A little more than a month after the mid-March grounding of the Boeing (NYSE:BA) 737 MAX, American Airlines (NASDAQ:AAL) removed the troubled model from its flight schedule through Aug. 19. At the time, American Airlines' top two executives insisted that the move was being made out of an abundance of caution. CEO Doug Parker and President Robert Isom stated that they expected the 737 MAX to be recertified before August and that the airline would use its 24 737 MAX 8s as spares over the summer.
Unfortunately, Boeing has encountered numerous obstacles while trying to get the 737 MAX back in the air. As a result, customers like American Airlines and Southwest Airlines (NYSE:LUV) have had to repeatedly push back the 737 MAX's scheduled return to service. Following Boeing's latest setback, these carriers recently extended their 737 MAX cancellations to March 2020.
A new month, a new setback
It didn't take long following the 737 MAX grounding for Boeing to design a software update to address the faulty MCAS system that was involved in both fatal 737 MAX crashes. However, while testing that software fix in an extreme scenario, test pilots uncovered a new vulnerability that required additional software changes.
Boeing finally submitted its final software package to the FAA last month. This put Boeing on track to do simulator tests with FAA observers in early November, followed by an official certification flight later in the month. If all had gone well, the 737 MAX could have been recertified before the end of 2019.
Yet Boeing suffered another setback last week, as regulators from the FAA and its European counterpart demanded revised documentation for the software update. Boeing characterized the request as a formatting issue and said that it could be resolved within days. Other sources told Reuters that Boeing's documentation was "substandard" and had gaps -- and that it could potentially take weeks to fix the issues.
Until the documentation audit is completed, Boeing won't be able to schedule a certification test flight for the FAA. Given that it will take at least 30 days following a certification flight for the FAA to officially lift the grounding order, it now seems almost certain that the 737 MAX will remain grounded into early 2020.
American Airlines and Southwest Airlines change the timeline again
Airlines won't be able to reintroduce the Boeing 737 MAX immediately after the FAA lifts the grounding order. It will take a month or more to complete necessary maintenance procedures and crew training to prepare for the 737 MAX's return.
As a result, Southwest Airlines revealed in its quarterly report -- filed on Friday -- that it plans to remove the 737 MAX from its flight schedule through March 6, 2020. Prior to this change, it already had the most conservative schedule of the three main U.S. operators of the type, with plans to bring the 737 MAX back after Feb. 8. However, management clearly decided that the early February return date was still unrealistic.
Later that same day, American Airlines followed suit, postponing the 737 MAX's scheduled return to service from mid-January to March 5. It said this change was "based on the latest guidance" from Boeing, the FAA, and the Department of Transportation.
Boeing cannot afford any more delays
The 737 MAX grounding has already hurt the bottom line at American Airlines and Southwest Airlines to the tune of hundreds of millions of dollars. Those losses will continue to grow in the months ahead. Boeing has acknowledged that it will need to compensate airlines in one way or another -- potentially through discounts on future aircraft purchases -- for their 737 MAX-related losses.
The good news about the latest delay to the 737 MAX recertification schedule is that for the most part, late January and February are off-peak periods for airlines (with the exception of Presidents' Day week). Airlines typically reduce aircraft utilization during this period to align supply with demand, so they are better positioned to adjust to the loss of capacity from the extended 737 MAX grounding.
However, if the 737 MAX's return is delayed any further, the grounding would impact the busy spring break travel season. Furthermore, airlines are planning for a phased return to service of their 737 MAX fleets, which means that additional delays could start to impact the summer peak season.
Boeing is already going to face a hefty bill for its 737 MAX debacle. To keep those costs from spiraling out of control, the aircraft manufacturing giant needs to ensure that its most important model is recertified by the end of January, if not earlier.