Will 737 MAX 8 concerns impact freighter conversion market?

Last Sunday, an Ethiopian Airlines 737 MAX 8 departed Addis Ababa at 8:44 a.m. local time on flight ET 302, and had yet to reach cruising altitude when after just six minutes, the Nairobi-bound aircraft lost communication with air traffic controllers. Minutes later, the aircraft crashed, killing all 157 people on board.

Although on the surface, the incident bears resemblance to a Lion Air 737 MAX 8 that crashed off the coast of Indonesia shortly after take-off last October, the cause of the crash has not been determined and there is no evidence that would suggest a more concrete link between the two incidents. Regardless of any concrete existence of technical flaws with the design of the MAX 8, Boeing faces a major optics problem if it does not move nimbly to address passenger concerns. Lion Air for one, which placed a $22 billion order for 201 MAX aircraft, is reportedly considering canceling unfulfilled orders for the aircraft.

“Boeing must act quickly to identify whether there is indeed a technical issue and if there is, fix it swiftly to avoid a potential rash of canceled orders that will play into the hands of its closest competitors,” said Nick Wyatt, head of R&A, travel & tourism at GlobalData.

As is customary for aviation catastrophes, Boeing immediately dispatched a technical team to accompany investigators from the US National Transportation Safety Board to Ethiopia to support the airline and determine the cause of the crash. Separate from a statement from Boeing in which the manufacturer expressed its condolences to the victims and relatives of the Ethiopian Airlines Aircraft, Boeing confirmed it plans to roll out software upgrades for the MAX 8 by April to address FAA mandates for design changes to the aircraft’s Maneuvering Characteristics Augmentation System (MCAS).

Within hours of the loss of a second MAX 8 hull, the unease of witnessing back-to-back incidents involving a modern jet was enough to prompt the CAAC to ground all 737 MAX 8s operated by Chinese carriers until further notice. In a release, China’s aviation regulator said the two crashes “have certain similarities, in line with the management principle of zero tolerance for safety hazards and strict control of safety risks.”

The US Federal Aviation Administration, for its part, issued a “continued airworthiness” notice to MAX 8 operators yesterday, indicating the regulator has no plans to recommend grounding on a greater scale. The top three operators of the MAX 8, Southwest Airlines, American Airlines, and Air Canada, meanwhile, continue to operate the aircraft as normal.

While at first, it appeared that most European carriers would follow FAA guidance, a number of carriers that initially said they would continue operating their MAX 8 fleets, have since reversed course.  After Civil Aviation Authorities in France, Germany, and the UK banned the MAX 8 from entering their nations’ airspace, Norwegian Air suspended operations of its eighteen MAX 8s. At present, a total of twenty-eight airlines have grounded their MAX 8 fleets while a number of aviation authorities, including EASA, have banned the aircraft from entering their airspace. India’s Directorate General of Civil Aviation has also grounded all 737 MAX operations in the country.

Update: As of 3:30 ET on Tuesday, more than 71% of the world’s fleet of 340 737 MAX 8s were grounded, leaving few carriers outside of those based in Canada and the United States continuing to operate the aircraft.  

Circling back to air freight, with 737 NG conversion programs only now starting to take off, it will be decades before the MAX 8 will even be considered as a candidate for a conversion to freighter configuration. Regardless of whether such a conversion program is ultimately launched, with a net of more than 5,000 orders for the MAX, deliveries of the aircraft drive retirements of aging 737 NGs and impact the availability of feedstock for 737 NG conversions.

In 2018, Boeing delivered 256 MAX aircraft, a figure which is set to accelerate this year following recent production rate increases, and a dwindling backlog of 737 NGs. Boeing is now delivering 737s at a rate of fifty-two units per month, and according to Bloomberg, plans to deliver 558 MAX 8s over the next twelve months, more than doubling the current in-service fleet. Boeing’s 737 MAX production boost is expected to drive retirements of older 737-700s and -800s the new aircraft are replacing, which in turn, would likely increase the availability of 737 NG conversion feedstock.

If carriers operating mid-life 737 NGs in passenger service choose to defer MAX deliveries and push forward retirements of 737 NGs, the availability of NG conversion stock could remain low longer than expected.

Those interested in learning more about narrowbody freighter conversions are invited to join us at Cargo Facts Asia 2019, to be held 15-17 at the Langham Shanghai. For more information, or to register, visit www.cargofactsasia.com.