With news of a second fatal crash in less than five months, passengers, regulators and airlines are demanding answers. The airplane in question: Boeing 737 Max8 – a fourth-generation version of the 737.
The version was launched in 2011 with the first flight in 2016. As of now, there are two hundred and sixty-three 737 Max aircraft in active fleets while another five thousand odd aircraft are on order. There is a lot of apprehension and speculation. Impact across the aviation ecosystem is certain.
The Primary Fiduciary Duty In Aviation Is Safety
Ethiopian Airlines grounded its entire 737 Max8 fleet after the fatal crash. This was followed by China where the regulator (CAAC), citing “the management principle of zero tolerance for safety hazards and strict control of safety risks”, also grounded the entire 737 Max8 fleet. This impacts 97 aircraft. Thereafter, Indonesia also issued a temporary grounding for all 737 Max8 aircraft in the country pending airworthiness investigations. As you read this, more countries are joining the bandwagon.
The Indian aviation regulator DGCA did not ground the fleet but issued additional safety instructions that mandate additional inspections, stricter standards and minimum experience levels for crews operating the aircraft. The US regulator (FAA) and the European regulator (EASA) indicate they are closely monitoring the situation while working with Boeing.
The actions by regulators cover safety, which is paramount. Ergo, the different levels of actions are fuelling speculation whether the aircraft is safe or if the groundings are influenced by other factors such as geopolitics.
In either case, the primary fiduciary duty in aviation is safety. And this cannot be overstated enough.
Airline Planners With The 737 Max In Fleets Face A Huge Challenge
“In preparing for battle I have always found that plans are useless, but planning is indispensable.”
Airline planning addresses the long term, the medium term and the short term. Long-term planning involves forecasting market growth and trends and is based on building a business case. The core of the business case is the network, which then translates to fleet.
Aircraft types are examined in painstaking detail. Their capacity and range, maximum takeoff weights (MTOWs), performance characteristics (fuel burn, runway lengths required, maintenance schedules) are all conscientiously dissected. Airlines then fret over financing and liquidity for the selected aircraft. Subsequently, an exhaustive operational plan takes shape.
In the case of the 737 Max8, regardless of whether there are more groundings, or if the fleet is released after issuance of new regulatory compliance directives, airline planners face an immense challenge. Passengers are already asking not to fly on the aircraft type. A fall in asset premiums in the sale-and-leaseback market is being forecast — with consequences on cash-flow and working capital. Network decisions in the short term may have to be re-examined as cost impact of using older fleet types will impact margins (which are already quite thin) and a slowdown in induction can impact growth plans for airlines.
Specific to the Indian market, there are only two 737 Max operators, namely Jet Airways and SpiceJet. Jet Airways is grappling with its own challenges with consequent impact to the entire Indian aviation ecosystem. The challenges at Jet have resulted in all of its 737 Max8s being grounded. SpiceJet operates 13 737 Max8s. The Max is used to operate the airline’s successful international flight to Hong-Kong. Any slowdown in induction can impact network, cost and profitability.
Definite And Decisive Actions By Boeing Will Need To Be Communicated
The grounding of the 737Max8 fleet by China, Indonesia and Ethiopia is significant. Specifically, because for Boeing, there have only been two prior cases where a specific type of aircraft was grounded – the DC10 in 1979 and the Boeing787 in 2013.
In this case, the aircraft in question is a workhorse of the global fleet with 7,800 Boeing 737s flying as of today. And with another six thousand Boeing 737s on order coupled with a trend towards additional narrow-body aircraft in airline fleets, the stakes are high. Boeing has said it has already secured more than 4,700 orders.
The fierce competition with Airbus — remember, the Max8 was intended as Boeing's answer to its archival A320neo — only adds to this challenge. Interestingly, Asia is the new frontier where both aircraft manufacturers are keen to gain a foothold.
For Africa, Ethiopian is one of the strongest airlines. Boeing will require active engagement with not only the airline but also all stakeholders.
The grounding of the aircraft has consequential impacts on banks, lessors, engine manufacturers, suppliers and maintenance and repair shops. All of this will have to be factored in given the nature of the aviation business and its importance not only to Boeing but to the United States as a whole.
It is premature to comment on specific actions that Boeing will need to take. But the challenge will be definite and decisive action, which is communicated in a transparent and timely manner.
Informed And Active Customers Will Drive Accountability
Within hours of the fatal crash of Ethiopian flight 302, aviation experts and enthusiasts had already posted the flight profile of the aircraft, which was derived from automatic dependent surveillance-broadcast (ADS–B). This included the flight path, altitude, speed, climb and descent profiles and times. The free flow of information has led to customers being more aware and informed than ever before – a fact that is sometimes overlooked.
With informed and active customers, each stakeholder in the ecosystem will be driven towards accountability. For instance, airlines have received requests from passengers to confirm the aircraft type for their flight and to be rebooked in several cases. For Boeing, the stock price has seen a marked decline. Even the regulators are being criticised for the somewhat unclear stance being taken.
In this new ecosystem, timely and accurate information is key and the old way of conducting business via press-releases is simply not tenable.
That is best summed up in this quote by psychologist Gerd Gigerenzer where he says:
“Never ask the doctor what you should do. Ask him what he would do if he were in your place. You would be surprised at the difference."
Does The 737 Max8 Situation Highlight Bigger Challenges In Aviation?
I really don't know one plane from the other. To me they are just marginal costs with wings.
– Alfred Kahn
With the airline business being a notoriously low margin business, an area that airlines push for is lower aircraft costs. This is reflected in the move towards narrow-body (single-aisle) aircraft being flown on longer routes and more seats being crammed into airframes (to lower the cost per seat). As such aircraft manufacturers are forced to make highly efficient aircraft and the demands on keeping the pricing low keep growing.
In the case of the 737 Max, it is a re-engined variant of the 737NG. The new engines required modification to the airframe including wing design and placement which the engineers at Boeing delivered. There were demands for a higher range as well and indeed the 737 Max delivers a 21 percent higher range with only a 4 percent increase in the maximum takeoff weight (critical to operational cost). On fuel, the aircraft performs 12-15 percent better than the 737 NG while the capital cost differential between the 737NG and the 737 Max8 is in the range of 7-10 percent.
For airlines, fleet decisions are critical and involve huge amounts of capital. The financing, structuring and planning of fleet takes into account myriad inputs which are weighed against market dynamics and strategic goals. But unless there is a change in consumer behaviour or a disruptive force in the market which forces airlines and manufacturers to rethink the business model, engineers will continue to be tasked with improving on efficiency and finding ways to extend the current airframes so more seats can be packed into it.
The airline business has not witnessed any disruptive shifts in the last fifty years. As consumers continue to demand lower costs, increasingly airplane efficiency is going up while the overall travel proposition for the average passenger is decreasing. With the advent of high-speed rail, self-driving cars and futuristic solutions such as the Hyperloop, there will be a seismic shift in transportation patterns. For aircraft manufacturers, the demand to produce even better and more economic and efficient is inevitable. Even so, on the matter of safety, there can be no compromise.
Satyendra Pandey has held a variety of assignments in aviation over the past 14 years. Most recently he was the Head of Strategy & Planning at a fast-growing low-cost airline. Previously he was with the Centre for Aviation (CAPA) where he led the advisory and research teams. His experience includes restructuring, scaling and turnarounds.
First Published: IST