Boeing’s tenuous recovery in China shaken by 737 crash

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(Bloomberg) – Boeing Co. is facing a new crisis after a 737 plane fell from the skies in China, reigniting concerns about its best-selling jet family and extending one of the most turbulent periods in the world. centuries-old history of the aviation titan.

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The 737-800 aircraft operated by China Eastern Airlines Corp. plunged into mountainous terrain on Monday with 132 people on board, prompting the carrier to ground its fleet of jetliners. The model is part of the so-called “next generation” of 737s that have amassed a good safety record since their introduction in the 1990s.

Tragedy casts a harsh spotlight on Boeing after two of its 737 Max jets, the latest narrow-body version, plunged to earth in 2018 and 2019, killing 346 people and leading to one of the longest groundings in the world. aviation history.

The last incident did not involve a Max. Still, it’s a setback for Boeing’s efforts to restore confidence in its safety culture and the 737 family of aircraft, the company’s biggest source of revenue. It also jeopardizes the Chicago-based manufacturer’s fledgling recovery in China, a critical step needed to bounce back from three years of financial losses. Boeing was set to return its Max plane to commercial service in the country, whose regulators were the first to ground the model in 2019.

Monday’s crash “comes at an extremely delicate time, with Boeing finally aiming to restart 737 Max deliveries to China after a three-year hiatus,” JPMorgan analyst Seth Seifman said in a note to clients. “Comments from the Chinese authorities in the days and weeks to come will therefore be essential to gauge the impact of this tragedy on Boeing’s recovery.”

Boeing said on Monday it stands with its customer airline and is ready to help US and Chinese authorities. Its shares fell 3.6% to $185.90 at the close of trading in New York and have fallen 7.7% so far this year.

Near vertical dive

Flight MU5735 had been cruising for more than an hour between Kunming, the capital of China’s Yunnan province, and the port city of Guangzhou when it suddenly dived. The maneuver would likely have violently thrown objects and unrestrained passengers to the ceiling. Within seconds, the jet went from level flight to a rate of descent of nearly 31,000 feet per minute, according to data published by FlightRadar24.

But after about 45 seconds the descent became less steep and for a few moments the jet rose over 1,000 feet. It went from 7,425 feet to 8,600 feet in about 10 seconds, according to FlightRadar data, which is based on information transmitted from the plane. Just as the previous dive would have thrown objects to the ceiling, the rise would have created enormous gravitational forces, pinning people in their seats.

The climb was short-lived. The jet resumed its dive seconds later. Its last recorded position on the FlightRadar track was at 2:22:36 p.m. local time, about one minute and 35 seconds after the start of the sudden descent. Video footage showed the plane plunging in a nearly vertical course behind a mountainside in China’s Quangxi region.

Boeing effects

As investigators searched for clues to the disaster, investors worried about the implications for the beleaguered aircraft manufacturer.

Chinese airlines have been among the 737’s biggest customers. Before the Max’s grounding, the country bought up to a third of the narrow-body jets that rolled out of the Seattle-area Boeing factory each year. In a sign of the potential thaw in its biggest overseas market, Boeing last week sent the first Max across the Pacific Ocean since the plane was grounded to its Chinese delivery center south of Shanghai.

China has the largest fleet of 737-800s, with nearly 1,200, according to IBA Group Ltd., an aviation consultancy. It also has the youngest fleet, with an average age of just over eight. The United States has the second largest fleet, followed by Ireland, the Russian Federation and Turkey, according to IBA.

After burning more than $20 billion in grounding-related costs, Boeing’s financial turnaround hinges on its ability to resume shipping 737s at higher volume. Executives had aimed to deliver around 500 Max jets this year, with Chinese airlines taking their first Boeing narrow-body aircraft in three years.

That goal is already in question after a slow start, Seifman said. The pace of production will also be closely watched for the impact on suppliers such as Spirit AeroSystems Holdings Inc., which manufactures most of the jet’s airframe for Boeing.

What Bloomberg Intelligence says

“The event may extend the time it takes for OEM bonds to reduce the discount they are trading at against their triple-B industry peers. Reducing inventory and generating cash are key to reducing debt and relieve pressure on the company’s financial risk profile. »

— Matthew Geudtner, BI Credit Analyst

The accident also increases the potential for confusion and backlash among travellers, some of whom avoided flying the Max after the damaging revelations that emerged from previous crashes.

Then-CEO Dennis Muilenburg was ousted for his handling of the crisis in 2019 as Boeing faced intense scrutiny from Congress, regulators and law enforcement. Over the past few weeks, the company’s security lapses have been highlighted in “Downfall: The Case Against Boeing,” a Netflix documentary.

“Given BA’s issues with the 737 Max, consumers may not want to fly on a 737 until the cause of the China Eastern crash is determined to be a design or manufacturing issue. “said Cowen analyst Cai von Rumohr. a note referring to Boeing by its stock symbol. “Therefore, it will be essential to isolate the cause of the accident.”

It is too early to know what caused the China Eastern crash, and investigations may take months or years to unfold. The lost aircraft was relatively young, flying commercially for about seven years. The main causes of these crashes tend to be maintenance issues, pilot error or sabotage, with design or manufacturing issues less likely, von Rumohr said.

Boeing has delivered more than 7,000 jets from its 737NG family, making it the best-selling aircraft family in the aircraft manufacturer’s history. The company delivered the final passenger version in 2019, though it still uses the chassis for military aircraft like the sub-fighter P-8 Poseidon.

Single-aisle jets are a staple of domestic flights in the United States. Among the largest U.S. airlines, American Airlines Group Inc. has the most 737-800s, with 267 in service and 36 temporarily stored at the end of 2021, according to a regulatory filing. Southwest Airlines Co. has 207, while United Airlines Holdings Inc. has 141 and Delta Air Lines Inc. has 77.

United said it was in contact with Boeing and the FAA about the China Eastern crash while flying its 737-800s. Delta’s aircraft are “operating safely and consistently,” a spokesperson said, declining to comment further. The Americans referred the questions to the FAA.

(Updates with closing stock price and adds crash details from the seventh paragraph.)

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