Analysts react to Boeing’s 2Q charge, cost and RTS announcement

July 19, 2019, © Leeham News: Boeing yesterday announced a $4.9bn charge connected to customer compensation for the 737 MAX grounding. It also announced a $1.7bn additional cost associated with the accounting block and forecast a 4q2019 return to service.

Wall Street analysts overall were positive with the new. Aftermarket stock trading was up; pre-market trading today is slightly down from the aftermarket high.

Below are excerpts of research notes issued last night and this morning.

Buckingham Research

We expect BA shares to trade higher today after BA announced a 2Q19 charge and new planning assumptions regarding the MAX. Specifically, BA has finalized some penalty payment discussions with MAX customers and is taking a roughly $5B or $8.74 charge in 2Q19. BA now is planning for the MAX to return to service in 4Q19 and to ramp up MAX production to 57/mo in 2020. We think BA’s announcement somewhat reinforces our tactical buy call – with any number of investors looking to get bullish, we think BA’s announcement will be interpreted favorably and act as a positive catalyst for the stock.

BA announced a near $5B after tax charge or $8.74 in 2Q related to customer concessions and settlements over recent MAX issues. BA decided to take the charge as a period expense rather than a charge against the block. In addition to the charge, MAX accounting block margins will be negatively impacted by an incremental $1.74B. The margin impact will affect all aircraft in the accounting block that haven’t been delivered.

That BA and its MAX customers came to a settlement, in our view, indicates that all parties (BA, MAX customers, and global regulators) have some visibility into when MAX flight operations and deliveries start. Penalties are generally based on an operators lost revenue over the amount of time a delivery is late or an airplane is grounded. Certainly the charge was much larger than expected and much sooner than expected, but we think investors will likely view the announcement of a charge as a lot of the bad news is now in the stock.

Canaccord Genuity

Boeing (BA) announced yesterday that it is taking a $4.9B after-tax charge ($8.74/share) associated with potential customer concessions and delivery delays due to the 737 MAX grounding. The charge equates to a $5.6B hit to pre-tax revenues and pre-tax profits. We believe this charge is substantially more than had been expected. We are adjusting our 2019 and 2020 estimates to reflect the charge and the additional delays in the 737 MAX return to service (RTS). We are maintaining our HOLD rating and our $380 price target.

The announcement implies BA expects the FAA (and likely Canada) to authorize a RTS in Q4/19, but there is a risk that other regulatory agencies may take longer. We do not believe we will have a coordinated RTS between the regulatory agencies, and some regions, such as Europe or China, will likely move after the FAA has lifted the grounding. We believe there is still risk associated with the timing of the RTS globally as other factors such as trade, geopolitics, and customer concerns can still impact the RTS schedule.

Cowen & Co
Key takeaway from yesterday’s Q2 preannounce was that BA assumes “return to service early in Q4” in line with our estimates and plans to reach 57/month in 2020 vs. our assumption of a 52/month peak. While timing of return to service obviously is in the hands of the regulators, we assume that BA’s timing comments are based on its extensive interactions with regulators. Furthermore, its willingness to publicly target reaching 57/month next year presumably reflects discussions with customers indicating sufficient demand to warrant taking the rate up to that level.

The $5.6B pretax customer compensation reserve also isn’t a huge surprise although until now it was hard to quantify. Furthermore, BA will have a $1.2B tax offset and the compensation outlays will spread over a number of years, mitigating the impact on any one year.

 Credit Suisse

Numbers appear more favorable than expected: We believe these cost figures are below Street expectations, as we think buyside consensus for BA’s impact from Max is between $10B and $20B, including all incurred and future costs for re-engineering and production enhancements, absorption impact from the delay itself, and for compensation to the various parties involved, from accident victims to the customers affected by the delays. Within this context, $4.9B for customer comp., plus the ~$2.2B in after tax cost increases to the 737 accounting block (our est. of the after-tax combination of the $1.0B disclosed in Q1, plus the $1.7B disclosed today) would come in below the low end of the range, though this appears to still exclude accident victim related comp. Of course, the recovery for the program remains uncertain, and so these costs could continue to rise, and any uninsured comp to accident victims would be additive. To be clear, we model a slower recovery, and so costs would be somewhat higher on our assumptions, but probably still within the est. cons. range above.

