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A European Perspective on Boeing’s 737 MAX Debacle: An “Existential Crisis” for a National Champion

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Via Naked Capitalism

By Lambert Strether of Corrente

Der Spiegel has published a well-reported[1], long (~10,000 words), and devastating article on the Boeing 737 MAX crashes of Lion Air Flight 610 and Ethiopian Airlines Flight 302: “Boeing’s Crashes Expose Systemic Failings.” (The original German version was published on August 3rd, 2019; we in the Anglosphere were only able to read it on August 23.) The article is very solid (reader Harold comments: “Teutonic thoroughness”). For example, here is a detail that is new to me. Of Flight 302:

The plane smashed into the ground at a speed of 926 kilometers per hour (575.4 mph) — and physics did the rest…. The kerosene in the tanks didn’t explode and nothing burned. The fuel evaporated instantaneously due to the extremely high speed at impact.

Yikes! In this post, I’m not going to summarize the article, which I recommend you read in full and pass along. NC has covered this story extensively in links and posts; see especially here, here, and here. The competition between Airbus and Boeing, the MCAS debacle, the 737 MAX design process, the FAA’s regulatory failures, and cultural issues at Boeing are well covered in those posts, so I’m not going to focus on how Der Spiegel covers those topics. Rather, I’m going to focus on the existential threats to Boeing that Der Spiegel — with well-concealed but surely present schadenfreude[2] — identifies. There are four, which I’ll convey with extracts from the Der Spiegel article.

Existential Threat (1): Punitive Damages from Losing in Court

Der Spiegel begins by interviewing “feared lawyer” Marc Moller, “a legend among his colleagues,” working together with New York law firm Kreindler & Kreindler. Moller has tried (and won) cases for the victims of the the Germanwings crash in 2015, the American Airlines case when a Boeing 757 struck a mountainside in Colombia, and Turkish Airlines Flight 981, which exploded in mid-air due to a faulty cargo hatch. Now Moller and Kreindler & Kreindler are representing victims of Ethiopian Airlines Flight 302 Der Spiegel summarizes Moller’s theory of the case as follows:

The competition between Boeing and Airbus does, in fact, appear to be a key element in these two crashes. The profitability of both companies depends on but a few products, and when it comes to the most important aircraft of all, the short- and medium-haul planes, Boeing has fallen behind Airbus, Moller says, and suddenly, once-loyal Boeing customers were buying jets from Airbus, preferring the new A320 to the outdated 737. Boeing had to act quickly. But instead of designing an altogether new aircraft, Moller says, engineers continued to make changes to the old 737 design and, in the end, came up with an aircraft that was dangerously designed.

The above is well understand, but here is the pain point for Boeing:

In the coming proceedings and investigations, . If the prosecution can prove or find witnesses to say that people at Boeing or aviation regulators had cautioned against the further operation of the 737 Max after the Lion Air crash, it could make the company look extremely culpable. If anyone at Boeing had even the slightest inkling of the new system’s inherent risks, things could get tricky.

By “tricky,” we mean expensive“:

The Kreindler & Kreindler lawyers aren’t likely to be wearing kid gloves. And they aren’t only interested in damage payments, which are self-evident and could be in the hundreds of millions. (The $100 million that Boeing offered as compensation to families of the victims in early July is likely a joke in their eyes.) Instead, . An initial hearing took place in late June and Judge Alonso ruled that the case could proceed and the lawyers could produce their evidence.

If Moller and Green are successful with their strategy, the consequences could be grave for Boeing. It may mean a tripling of the damage payments that the company would have to pay and Boeing’s insurer would not be liable. And that could threaten the aircraft manufacturer’s very existence.

I don’t know whether this threat is “in the price” or not.

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Existential Threat (2): Retroactive Loss of Insurance

Triple damages are bad enough. Here is why Boeing’s insurance company might be off the hook for them. The business background is well-known:

The Dec. 1, 2010 announcement by the Europeans that the entire A320 family would be re-engineered and outfitted with new, unusually fuel-efficient and quiet engines must have hit Boeing’s Chicago headquarters like a bolt of lightning….

At the time, Boeing had no fully developed plan for a new model or an acceptable new version of the 737. Most importantly, the company was not in a position to be able to install the new generation of jet engines on its planes. So, the industry was quite surprised when Boeing, just nine months later, appeared to catch up to Airbus. In late August 2011, the construction of the 737 Max was announced, and the company even promised that the plane could be operated 7 percent more cheaply than the A320neo.

The technical background, again well-known:

Once again, [Boeing’s engineers] tried to compress the engine shape. And once again, they commissioned a customized, smaller version of the engine. They tried pretty much everything to create more space under the plane, even lengthening the landing gear by 20 centimeters. The most important change, though, was installing the turbines a bit higher on the wings and quite a bit further forward.

Changing, as we know, the aerodynamic characteristics of the aircraft, leading to the notorious MCAS system:

The ex-Lufthansa manager, who has to remain anonymous due to old contractual agreements, says he is convinced that the construction of the 737 Max on the whole is “amateurish.” It is, he says, the culmination of the technical shortfalls that Boeing has essentially been seeking to eliminate since the mid-1990s.

