Boeing Co.’s (BA, Financial) problems seem to be getting more serious. The Federal Bureau of Investigation is reportedly joining the criminal inquiry into the recent 737-MAX crashes, looking into the process by which the planes were approved in the first place. It has been widely reported over the last several weeks that the Federal Aviation Authority has been increasingly delegating more responsibility for safety testing to aircraft manufacturers themselves.
In particular, it appears Boeing may have understated the extent to which the MAX’s maneuvering characteristics augmentation system (MCAS) could affect aircraft performance. Designed to prevent the nose of the plane from pitching too far upward and, thus, causing a stall, it appears the system overcompensated in both crashes, repeatedly pushing the nose downward, a possibility that Boeing’s safety assessment to the FAA underestimated.
To make matters worse, it now appears the company did not adequately inform or train pilots switching over to the MAX from the older 737 about MCAS. The installation of the new flight control system was not flagged in the manual provided to pilots and, in some cases, training rarely went beyond a short session on an iPad.
These incidents may shed light on Boeing’s opaque pricing system. The company sells the basic aircraft to airlines, and then offers them the option of upgrading to additional features, similarly to how car manufacturers sell upgraded versions of their vehicles to drivers. The extra features are ofter cosmetic or provide passengers with more comfort, but in some cases, they are essential for flight safety. Both crashed planes lacked optional safety features that probably would have prevented the accidents from happening. The FAA, for its part, does not require these features be installed.
Boeing and the FAA are reportedly close to a software fix for the MAX. While this will be an important stepping stone for getting the planes back in the air, the reputational damage to both the company and the regulatory agency may be long-lasting, and the threat of legal action still hangs high.
Summary
In a previous discussion of this issue, we noted the long-term prospects for Boeing continue to be good. Commercial aircraft manufacturing is a duopoly, so it is not in the interests of governments or airlines to allow either Boeing or Airbus (XPAR:AIR) to gain the upper hand. If Boeing did indeed mislead regulators as to the safety of the 737-MAX, however, the fallout from the crashes may continue to haunt the company for longer than previously thought.
Disclosure: The author owns no stocks mentioned.
Read more here:
