Boeing 737 Max fuselages, made at Spirit Aerosystems in Kansas, sit covered in tarps near the factory. Boeing's decision to halt 737 Max production has created shockwaves across the aerospace industry. AP
Boeing 737 Max fuselages, made at Spirit Aerosystems in Kansas, sit covered in tarps near the factory. Boeing's decision to halt 737 Max production has created shockwaves across the aerospace industry. AP
Boeing 737 Max fuselages, made at Spirit Aerosystems in Kansas, sit covered in tarps near the factory. Boeing's decision to halt 737 Max production has created shockwaves across the aerospace industry. AP
Boeing 737 Max fuselages, made at Spirit Aerosystems in Kansas, sit covered in tarps near the factory. Boeing's decision to halt 737 Max production has created shockwaves across the aerospace industry

Boeing's 737 Max crisis: A turbulent year leads industry to ask tough questions


Deena Kamel
  • English
  • Arabic

Boeing's ongoing 737 Max woes marked a tumultuous year that forced the aviation industry to grapple with big questions on whether the plane maker will overcome the Max debacle, if travellers will be too scared to fly on the plane, rethinking jet certification procedures and scrutinising regulators' accountability.

The Chicago-based jet manufacturer capped 2019 by ousting its chief executive Dennis Muilenburg and freezing production of the Max as the crisis drags into 2020. This leaves incoming boss David Calhoun the task of picking up the pieces to restore the grounded jet, rebuild relations with key stakeholders and repair the company's damaged reputation — no mean feat.

"Boeing's relations with the outside world, particularly with regulators and the government, appeared to be spiralling downward," Richard Aboulafia, aerospace analyst with Teal Group, said. "David Calhoun will be a better communicator, and should present a better outside image for Boeing [to] Congress, regulators, suppliers and customers. This should help stabilise the company's situation."

The world's biggest aerospace company has faced a grim year marked by the worst crisis in its 103-year history. The 737 Max, its best-selling industry workhorse, was grounded for nine months after two fatal crashes in Indonesia and Ethiopia within the span of five months claimed 346 lives. The disasters and their aftermath rocked the aviation industry, leading to multiple regulatory and criminal investigations. It also hurt airlines and suppliers, and dented travellers' confidence in the plane.

Boeing opened its doors to the press in October, before the Dubai Airshow, granting journalists access to its senior executives and its 737 factory in Renton, Washington, near Seattle.

On October 7, journalists from various media outlets, including The National, visited the 737 Max assembly line as grey clouds hung low on the factory.

Company executives struck a humble and apologetic tone but repeated that the troubled plane would be approved for commercial flights in the final quarter of 2019.

That timeline proved a moving target with multiple delays: in December, the Federal Aviation Administration said the plane would not be cleared to fly before 2020. The delay forced Boeing to temporarily shut down production of the narrowbody jet starting in January, its biggest assembly-line halt in more than 20 years, to ease the cash burn. The worldwide grounding since March has already cost Boeing more than $9 billion (Dh33bn).

For the plane to return to commercial service in the US, the FAA must approve Boeing's software changes and pilot training scheme. In addition, regulators across the globe must also sign off on the plane's return to their parts of the world. Regulators in China, Europe and the UAE have said they would conduct their own safety checks on the plane before issuing their own approvals.

The lack of unanimity among international regulators on the measures and timeline on approving the 737 Max for flight has raised concerns about disrupting certification of future aircraft programmes. The FAA was traditionally the main lead on certifying Boeing aircraft, with other global regulators following suit, but that was called into question amid concerns the agency was too close to the manufacturer.

The head of the world's main airline lobby group has repeatedly called for unanimity among the regulators on the Max's return.

Alexandre de Juniac, director-general of the International Air Transport Association, warned that a fragmented approach by the regulators may lead to "mistrust" in the existing jet certification process.

Mr De Juniac expressed concerns over continued delays to the comeback of Boeing's 737 Max.

“It’s delayed by one month every month,” he said at Iata's annual media gathering in Geneva this month.

Commenting on whether the Max issue could complicate certification of future jet programmes, Gilberto López Meyer, Iata's senior vice-president of safety and flight operations, said: "Definitely, this is going to produce a complete review of the whole system. We believe the system works well but, as in anything in life, it can be improved," he told reporters in Geneva.

On October 8, journalists were taken on a tour of Boeing's Safety Promotion Centre, an area where the plane maker emphasises safety practices throughout the company.

In the entrance stood a sombre memorial to the two fatal crashes in Ethiopia and Indonesia. "A moment of reflection: Remembering those whose lives were lost in flight," it read, along with the date and timing of both disasters.

The chilling monument is a concrete reminder of the heavy responsibility of ensuring that such tragedies do not happen again.

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Richard Flanagan
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

THE BIO

Bio Box

Role Model: Sheikh Zayed, God bless his soul

Favorite book: Zayed Biography of the leader

Favorite quote: To be or not to be, that is the question, from William Shakespeare's Hamlet

Favorite food: seafood

Favorite place to travel: Lebanon

Favorite movie: Braveheart

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