Share correction seems overdone: With 2,999 aircraft remaining in the accounting block (as of Q1), the higher accounting block costs equate to around $900k per aircraft or about 165bps in margin. The $4.9B in customer concessions and other considerations is around $1.6M (or 300bps) for each undelivered and grounded MAX. Though this hits the P&L now, the cash portion will impact as future aircraft are built and delivered. In sum, we highlight that the ~$48B contraction in market value from the high of $446 per share far outweighs the impact projected here, either based on BA’s recovery plan or our more conservative one. Regardless, we think it’s helpful that BA has provided some framework to gauge the financial impact.

 JP Morgan

No change to production likely a relief, especially for suppliers. We expect investors will be relieved that Boeing maintained a production rate of 42/mo, which looked to be at risk after the most recent delay, and a target date of early 4Q19 for a return to service. Major US carriers have removed the MAX from their schedules through early Nov and so this looks consistent with Boeing’s press release since it would require regulatory approval in early Q4 to fly in early Nov. Obviously though, there is significant risk of slipping to the right, as we have seen a few times since the grounding started in March. We believe Boeing is reluctant to cut rate to avoid inefficiencies and disruption in the supply chain that would increase risk around future rate increases. Another few months of slippage seems unlikely to tip the scales here but production rate risk doesn’t go away entirely until there is a clear path to regulatory approval. With no change in production, yesterday’s announcement is a Boeing-specific one for now, not one that affects suppliers. We believe the market was highly concerned about the impact of a production cut at suppliers (especially Spirit), with many of them still producing at 52/month.

Melius Research

the numbers are a bit larger than we anticipated. BA’s estimate for compensatory damages of $5.6Bn (pre-tax) is almost double the $3Bn we outlined earlier in this week. For reference, it’s ~20-25% larger than the penalty amounts observed for the 787 (which covered ~800 airplanes that were ~4 years late). We think this means that 1) there are other elements outside of pure delivery delays in BA’s figure, and 2) one can/should conclude that the estimate is conservatively set to a large amount. As we highlighted earlier this week, we would expect BA to attempt to work these amounts down and shift to other forms of payment in kind where possible in the coming quarters/years. Furthermore, pulling these items out in a single charge rather than applying them to ongoing manufacturing margins is a cleaner way for investors to understand and isolate their transitory impact (something we worried about and called out in our earlier work).

Aside from the compensatory figures, the bigger surprise for us was the revelation of an incremental $1.7Bn in production-related costs to be included in the 737 accounting block. This is ~3x what we estimated, and indicates that the incorrect assumption that we made is that cost impacts should grow linearly as the recertification date slips rightward. The actual impact is non-linear and is based on all of the extra costs that result from piling up hundreds of airplanes and cascading disruption into the supply chain. This represents just over a 100bps headwind to 737 program margins (which we assume are ~30%), which isn’t huge, but continues to cut against some of the margin upside that we hoped for to fuel very attractive earnings/FCF compounding in future years.

Morgan Stanley

There is a tentative return to service target of “early” 4Q19, which compares well to concerns of as late as 1H20. In recent weeks and months, we have seen multiple push-outs on the timeline for a submission of 737 MAX upgrades to the FAA given additional identified risk factors. And as a result, investor expectations for a grounding removal have been drifting towards year-end 2019 or even late 1H20. However, in its release Boeing noted that its “best estimate at this time” is for a return to service in “early” 4Q19. While we approach this target with a degree of skepticism due to numerous false starts to-date and uncertainties ahead (e.g. a new FAA head), we note it is the first time the company has proactively put forth a date, creating a level of confidence when key regulators such as EASA and TCCA are closely coordinating with the FAA to reverse the grounding. Finally, the 4Q19 objective is consistent with the updated forecast from our 2Q19 earnings preview and implies a formal submission of fixes later in the quarter (i.e. September).

 

55 Comments on “Analysts react to Boeing’s 2Q charge, cost and RTS announcement

  1. Wall street is desperate to pile back into Boeing and make a killing, but they have no better idea than anyone else when that moment might come.Their faith is mainly founded on the belief that the MAX is too big to fail,rather than any technical understanding.They could well be right.

    • Wall street analysts don’t know the difference between preferred stock and livestock.

