Boeing Stock: A Major Win (NYSE:BA)

2022 has been an interesting year for Boeing (NYSE:BA). Demand for commercial aircraft is strong, but original equipment manufacturers cannot push production higher due to supply chain issues and while Boeing is pacing well on commercial aircraft and services, the Defense segment is underperforming strongly. So, it is another challenging year for Boeing with different dynamics. With the year coming to an end, the US jet maker has booked a significant win in its effort to get the Boeing 737 MAX 7 and Boeing 737 MAX 10 certified, which I will discuss in this report.

What was the issue for the Boeing 737 MAX?

In the aftermath of the Boeing 737 MAX crashes, Congress passed the Aircraft Certification Reform and Accountability Act in 2020. The key item of the reform act is the requirement of a flight crew alerting system:

SEC. 17. FLIGHT CREW ALERTING.

(A) In General.-Not later than 1 year after the date of enactment of this Act, the Administrator shall fully implement National Transportation Safety Board recommendations A-19-11 and A-19-12 (as contained in the safety recommendation report adopted on September 9, 2019).

(B) Prohibition.-Beginning on the date that is 2 years after the date of enactment of this Act, the Administrator may not issue a type certificate for a transport-category aircraft unless-

(1) in the case of a transport airplane, such airplane incorporates a flight crew alerting system that, at a minimum, displays and differentiates among warnings, cautions, and advisories, and includes functions to assist the flight crew in prioritizing corrective actions and responding to systems failures; or

(2) in the case of a transport-category aircraft other than a transport airplane, the type certificate applicant provides a means acceptable to the Administrator to assist the flight crew in prioritizing corrective actions and responding to systems failures (including by cockpit or flight manual procedures).

In the absence of such a system, new aircraft like the Boeing 737 MAX 7 and Boeing 737 MAX 10 could no longer be certified. When the act was put together, a two-year grace period was layered into the bill and there was a clear reason for that. Lawmakers had assumed that two years from the enactment date, the remaining variants of the Boeing 737 MAX would have been certified. So, it was never the intention to stop development of the remaining Boeing 737 MAX variants or even have the new rulemaking affect the Boeing 737 MAX variants. The bill was enacted on the 27^th of December 2020 meaning that from the 27^th of 2022 onward, the FAA and Boeing could no longer do certification work on the Boeing 737 MAX unless changes were made.

While lawmakers had assumed that the MAX variants would be certified within the two-year timeframe, this was not the case. Certification for the Boeing 737 MAX 7 has slipped into next year and in February 2021, Boeing announced that the service entry of the Boeing 737 MAX 10 had slipped into 2023 making it unlikely that the aircraft would be certified within the two-year grace period layered into the bill.

Boeing 737 MAX Act: No Connection With Safety

It is clear that the reform act was drafted, because of the crashes with the MAX but it was never drafted to stop development of the aircraft in its tracks.

So, Boeing had two options:

1. Make the Boeing 737 MAX compliant with new regulations, which would bring additional delays and costs and weaken the market position of the Boeing 737 MAX.
2. Push for an extension of the grace period.

Ever since this became an issue, I have expressed my view that an extension of the grace period would be the most reasonable path. That is not so much driven by prospective delays and costs, but more by the arbitrary grace period from safety perspective and how that would be applied in operations. In essence, there is no connection between safety enhancement and the grace period. The grace period was chosen as such because lawmakers expected the Boeing 737 MAX variants to be certified, it was not chosen as such because of safety critical requirements. So, it would not make sense to say that the aircraft could be certified on the 27^th of December 2022, but come 28^th of December the same aircraft would not be able to be certified. That shows that what was encapsulated in the act was important to enhance safety, but not critical. Another thing that showed that opposition to an extension would more be driven by politics than safety is the fact that on the Boeing 737 MAX 8 and Boeing 737 MAX 9 the aircraft would be allowed to be operated without modifications stipulated within the act while the Boeing 737 MAX 7 and Boeing 737 MAX 10 could not. If what was presented in the act was safety critical, it would have been mandatory from the start to be applied in retrospect.

