Boeing Chief Under Fire
Boeing’s chief executive,Dennis Muilenburg faced shareholders yesterday for the first time since two fatal crashes that led to the 737 MAX's grounding worldwide and triggered investigations, substantial legal actions bring initiated and a dramatic and unwelcome loss in share value.
Dennis Muilenberg admitted a new software system was at the heart of both crashes, but refused to concede that Boeing’s design and approval processes played a part in the disasters. Details have emerged over the weekend about the deactivation of an optional safety feature on its 737 MAX jets that might have alerted pilots to malfunctions in angle of attack (AOA) sensors.
The AOS sensors tell the pilot if an angle of attack indicator is transmitting bad data about the plane’s nose pitch. US carrier Southwest Airlines released a statement in the US that said Boeing did not disclose the deactivation of the safety feature on its 737 MAX aircraft until a Lion Air 737 MAX 8 crashed in Indonesia on October 29 2018. The sensor was operational in previous 737s but, according to Southwest, was switched off in the 737 MAX.
Southwest said that the safety feature was “depicted to us by Boeing as operable on all MAX aircraft” but that Boeing did not tell them the feature was not turned on until after the Lion Air crash.
Disgruntled shareholders expressed concern over a 10 per cent drop in the value of Boeing’s share price following the grounding of the MAX after the March 10 crash of Ethiopian Airlines that killed all 157 passengers and crew on board.
Boeing missed Wall Street earnings estimates for the first quarter and suspended its full-year earnings guidance because of problems with its new 737 MAX jet. Still, the stock was largely unaffected. Boeing stock rose 0.2% for the week, a little better than the 0.1% weekly loss in the Dow Jones Industrial Average. Since the crash of an Ethiopian Airlines flight in mid-March, Boeing shares are down 9% compared with a gain of more than 4% for the Dow index.
The Aerospace sector is one of the best performing markets and has posted strong sales growth. The International Air Transportation Association reported 6.5% air travel growth in January 2019, the fastest growth in the last six months, according to the organization. More people on planes means more demand for aircraft.
Aerospace growth has appeared to be unaffected by Boeing’s problems so far. Honeywell, (HON) aerospace revenue, for instance, grew two-fold the first quarter of 2019.
The aerospace giant will factor in more than $1 billion in additional costs while the 737 MAX jet is grounded. But Wall Street isn’t abandoning Boeing stock in favour of other aerospace firms. More than 65% of analysts covering the company rate the shares a Buy, 10 percentage points better than the average buy rating-ratio for stocks in the Dow Jones Industrial Average.
Boeing isn’t used to this. Over the past three years its share price has tripled. In 2017 it was America’s best-performing industrial stock. In 2018 it was the eighth-best. But the crash of a Boeing 737 MAX jetliner in Ethiopia on March 10th—the second crash of this model in just five months—led to the grounding of the aircraft type around the world and wiped nearly a tenth, or around $25 billion, off Boeing’s stock market capitalisation.
Boeing has redesigned and extensively tested the software that was linked to the Ethiopia Airlines disaster and the October accident in Indonesia. The system misfired and repeatedly pressed the nose of the Max down until flight crews lost control of both doomed aircraft. The crashes killed 346 people. The company and its chief executive have come under fire for failing to disclose the presence of the Manoeuvring Characteristic Augmentation System or (MCAS) on its Boeing 737 Max airliners.
In fact, the existence of MCAS only came to light following the crash of Lion Air Flight JT610 in late October. In a NASA maintained database, pilots of the Boeing 737 Max expressed outrage at not being alerted to the presence of the system aboard the plane they fly. The furore around MCAS broke out once again in March following the crash of Ethiopian Airlines Flight ET302.
On Monday Muilenburg explained why the company installed MCAS on the 737 Max but did not disclose the existence of the system to pilots, all while challenging the media's characterization of MCAS as an anti-stall system.
"When you take a look at the original design of the MCAS system. I think in some cases, in the media, it has been reported or described as an anti-stall system, which it is not." Muilenburg told reporters shortly after Boeing's annual shareholder meeting. "It's a system that's designed to provide handling qualities for the pilot that meet pilot preferences. We want the airplane to behave in the air similar to the previous generation of 737s. That's the preferred pilot feel for the airplane and MCAS is designed to provide those kinds of handling qualities at a high angle of attack."
He went on to add that “"It's a purposeful design. It's something that's designed to be part of how the airplanes fly. So it's part of the certification process. It's not something that's a separate procedure or something that needs to be trained on separately. It's fundamentally embedded in the handling qualities of the airplane. So when you train on the airplane, you are being trained on MCAS," he added. "It's not a separate system to be trained on."