  2. Astonishingly, analysts seem to thing this quarter’s charge is a one-off that won’t be repeated in Qs 3 and 4. Based on similar charges in Q3 and Q4, plus additional charges stretching into 2020, the total bill looks to be well in excess of $20 billion.

    Also not clear why Boeing would ramp production back up again until it had delivered the bulk of its grounded planes, which will take essentially all of 2020 to do.

    • Well, they built a reserve for all compensations expected given their current assumptions. So there should be no further cost, if the assumptions are right.

      The question is, are those assumptions right. I got my doubts especially around the early Q4 recertification date

      • Thanks. I didn’t realize it was all charges as estimated by Boeing, not just Q2 charges. As they expect the 737 to start shipping again early Q3 and production to head quickly towards 52 them 57 a month, we can safely assume they will rise significantly.

        Someone elsewhere suggested this is primarily a short term tax benefit. Boeing can write off a large tax liability this quarter but incur the related cashflow hit later on. Every cloud….

        • FF – The weasel in your comment is ‘estimated by Boeing.’ I wonder if an independent party with access to all considerations would make the same estimates.
          We must rely upon Boeing’s not being disingenuous in its ‘estimate of potential’ concessions ‘and other considerations.’ And a large tax liability this quarter being offset prospectively by only gradual cashflow impact later is – unsurprisingly – typical of BA’s philosophy and, perhaps, of what elsewhere has been called its ‘accounting creativity.’

    • Its absolutely essential to ramp up production again and go to the planned 57 , they are all sold and going to customers.
      Apart from the modifications to already produced planes , delivery can be expedited once the grounding is lifted – as expected in say US and Canada first. Indeed I would have the delivery paperwork mostly completed ahead of time by the staff who do this now and the financial aspects all pre -prepared.
      Even if a major airline hasnt included the Max in its flight schedule the aim would be to have the planes at its maintenance bases anyway, ready to go.

      The ramp up to the higher 57 per month rate will be using the time to bring all the little suppliers up to speed – after all its only about an extra plane a week over the previous highest rate and Spirit is still running ( pre stuffed) fuselages at this rate. I imagine Boeing is still doing wing production at Renton at this rate as well

      • Boeing’s delivery infrastructure can handle roughly two aircraft per day. It’s really not realistic to snap your fingers and say “double it”. Many of the analysts are expecting the delivery backlog to take a year or so to clear, given a grounding of roughly nine months.

      • You also have to take into account airlines’ ability to accept new aircraft into three fleet. Even if Boeing were able to somehow double their delivery efforts on stored frames, there is a limit for how quickly they can be absorbed into airline fleets. I believe Ryanair, for example, has already said they can only realistically absorb 6-8 new aircraft per month.

    • I don’t quite understand your implication, you think the 737max will never fly? You think a viable competitor will emerge? You think Airbus and it’s suppliers will double capacity and customers will walk away from contracts? That’s the only way Boeing doesn’t have another cash cow. Add to that the fact that whatever Boeing or any company says at earnings calls are considered financially relied upon and if the return to service is materially different than described or wasn’t researched and verified they would face a shareholder lawsuit. This will be close to the truth or they have added greatly to the pile of issues.

      • The MAX may indeed never fly again. Software fixes haven’t worked so far, despite being offered to the FAA for a test. I’m guessing Boeing were anticipating that it would pass.

        The Chinese are going to enter this market segment sooner rather than later. There’s already a lot of east Asian airlines looking at the Comac C919, specifically because the MAX is grounded. If it gets certified to an appropriate standard, it’ll be in the skies, and they will undercut everybody else.

        It’s Boeing’s management that makes financially sensitive statements, not Boeing’s engineers. So far they’ve not been right once on their RTS predictions. So either Boeing’s engineers have been giving them pleasing estimates to get them off their backs, or the engineers really don’t know either, or the management has been making it up. None of those scenarios are great for the company’s future. A more honest appraisal of the situation from the company would probably be an admission that they can’t set an RTS date, but that’d be ruinous for the shareprice. Set a few “target” dates and miss them, people will get used to that.

        • I think Boeing has a solution for a new narrow body airliner staring it in the face right now. It is the Russian MC21. If I was heading Boeing I would be negotiating with the Russians to take a majority stake in the project a la Airbus and the Canadian CS airliners. The Russians are committed to building a “Westernized” version of their MC21. With Boeing participating to help complete the airliner say over a 36 month period, I believe Boeing will have an airframe that will force Airbus to start looking sooner at an A320NEO replacement or major overhaul. I estimate the cost for Boeing taking over the MC21 and taking it to certification with Boeing modifications is US$5 billion.

          • Thats totally unrealistic. A Russian plane flying with the Boeing name , n.o.t. going to happen.
            The obvious answer is that the 737 can and will be fixed. This will happen sooner than you think.
            The Airbus example shows that flight safety software doesn’t have to be flawless, just safe.

        • Matthew – ‘So either Boeing’s engineers have been giving them pleasing estimates to get them off their backs, or the engineers really don’t know either, or the management has been making it up…’ Wow, surely not?
          ‘Set a few “target” dates and miss them, people will get used to that….’ How cynical is that?

  3. It would very interesting to learn the Today’s
    Investors List is speculating on the BOEING stock.
    My Guess is that the Bulk is Boeing themselves
    with their Buy Back Stocks, and MIddle Eastern Wealth
    Funds. Anybody in their right mind would be
    Wise to Stay Away from this vey Speculative
    Momentum in BOEING’s Future.

  4. WE’ve heard a lot about the 737MAX8, but what about the -9 and -10? Do they have the same issues??

    • Max 10 hasnt been certified yet and its likely same considerations – with some tweaks- apply to Max 9 as MCAS is a common system.

    • Norm – you evidently do not follow related comments on SeekingAlpha.com, which, er, enjoys a large population of speculators – sorry, i mean investors – who just ‘know’ that the stock is so under-valued and that, indeed, it’s already too-o-o late to catch the bounce.

    • Tom – there doesn’t seem to be any reported differentiation among the three variants regarding differences in systems design to suggest MCAS is unique to the -8.
      (PS – if you are the eponymous Bombardier test pilot/marketing executive whom I knew 30 years ago I trust you are well in your retirement. Enjoy! I hereby permit Scott to share my ID/email address with you should you wish to contact a former Old World aerospace media acquaintance…)

  5. “$1.6M (or 300bps) for each undelivered and grounded MAX.”

    This number makes no sense. I think it will be several orders of magnitude higher before everything is done and the Max RTS is complete.

    • If it was several (let’s say 3) orders of magnitude higher that would be $1.6 billion (1000 times more) per Max. It will NOT be even one order of magnitude more except maybe in base 2.

      The money, that is, the stock market, has the Max returning to service and deliveries restarting before the end of the year. Is it smart money? We’ll see. Many big players, Boeing and the airlines who use and/or have orders for the Max want this to happen.

      I, like many here, wish Boeing had launched a NSA back in 2011. It would be in service now. It will probably be at least 2030 before we see one. Too bad!

    • Isn’t all extra outlay in scope of delayed deliveries ( due to certification withheld 🙂 and later issue fixing
      just pushed into (deferred ) production cost bucket as asset gain
      and thus “vanished” to reappear over time as “accounting block distributed” production cost bites per plane delivered?

      US GAAP + project accounting is the giver that keeps giving :-))

      • You shouldn’t criticize accounting systems you do not understand.

        • Lars – please help us all by spelling out just how Boeing programme accounting and deferred production cost mechanisms work, if only to allay suspicions (fears?) that fast ones are being pulled and to assure cynics that all is above board, that Boeing is not being economical with the actuality.

    • “This number makes no sense. I think it will be several orders of magnitude higher ”

      yes it does make sense. Heres how.
      if we look at Southwest an all 737 fleet of 753 planes including 33 Max 8s.
      Now look at Southwests last year ‘nett income and earnings’ of $2.5 bill.
      Simple to divide that figure by 750 say to get a nett figure per 737 per year.

      The result is $3.3 mill per 737 per year.

      You are way out in saying $1.6 mill per plane is an ‘order of magnitude out or $16 mill. The selling price is only 2 -3 times that number , and for a grounding of say 9 months…pleeeese
      remember Boeing will be making other non cash settlement items for airlines as well, they are famous for coming up with ‘nice to haves’ maybe even discounts on other orders ?

      • You are losing all revenue from those grounded planes flying.
        you lose cost for consumables.
        BUT
        you don’t lose standing cost, crew cost, storage, whatnot.

        Your arithmetic exercise is faulty.

