What Could 737 Max Debacle Cost Boeing?

If companies like General Motors and Bank of America were considered too big to fail during the economic downturn of a decade ago, Boeing, one of the nation's most critical defense contractors, is even bigger. The company has 150,000 employees and had a market valuation of around $275 billion! before the most recent crash. Boeing shed around $30 billion of value in the week following the Ethiopian Airlines Flight 302 disaster. And it could get worse, much worse.

The whole reason for the creation of the "Max" version of the 737 is that it would offer far better fuel efficiency than previous 737s, and nothing drives airline profits like fuel savings. The move to Max was necessitated by the introduction by Airbus of the A320neo, which, like the Max, is far more fuel-efficient than the standard issue A320. If Boeing wanted to keep selling 737s, it needed a product that could compete with Airbus'new fuel saver.

Some have pointed to MCAS as a strategy to meet certification standards without extensive aerodynamic changes to the aircraft. The move enabled Boeing, the theory goes, to bring the new airliner to market more quickly than it otherwise could have.

MCAS is the prime suspect in the crashes of both the Lion Air and Ethiopian Airlines jets. Both of those planes went down after the pilots were apparently unable to control the vertical flight path of the aircraft.The flight path of Ethiopian 302 was confirmed by satellite data earlier this week.

MCAS, short for Maneuver Characteristics Augmentation System, is the computerized safety net that seeks to prevent the 737 Max from crashing should its pilots begin to lose control of the jet. The FAA's certification of the jet and the MCAS system was by all accounts expeditious. And there's been some suggestion that the certification of the plane in such a timely manner was only possible because MCAS allowed it to meet the flight test standards that former 737s met previously. Those standards were more difficult to meet because of the Max version's new, larger, heavier and more powerful engines.

Regardless of its role in certification, there's no doubt that Boeing did not highlight MCAS in its training materials, and that fact could prove the most costly mistake of all.  

But just what did Boeing know about MCAS issues after the crash of Lion Air 610 outside Jakarta but beforethe loss of the Ethiopian Airlines 737 Max outside of Addis Ababa?

In a Washington Post article on Thursday a team of writers reported that Boeing had met with a group from the Allied Pilots Association, the pilots union representing American Airlines Pilots, which is 16,700 members strong. At the meeting, the Post reported, a Boeing representative said that Boeing didn't want to add the MCAS training information to the syllabus for the new plane because it didn't want to "inundate [airline pilots] with information," a statement that Boeing, according to the Washington Post, denies making. Regardless, the reaction of the APA pilots in attendance was quite clear. They were outraged that Boeing would fail to provide that information.

In terms of liability, if Boeing were to be shown to be negligent in its actions or inactions in the introduction of the new safety system and if that system were to be shown to have caused or contributed to the two disastrous crashes of 737 Max planes, the liability could be in the billions of dollars. This is especially true if Boeing knew there were critical issues with the system after the Lion Air crash and failed to address them until after a second disaster.

The plane maker faces huge potential damages from airlines seeking to recover losses from the grounding of its 737 Max planes, as well.

In fairness, no one yet knows the cause of the two crashes, despite the fact that MCAS and its associated training materials are strongly suspected as factors. The digital data and cockpit voice recorders from both disasters have been found and investigators are analyzing the data.

And if MCAS is ultimately shown to be the culprit, Boeing not only stands to lose billions, but it could have made matters worse by supporting the continued operation of the 737 Max and in insisting there was nothing wrong with the plane for months after the Lion Air disaster.

Boeing's argument that there was no problem with the planes is suspect based solely on what we know about the two air disasters that have precipitated this crisis. That Boeing is currently mandating immediate installation of fixes to the software behind MCAS, their position is inexplicable.