Monday Update – March 11, 2019

The 737 MAX Issue – In Context

With the media coverage expected in the next 24 hours regarding the fallout from the accident in Ethiopia, some context may be needed regarding expected fallout.

Plan on some strong action if the CVR and black boxes from the crash indicate any similarity with the Lion Air event of last year. It’s already started, however.

China has already grounded the 78 737-MAX aircraft operated by its national carriers, pending the outcome of the Ethiopian investigation. These aircraft represent approximately 1.6% of the total Chinese airline fleet.

China: Not A Trade-Issue Question. It has been logically posed whether the Chinese grounding might have some political motivation due to on-going trade issues with the US and the dust-up from the Huawei events of the past month.

No way. The CAAC is not playing political games here – they are focused on safety.

Political decisions are carefully contemplated in regard to long-term retaliation, push-back and other tactical considerations. Safety decisions are immediate, as was this one on the part of the Chinese government. By the way, the Chinese aviation regulations closely mirror those of US FARs. We are dealing with a very sophisticated system of oversight in China.

Keep in mind that the grounding decision made by the CAAC will have negative effects on the Chinese air transportation system, which is already stretched system-wide at an 82% load factor, according to Boyd Group International’s Airports:China forecasts. In many cities, any loss of service does not always have any regional airport alternatives. The government is well aware of this, so it’s clear that the decision is based on safety. Period.

The Potential US Air Transportation Effects – Minimal In Almost All Cases. We may have veneer stories come out regarding the huge number of 737s in US operation, and a conclusion in some parts of the media that in the event of a grounding or other regulatory action, the US air system could be flummoxed.

No way.

This event revolves only around the 737 MAX aircraft. Out of approximately 6,750 active turbojet airliners in US airline fleets, today there are only 72 MAX-8/9s in US operation – just about one percent of the total. Enough to cause some localized cancellations in the near term in the event of a temporary grounding, but not enough to materially change the US air transportation system.

Getting an exact handle on numbers of airliners actually operating (as opposed to just being listed as in the fleet) is difficult, but the Boyd Group International Global Fleet Trend & Forecast indicates the following, for all MAX variants, 7/8/9/10:

Overwater Long Haul – Some Temporary Fallout. The 737-MAX series is a very mission-flexible airliner, and there will be some noticeable fallout where route missions depend on the specific performance of the MAX aircraft – such as long-haul over water flying, which is increasingly being operated in Northeast US – trans-Atlantic routes, and West Coast – Hawaii.

In any event over the coming week, it needs to be understood that there may be no relation in regard to the Ethiopian and Lion Air events.

And most importantly, the situation will be resolved likely within days should that be the case.