        • No . Revenue doesnt matter its nett income or profit per plane after all expenses that is ‘lost’ to the customer.
          Crew costs are a tiny amount compared to the fuel, finance and maintenance costs. Boeing can adjust for those costs, as part of its sales campaign would have detailed info on revenue and routes.
          All the undelivered planes havent been’ sold’ yet so incur no finance cost until they do. Ones in service definitely
          Southwest is far and away the most profitable US airline, the others not so much. Another airline to give a nominal figure for would be all 737 Ryan Air, which again would be at the higher profit end, but of course it has high utilisation to do so.

    • Yes, people thought Boeing invested 10 – 28 billion on a plane that could not be assembled easily, and when assembled it had a tendency to smoke a little. And now today they have many, many orders at top dollar in three lengths, but in their non-union plant, they are having assembly problems again.

      • “And now today they have many, many orders at top dollar i..”

        I really do doubt that.
        Recent sales really smell of low balling on price.

  6. Boeing has a history of getting straight to the point and be very conservative and cautious when announcing program delays and accounting charges.
    It just took 5 delays and 7 or 8 ‘deffered cost’ increases to reach the final $28B figure for 787.
    So for sure Wall Street experts are right to take the figures published yesterday by Boeing at face value.

    • JCM – albeit most obvious only in hindsight (rather than in prospect), there wasn’t much ‘very conservative and cautious’ in announcements in the weeks before the 787 roll-out, during which time Boeing continuously made optimistic statements – at the 2007 Paris airshow, for example – about progress when management must have known the airplane would be delayed by the many considerations that quickly and very visibly overtook them.

  7. Scott:
    Please pass along my personal coordinates to Pundit. He has correctly identified me!
    Thanks, Tom

  8. It’ll be interesting to see how things pan out from here.

    There’s rumours that FlyDubai are now looking at Airbus. They’re probably not the only pure 737 operator looking at alternatives. I wonder how much additional interest in Airbus’s product line has to be shown for Airbus to consider ramping up production rates even more?

    If Airbus do announce in 1 year that they’re increasing the production rate of A320 family, that might result in a rash of MAX cancellations just at the time when Boeing might have been thinking the worst was over. Any thoughts on the likelihood of a rate hike and my hypothesised impact on Boeing?

    In order to divine Boeing’s outlook, the analysts might need to keep their ears against Airbus’s walls, see what’s going on there.

  9. One thing is funny.
    One analyst consider the charge much smaller than expected, the other exact opposite.

    They have proven they now much less than we here.

  10. You are correct, recompense will not likely grow to two orders. However, if a new MAX leases out at $300K per month and produces no revenue, that alone will be at least double your number. Then we have the lost opportunity cost of the lower fuel consumption of the MAX, no contribution to the bottom line, etc., etc…
    I can’t imagine any airline CFO worth his salt settling for $1.6 million per unit.

    • Yes, if you have taken on a lease at $355K ( thats Ascends numbers-https://leehamnews.com/2019/04/30/ascend-takes-a-close-look-at-max-values-future/) then you will be on the hook for that money.
      Ascend MLR leases rates are ‘nett dry operating lease’

      As leasing involves about 50% or more of new aircraft, that would mean we have a higher number than my first estimate based on Soutwests ‘profit per plane’
      Remember too that Southwest had the prefect storm earlier this year, with a jump in planes with maintenance issues, issues with the mechanics union, then the Max grounding

      • Dukeofurl – re MLR rates, ’tis very good to see a rare correct spelling of ‘nett.’ Talking of perhaps a majority of orders coming from lessors, this is in great contrast to, say, 40-50 years ago when that might have been a reservation; a remark such as ‘Yes, but the aircraft are only leased’ told you much about contemporary perceptions of individual operators.

  11. Duke and others,

    The A321neo pitch up moment and 737 MAX pitch up moment are not comparable.

    The A321 pitch moment is caused by software, the 737 MAX pitch up moment is caused by aerodynamics.

    Airbus will address the cause by fixing the software. Boeing are refusing to address the cause by fixing the aerodynamics. Instead, Boeing are saying they will address the symptoms through software but they will not address the cause by changing the aerodynamics.

    As a doctor may say to you: I can’t cure you but I can control the symptoms. But I’m sure all doctors prefer a cure!