Besides that from operational point of view, having different systems on the MAX 8 and MAX 9 than on the MAX 7 and MAX 10 could itself seen as a safety issue as pilots who would be flying the MAX 8/9 and the MAX 7/10 on the same day could in some way rely on a system that is not there and that creates a threat to safe operations and could further complicate pilots transitioning from the Boeing 737 Next Generation to any of the Boeing 737 MAX models.

So, what is clear is that if this was really a safety issue there would be no delay on safety implemented in the act in the form of a grace period and the regulations would be applied to all aircraft, so also the Boeing 737 MAX 8 and Boeing 737 MAX 9. So, the only reason to oppose an extension would have been to send a political message to Boeing making safety submissive to political motives, which is never a good thing.

A Hard-Fought Battle

So, with timelines and targets shifting to the right. Boeing had started to seek political support. A first attempt to have an exemption or grace period extension implemented in the US National Defense Authorization Act failed, but in late December the exemption with strings attached was attached in the spending bill that keeps the government running until next fall. It was most likely the final opportunity to have a waiver implemented for the Boeing 737 MAX and just like with the attempt to have the waiver implemented in the Defense bill, it was put into a major bill counting over 4,000 pages to reduce attention for the waiver.

The rulemaking to the prohibition of issuing a type certificate to transport aircraft that does not display and differentiates between warnings, cautions and advisories and assists flight crews in prioritizing correction actions in response to system failures was limited to exclude application for an original or 23 amended type certificate that was submitted to the Administrator prior to December 27, 2020.

So, that means that the Boeing 737 MAX 7 and Boeing 737 MAX 10 have received an indefinite waiver for the requirement on a flight crew alerting system implementation. However, there are strings attached and those make a lot of sense to enhance safety. Namely, one year after the Boeing 737 MAX 10 is certified no Boeing 737 MAX aircraft, regardless of variant, can be certified if it does not include a synthetic enhanced angle of attack system which will add redundancy to the system as the current aircraft only has two angle of attack sensor which does not provide a definite rejection system to determine which angle of attack could be faulty in case of angle of attack disagreements.

Furthermore, means to deactivate stall warnings and overspeed alerts should be installed. This measure will help to relief distracting and repetitive alerts for flight deck crews in a high-work load situations in case the warnings are triggered and provides a cleaner flight deck experience which aids flight deck crews in working through emergency situations or non-normal operations and triggers.

These safety enhancements will be required on all Boeing 737 MAX aircraft, regardless of the variant, three years after the certification of the Boeing 737 MAX 10 for which these flight safety enhancements have been developed.

With these requirements and the removal of the certification timeline for a flight crew alerting system, pressure is removed to rush the development certification which should while consistence throughout the Boeing 737 MAX family is applied which makes the application to positively enhance flight safety more consistent and ultimately helps the flying public and operators. The requirements are also in anticipation of actions that the European Union Aviation Safety Agency, EASA, is likely to mandate. So, it brings the FAA and EASA on the same wavelength as well.

Boeing Spent Considerable Amount Of Time Gaining Support

I consider the new set of rules more consistent with safety in mind leaving out the political strongarming which had little to do with enhancing safety in a constructive way. Political support was gained via lobbying as is normal, but having followed the Boeing 737 MAX crisis I believe these rules make much more sense and better address outstanding issues. As a result, they could also count on political support, but it should be noted that as part of the omnibus to keep the government running until somewhere next year chances were also lower there would be strong opposition specifically on the regulations for the Boeing 737 MAX.

Boeing also tried gaining support just by setting up a broad customer base for the Boeing 737 MAX 10. Earlier this year, the Allied Pilot Association which is the pilot association for pilots of American Airlines opposed a waiver for the MAX 7 and MAX 10 and issued the following press release:

Allied Pilots Association Opposes Extension of Equipment Exemption for Boeing 737-7 MAX and 737-10 MAX Aircraft

FORT WORTH, Texas (Oct. 5, 2022) – The Allied Pilots Association (APA), representing the 15,000 pilots of American Airlines, expressed its strong opposition to any extension of the equipment exemption for the Boeing 737-7 MAX and Boeing 737-10 MAX.

