Following an incident in January where a door panel detached mid-flight on an Alaska Airlines-operated Boeing 737 MAX 9 aircraft, Anneke Palmerton was informed that her scheduled flight to Orlando had been canceled by the airline.
It came as no surprise to her that Alaska Airlines had made
the decision to ground its fleet of MAX 9 aircraft following the unfortunate
incident on January 5th. However, she was unaware of the potential
consequences this decision would have on air service in her city of Bellingham,
Washington, and how it would disrupt her winter travel plans, which involved
flying with Southwest Airlines.
A single flight experienced a door blowout incident.
However, the subsequent safety crisis has resulted in increased costs for
entities dependent on Boeing. Interviews conducted with airline executives,
union leaders, pilots, suppliers, passengers, and government officials reveal
the extensive impact of this incident on the trillion-dollar global aviation
industry.
The recent decline In Boeing’s MAX deliveries has adversely
impacted the financial performance of airlines such as Southwest and certain
suppliers who had planned to equip their new aircraft with these planes. This
situation has resulted in inconveniences and disruptions for passengers due to
reduced flight routes, and has also led to a slowdown in the hiring of new
pilots, as indicated by interviews conducted.
"We thought...there would be a little bit of
bumps," said Palmerton, a notary and marriage officiant in Bellingham.
"Never in a million years (did we think) it would lead to Southwest,"
Palmerton expressed her concerns regarding the airline’s decision to
discontinue service to the local airport.
Boeing, a leading American exporter, employs approximately
150,000 individuals domestically. Its extensive supply chain, encompassing
numerous businesses of varying sizes globally, supports millions of additional
individuals.
As per the assessment of Economist Joseph Brusuelas, it is
estimated that the cumulative contribution to the U.S. economy amounts to $1
trillion annually, while simultaneously supporting over 5 million employment
opportunities.
Boeing acknowledged the challenging circumstances mentioned
in previous executive statements. However, the company emphasized its ongoing
efforts to enhance quality, resulting in improved factory operations. Boeing
anticipates achieving a MAX production rate of 38 per month in the latter half
of the year.
SAFETY OVER SPEED
In response to regulatory pressures, Boeing has made a
commitment to prioritize safety over speed, resulting in a reduction in the
pace of its jet production. During the first half of 2024, the company
delivered 175 jets, representing a decrease of 34% compared to the previous
year and 46% fewer than the number of jets delivered by its European
competitor, Airbus.
Suppliers, such as Montreal-area component supplier Meloche
Group, are experiencing delays in realizing the benefits of their investments
due to ramp-up delays. This year, Meloche Group invested C$10 million ($7.34
million) to meet the increased demand, particularly for the LEAP engines that
power MAX planes.
However, GE Aerospace and its partner Safran of France have
previously indicated that they will be reducing LEAP production this year due
to Boeing’s current difficulties.
Meloche has revised its revenue projection for the current
year, anticipating a shortfall of approximately 5% compared to the initial
target of C$150 million. Despite this setback, CEO Hugue Meloche expressed
optimism, projecting a substantial sales growth of 25% in the year 2025.
The incident on January 5th has further complicated matters
for airlines that are already grappling with engine delays affecting certain
Airbus A320 aircraft, as well as industry-wide supply chain disruptions.
Aircraft delivery delays have a significant impact on
airlines’ operations and financial planning. Airlines invest heavily in
preparation and infrastructure costs, such as hiring and training pilots and
planning their network, months before a new aircraft is put into service. These
costs cannot be easily recovered if the aircraft delivery is delayed, resulting
in financial losses for the airlines.
HIT TO AIRLINES
The precise financial repercussions of Boeing’s crisis are
challenging to quantify, but it is having a negative impact on airline profits
and employment.
Allegiant, a Boeing customer, has reported that aircraft
delivery delays are resulting in approximate annual losses of $30 million.
United Airlines, a valued client, has significantly reduced
its annual hiring projections by approximately 30%, primarily due to a decrease
in aircraft deliveries. Similarly, our esteemed competitor, American Airlines,
has also scaled back its hiring plans.
"We have seen some Boeing delivery delays,"
American's CFO Devon May told Reuters in April. "So, we're probably not
going to be hiring as many people as we would have expected back in
January."
The situation is more critical at Southwest, which
exclusively operates Boeing aircraft and is currently confronting the
possibility of a proxy contest, partly attributable to jet delivery delays.
The company's hiring strategy was based on the projected
acquisition of 85 jets this year. However, due to unforeseen circumstances, the
expected number of planes has been revised to 20.
The airline industry is currently experiencing a shortage of
aircraft, which has negatively impacted revenue and increased cost pressures.
The company has been forced to spend millions of dollars to maintain its aging
fleet, resulting in an estimated surplus of approximately 800 pilots.
COST CUTS
In light of recent financial challenges, Southwest has made
the strategic decision to focus its operations on more lucrative markets.
Consequently, exiting Bellingham and three additional airports.
The company has ceased pilot recruitment and suspended new
hire training. Plans are being developed to offer pilots reduced work hours and
effectively lower compensation.
The recent turn of events marks a significant shift in the
circumstances faced by the company’s pilots. Just six months ago, they were
highly sought after by competing airlines, leading to challenges in maintaining
a stable workforce due to the high attrition rate.
Bellingham International Airport’s Southwest Airlines
service has significantly contributed to its passenger traffic growth,
capturing approximately 40% of the total. This development, which occurred in
late 2021, has positioned Bellingham as a competitive alternative to Vancouver
International Airport in Canada, which handled nearly 25 million arriving and
departing passengers in the previous year. Notably, Canadian travelers
accounted for more than half of Bellingham’s estimated passenger traffic of
over 630,000 in the same period.
City officials anticipate economic repercussions following
Southwest’s cessation of operations in August. "It'd definitely be felt in
our communities," said Kip Turner, Director of Aviation at Bellingham
International Airport.
ENSURE HIGHEST QUALITY
With reference to the incident that occurred on January 5th,
Boeing has swiftly announced significant changes in its management structure,
including the departure of its Chief Executive Officer, Dave Calhoun, at the
end of the current calendar year.
The aircraft manufacturer has implemented enhanced
inspection protocols across its own facilities and those of its suppliers.
Additionally, they have expanded training programs for new hires and instructed
management personnel to allocate more time for direct observation and
supervision on the production floor.
Industry leaders express cautious optimism regarding Boeing’s
proposed action plan, emphasizing the necessity for tangible outcomes.
"We are wanting to ensure that they produce the highest
quality aircraft, that we can confidently fly safely every single day,"
said Alaska Airlines CFO Shane Tackett.