    There is a long way to go on this. If Boeing are to get away with this, they are going to have to convince the regulators that they can control the symptoms, otherwise the regulators will insist on a cure.

    I agree it’s a lot more than the money put aside. Someone, perhaps you Duke, said that only 22% of 737 MAXs are US bound. I think outside regulators are going to be much more cautious than the FAA

    • Actually isn’t the MCAS a software problem that was included to correct an aerodynamic problem in only certain situations, and in fact those situations did not occur in the two crashes, but the flight control system thought they did due to an erroneous sensor that did not have a backup input? Yes, the Leap engines are a little farther forward and weight more, but does not the problem stem from software? I guess this is the great debate…

      • To me it’s the other way round.

        It all stems from an aerodynamic problem. The sofware was introduced to control the aerodynamic problem but it can’t cure it.

        The question is: How big is the aerodynamic problem

        • Dont you mean ‘certification problem’ as the aerodynamics always has different answers depending on what the question is.
          For absolute best fuel economy there could be some changes to shape, to fit in airport gates obviously means the wing span is limited, for lightest structure the aerodynamics different again. For the Dassault Mercure, one of the reasons it failed commercially was the wings were designed for rapid climb to cruising altitude for the design criteria of very short flights.
          For the certification flight rules, certain flight characteristics have to act in a smooth manner or give warning before exceeding the flight envelope. I dont know all the details , but that sort of thing.
          The MCAS ‘aerodynamic answers’ seem to be a failure related to excessive and repeated actions and a lack of redundancy of AoA sensors rather the principal concept itself.
          The perfect software control system doesnt exist, as a couple of times Airbus crashes where the pilots had the false understanding the plane ‘cant stall’- Mulhouse, Perpignan, Air France over South Atlantic.
          Crashes of Tesla’s have occurred too when the drivers are under the false belief the car ‘drives itself’

        • Philip/Sam – rather than being ‘a software problem … included to correct an aerodynamic problem,’ wasn’t MCAS principally introduced to make Max appear seamlessly to handle like previous 737s? So the lack of emphasis on differences from earlier variants was a factor in pilots’ (including apparently test pilots’) ignorance of the new system, and hence it has been at least misleading to call MCAS an ‘anti-stall’ or, even, a ‘stall-protection’ device.

          • “wasn’t MCAS principally introduced to make Max appear seamlessly to handle like previous 737s? ”

            I see this a lot, but in my honest opinion this is Boeing PR spin.

            Maybe MCAS started off as being just that (hence MCAS being passable as a self-certified MOD). However it seems MCAS authority was increased massively during flight test, in which case it no longer is a system to simulate 737NG behaviour but a system to turn an unstable aircraft into a stable one. At this point it should have been a major MOD properly certified through the FAA.

        • To Duke, Pundit, Sam and others.

          Your comments strongly suggest Loren Thompson has done his job.

          Yes, Boeing have re-purposed MCAS from a stall protection system to part of the speed trim system.

          So it’s no longer a critical system – trim isn’t critical, which means an airplane is safe without it. If it were a critical system, the regulators would demand redundency and a timely response, neither of which can be done by software alone.

          So we come back to the beginning.

          Why is the standard AND deflection of the stabiliser so sever, the standard AND deflection always forcing the nose down?

          Why did MCAS 1.0 use such severe AND deflections, so severe they make the elevators inoperable? Afterall, MCAS is not a critical system.

          Why can MCAS 2.0 be significantly less severe thereby retaining operability of the elevators? Implicitly why can it be re-purposed from a stall protection system to part of the speed strim systrm? Implicity why can it change from critial to non-critical?

          If MCAS 1.0 is non-critical why couldn’t it be turned off using a switch. Will it be possible to turn off MCAS 2.0 using a switch, afterall it is non-critical?

          Manual trim. It doesn’t work. Will it work? In other words, is manual trim critical or non-critical? Implicitly will trim stabiliser runaway still be possible?

          In previous commentary, I talked about trade-off/trade-out. Manager to engineer, that’s not critical that is non-critical. Manager to engineer, that is not a severe problem that’s a mild problem. Manager to engineer, that’s not the purpose, it has a different purpose. In other words, Loren Thompson

          So is MCAS critical or non-critical. Is it addressing a severe problem or a mild problem.

