerelateerde afbeelding

Source: WSJ

The part from the Fortune report is important because it tells us that Boeing is close, but they don’t have a full software and training package ready yet and that makes it rather interesting to maintain the claim that the Boeing 737 MAX will return to service in early Q4. If the updated final material is presented to the FAA today (on Oct. 1), then at the earliest I believe the Boeing 737 MAX could be re-certified at the start of November or mid-November. Important to realize here is how vague Boeing’s use of words here is when they say they are aiming for a return to service in “early Q4” and a certification flight in the “September time frame.” If we assume that a “September time frame” allows Boeing to shift two weeks away from September, then we are looking at a recertification by mid- or end-November. I don’t consider that to be “early” Q4. So, Boeing is either hoping that the FAA compresses the recertification window or its “early Q4” estimate is unachievable or too vague for interpretation.

What also should be noted is that what Boeing addresses as “return-to-service” is actually the recertification and not the aircraft returning in revenue service and it will take airlines approximately 1-1.5 months to have the MAX back in service after it has been re-certified. If we are looking at a submission of the fix in the coming 14 days, allow for a month of certification procedures and a month of preparing the MAX for service then we are looking at a return to service in late November or early December for US carriers. If the certification takes two weeks longer then the window slips toward mid- or end of December.

Conclusion: Boeing 737 MAX schedule likely to slip

I think it’s important to realize the actual reason for the delayed certification is not the development of the MCAS software package, because that already has been completed in May 2019. Further delays arose from issues that arose in specific scenarios and flight conditions requiring Boeing to fundamentally change its flight control system software. At this point, I’d say for things go smoothly, the most optimistic timeline puts a recertification at the end of October on the condition that the submission happens in the coming days. After that, the recertification date slips toward the end of November. In either scenario, it might take a month on top of that to have the actual aircraft return to service. At this point, I’d say that Boeing is either in the possession of information that we are not familiar with about a certification timeline or they simply are claiming something that’s not achievable but that they can defend by using vague wording.

What’s also interesting is that Boeing announced the establishment of an Aerospace Safety Committee and a New Product and Service Safety organization. Now we don’t know what role these newly-established bodies play in the return to service for the Boeing 737 MAX and whether they play a significant role that could alter the timeline, but if they go through things in a detailed fashion that could at least add another month in the certification process.

At this point, I’m not buying an estimate of an early Q4 return-to-service for the simple reason that Boeing labels a recertification as a return-to-service and my own understanding of the timeline suggests that a late-October/November recertification is more likely as an optimistic estimate. Important to note is that this is an optimistic estimate based on the recertification package being provided to the FAA in the coming two weeks, after which it takes six weeks to get the aircraft re-certified.

If you’d ask me now what the less optimistic scenario is, then I’d say the fix to be presented to Boeing by the end of the month, 6 weeks for recertification and six weeks for return to service bringing a return to service to 16 weeks from now: The end of January 2020. And you can even add a month to that if Boeing’s own panel is going to review the software and training packages.

United Airlines (UAL) and American Airlines (AAL) have removed the Boeing 737 MAX from their schedules until December and January respectively. To achieve that, Boeing needs to present the fix in the coming week, have a four-week recertification process and a four-week process to prepare aircraft and crews for commercial service. It’s not something I think is the most plausible scenario at this stage. Southwest (LUV) has removed the MAX from flight schedules until Jan. 5 while the Southwest pilot union says it could take until March 2020 for the aircraft to return. If I look at airline schedules and my own projections, as much as I’d like to see the MAX return safely in Q4, I don’t see how Boeing will actually pull it off. It could even be that they announced the establishment of several boards in such a way that additional delays for the Boeing 737 MAX certification can be attributed to these panels.

At this point, I don’t quite see how a Q4 recertification for Boeing will be achievable, while Dennis Muilenburg has continued to claim they are on track to have the Boeing 737 MAX re-certified in Q4. If Boeing manages to have the Boeing 737 MAX re-certified as early as Q4 without any corners being cut, they will likely surprise almost the entire world. If Boeing misses the target, I’d think that there will no longer be a place for Muilenburg at Boeing and even the patient investors will be done with Boeing.

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