The exemption expires in December.

“Boeing needs to proceed with installing modern crew alerting systems on these aircraft to mitigate pilot startle-effect and confusion during complex, compound system malfunctions,” said APA President Capt. Edward Sicher. “Once these systems are installed and pilots have been properly trained on them, our crews will be better able to identify system failures and prioritize corrective actions that could save lives.”

Sicher noted that American Airlines pilots fly more than 300 B-737s for the airline.

“We oppose any extension of the exemption and don’t agree with Boeing’s claim that pilots could become confused when moving from an airplane without the modern alert system to one that is equipped with it. Nothing could be further from our flight deck reality,” Capt. Sicher said. “Consider the Boeing 757 and Boeing 767 – they’re substantially different airplanes, yet operate under a single certificate. Pilots have routinely flown both on the same day without any confusion.

“Pilots must have the tools we need to keep our passengers safe. By equipping these aircraft with modern crew alerting systems, Boeing can maintain a strong order book for them, which will in turn protect the jobs of the thousands of hard-working men and women who build the airplanes. Doing so will also help Boeing to continue rebuilding public trust.”

In a report published in October 2022, I pointed out that the opposition from APA made no sense and neither did its comparison regarding pilots transition between the Boeing 757 and Boeing 767. In fact, if APA would have it their way the MAX models would be different in terms of flight safety enhancements and that would be detrimental to safety. Furthermore, American Airlines does not have the MAX 7 and MAX 10 on order so one could wonder what skin they really have in the game. With the competition having the Boeing 737 MAX 7 and Boeing 737 MAX 10 on order it seemed that APA was trying to weaken the competition which would ultimately benefit American Airlines and strengthen job safety of American Airlines pilots. With the new regulations in place, which will also apply to the MAX 8 that American Airlines has on order we see true safety enhancements rather than bad oppositions that are either politically or commercially motivated. If APA wanted to do something for the flying public, they would have requested the rulemaking to apply to all MAX models.

Boeing also spent considerable effort to gain customers globally with a focus on US customers and they have been successful:

Type	American Airlines	United Airlines	Delta Air Lines	Southwest Airlines	Allegiant Air	Total
Boeing MAX 7	0	0	0	186	30	216
Boeing MAX 8	130	90	0	299	0	519
Boeing MAX 8-200	0	0	0	0	20	20
Boeing MAX 9	0	79	0	0	0	79
Boeing MAX 10	0	250	100	0	0	350
Total	130	419	100	485	50	1,184
Share Boeing MAX 7 and Boeing MAX 10	0%	60%	100%	38%	60%	48%

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• Delta Air Lines (DAL) bought 100 Boeing 737 MAX aircraft this year.
• United Airlines has 250 Boeing 737 MAX aircraft on order and recently bought another 100 Boeing 737 MAX aircraft for which the variant was not specified but could include an unspecified number of MAX 10 jets.

We also see that when it comes to the MAX 7 and MAX 10, American Airlines has no skin in the game other than the rather weak argument that if something were to happen to MAX 7 and MAX 10 in service with other US carriers it would erode trust of the flying public which would reduce consumer trust in flight safety with all US carriers operating the MAX. However, the easiest fix to the problem would be flight safety enhancements for all MAX models.

Conclusion: A Deserved Win For Boeing

Looking at the new regulations that are in place, I believe they better touch on the weaknesses of the Boeing 737 MAX family and by making safety enhancements developed for the MAX 10 a requirement across all MAX models, I do believe there is a better set of rules in place that prevents the manufacturer rushing to the finish line and promotes safety for the flying public regardless of MAX model or data of certification. This is how safety regulations should be enhanced and enforced.

For Boeing, it provides certainty with the positive consequences that the FAA and EASA will be aligned in flight safety enhancement mandates and system consistency on the flight deck of all Boeing 737 MAX models. It is now up to the US jet maker to get the MAX 10 certified, which is an aircraft that is desired by airlines and provides significant sales opportunities for the Boeing 737 MAX family.