          If MCAS is non-critical/mild Boeing does not have to do aerodynamic/mechanical/hardware changes. In other words, they will get away with a software fix.

          Of course we then come back to pitch stability. Is there pitch instability. If so, what’s causing it [the engines] and how severe is it?

          There is a long way to go because the regulators will ask the questions I have asked and they will not accept Loren Thompson answers. They will demand engineering answers.

          I think Boeing will be hard pushed to convince outside regulators that nothing critical is going on. In other words, Boeing will be hard pushed convincing the regulators that it’s all being over stated.

          We will know by the end of the year!

          • Fabian – ‘…it seems MCAS … authority was increased massively [and is no longer] a system to simulate 737NG behaviour but … to turn an unstable aircraft into a stable one. At this point it should have been a major MOD properly certified through the FAA.’
            Agreed. In appearing to emulate NG variants, MCAS evidently hid the real differences (for which there was apparently no offer of training, which in turn would have confirmed the lack of commonality for certification purposes), which perhaps supports any pr spin theory.

          • Philip – Thanks.
            Your reply sent me to Google in search of Loren Thompson. Having now read his July 11 737 Max-related offering in Forbes, I see he is an apologist for Boeing (‘a contributor to my think tank’).
            He seems to say that since Boeing has engineered the parochial industro-political position he describes, then no decisions or reports should be made that do not defer to the company.
            His assertion ‘Boeing has consistently resisted the pressure to build its products with cheap labor in foreign countries’ has no credibility, however, bearing little scrutiny alongside Boeing’s 787 international risk-sharing partnership strategy that turned Seattle’s and North Charleston’s roles into those of bolts ‘n rivets final-assembly shops.
            For example, this from Boeing’s July 2006 Frontiers magazine: ‘Mitsubishi Heavy Industries, Kawasaki Heavy Industries and Fuji Heavy Industries have built new factories [in Japan] dedicated to 787 work’ and ‘Alenia Aeronautica has built an all-new factory in Grottaglie, Italy, where barrel sections for the 787 will be created…’
            So much for Boeing’s role in ‘the fate of local economies in the U.S…’
            Nor am I sure what he means by ‘so [the U.S.] response to the Max challenge should emphasize constructive solutions to a very sad situation.’ What is Thompson suggesting are the options between which choices should be made?

    • You are probably right Philip. However Ive never said the Max and A321 pitchups were the same. I dont have that sort of knowledge.

      However Airbus comments that were added by Bjorn are interesting:
      ” Violent maneuvers in for instance a go-around in these conditions can cause a pitch up which the pilots can counteract using their side-sticks. No FBW nose downs or similar is commanded, it’s just the FBW doesn’t neutralize the pitch-up (like FBW using the Airbus style flight laws are supposed to do), the pilots have to do it.

      • Not suggesting the A321 pitch instability isn’t an issue. The issue is in an extreme area of the envelope. But, it is still an issue for it is still part of the envelope, albeit an extreme part of the envelope.

        Airbus did the right thing. They declared it to EASA. EASA will issue an AD that says stay away from extreme aft CoGs. But if you do drift into that area of the envelope then remember you can control it by using the elevators to bring the nose down for the elevators are fully operative.

        Please note, the words “violent maneuver” means the pilot not the airplane. In other words, the pilots shouldn’t perform a violent maneuver in go round at below 100 ft with extreme aft CoG.

        Basically airlines will have to be more careful where they put the baggage to prevent extreme aft CoGs. Then it goes away even with a violent maneuvers by the pilots. To put it another way, EASA will move the aft CoG limit forward until Airbus as fixed the problem. Having fixed the problem, EASA will move the limit back.

        My guess is that no airline has experienced the problem. In other words, the problem appeared in laboratory testing of extreme conditions. That’s how it should be.

        Boeing need to take the same approach. Starting with owning up.

        • Philip – it is as though Airbus designers/engineers have been asking all the right ‘What if…?’ questions.

          • Nice for Airbus to wait until the aircraft has been flying a couple of years to ask the question!

  12. Lars – never too-o-o late to learn, and it certainly is nice if the alternative is that engineers (the good ones alsways ask ‘Why?’) stop learning at the point of certification. I fear we learned about violent manoeuvers from a heavy-footed pilot of AA587, despite what Airbus engineers advised.

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