And now we come the dodgy FAA approval process:

It was only by way of such [as MCAS] that engineers were able to achieve the stability necessary for safe flight. The FAA was informed of the system early on and accepted it. In hindsight, it is an open question whether they were really aware of all the details of the new software solution. When Boeing first presented the MCAS system to the FAA, the program only activated reluctantly and adjusted the horizontal stabilizer trim by just 0.6 degrees. Later, though, during the development process, Boeing gave the program much more leeway [“authority”] and increased its control over the plane, allowing it to make changes of up to 2.5 degrees. According to information currently available, it looks as though the FAA never approved this much riskier system.

Oof.

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Existential Threat (3): The End of the Boeing-Airbus Duopoly

Boeing did manage to gobble up Embraer, and Airbus Bombardier, but other competitors are rolling down the runway:

And this all comes at a time when the Airbus-Boeing duopoly has been developing cracks. The two may still be the world’s undisputed aerospace leaders, but companies in China, Russia and Japan are in the process of grabbing a bigger piece of the pie. Furthermore, it has become easier to build airplanes because a highly specialized global market of suppliers has developed that can deliver almost any part in the desired quality at the desired moment in time. The times when airplane construction was a calling card of unattainable technological excellence are coming to an end. Things are becoming more difficult, especially for Boeing.

National champions, all.

Existential Threat (4): The Collapse of Today’s Regulatory Regime

The FAA has played a dubious role throughout; its reputational damage may be even greater than Boeing’s:

When boarding an aircraft, passengers must have absolute faith that engineers and mechanics have done all they possibly can to build a safe airplane. Every traveler must be able to trust that aircraft construction and maintenance followed strict oversight and certification protocols whose entire purpose is that of reducing safety risks as close to zero as possible. But that trust has now been shaken.

Indeed, the monitoring system is no longer worthy of the name, having transformed into an arrangement in which a company like Boeing is ultimately responsible for policing itself and certifying the market-readiness or airworthiness of its own products. It has become

When confronted with such accusations, all the FAA can do is claim that the certification of the 737 Max followed standard agency procedures and took five years.

One of the most important FAA documents for commercial air travel is called “FAR Part 25,” a 240-page document. It is essentially a list of all the safety requirements that every new civilian airplane must fulfill prior to certification…. The rules documented in FAR Part 25 are something like a constitution for global civilian air travel. For Boeing, though, the tome represents the greatest threat it is currently faced with. Although the 737 Max was officially certified in 2017 in accordance with the rulebook, there are significant doubts as to whether that certification was right and proper.

.

Here is the nut graf on regulation:

Paragraph 25,671 of FAR Part 25 expressly states, for example, that an airplane must be able to safely land if, for example, the control surface on the horizontal stabilizer becomes jammed in flight or otherwise malfunctions.

Continuing flight in such circumstances must be possible “without requiring exceptional piloting skill or strength.” Malfunctions “must have only minor effects on control system operation” and if the failure is not “extremely improbable,” then the pilots must have the ability to immediately regain control.

Ouch. Hard to see how pilots’ experience with MCAS complies with Paragraph 25,671.

The political will to outsource erstwhile state responsibilities to industry has deeply unsettled a functioning global safety system, within which the FAA had been considered the gold standard. Everything that the FAA had checked and approved was consistently adopted by EASA and the Chinese aviation safety authority. Whether that is still the case will become clear once the 737 Max reauthorization process is complete.

. If producers are forced to convince several different agencies of the quality of their planes, they will lose time, money and planning dependability. And the airlines that are waiting for their planes may have to completely rewrite their schedules because a specific plane can only fly in the United States, but not in China or Africa. It would mark the end of a well-organized system.

And puts our national champion, Boeing, at the mercy of the EU and China (with Russia and Japan cheering them on). Not a good place to be (even if all these countries do own a lot of Boeing planes themselves).

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Conclusion

I suppose if all the threats come to pass — an enormous judgement against Boeing, combined with the loss of its insurance, plus other countries refusing to recertify the 737 — Boeing could be bailed out with military contracts[3]. That would mean that the only manufacturing the United States can really do right now is monstrously expensive, bespoke military equipment.

NOTES

[1] Der Spiegel: “In recent weeks, DER SPIEGEL dispatched a reporting team to Seattle, New York, Chicago, Washington, D.C., Addis Ababa, Jakarta and Paris to shed light on the events leading up to and including the crashes. They conducted interviews with Boeing executives and airline managers, visited Boeing factories and spoke to experts who explained the technical side of what went wrong. They even stepped into a flight simulator to get a better understanding. In Ethiopia and Indonesia, they tracked down eyewitnesses of the crashes and spoke to the victims’ surviving family members around the world along with lawyers and experts.”

[2] “The self-confident Americans underestimated their European competitor’s strength.” took me a minute to find this, since I was searching on “arrogant,” not “self-confident.”

[3] Or Mars. But who would want to fly to Mars on a Boeing rocket?

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