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The Boeing 737 Max fleet has been immobilized by airlines around the world over the past four weeks. The first commercial flight in 2017, the 737 Max is the fourth generation of the Boeing 737 series, and it is not unusual for new aircraft to experience technical problems in the early years of operation.
The Airbus A380 airliner and Boeing's Dreamliner were immobilized in the past due to technical problems: the A380 had engine problems in 2010 and the Dreamliner in 2014, but the current situation was different on many fronts and could be expensive for Boeing.
First, the magnitude of the problem is much larger. Only a few A380s and Dreamliners were in service when their problems came up. Boeing has delivered nearly 400 of its 737 Max Series aircraft and orders approximately 5,000 more. That's a lot compared to its rival Airbus, which has only delivered 234 A380 aircraft since 2007, and to 1,400 orders for the Boeing Dreamliner since 2004 – about 800 have already been delivered.
Secondly, there had been no fatalities in previous cases – although there have been several serious incidents, such as the 2010 Qantas Flight 32. In this case, A380 aircraft Qantas had suffered an engine failure but no one had been injured during the emergency landing that had followed.
The crash of Ethiopians Airlines Flight 302, which resulted in the grounding of 737 Max airplanes around the world, left 157 people dead. The 737 Max Air Lion that crashed in October 2018 and which, according to reports, presented problems similar to those of the tragedy of Ethiopian Airlines, killed 189 people.
Expensive situation
Serious questions are now being asked about Boeing's software and the automated flight control feature that investigators suspect of causing both fatalities. Boeing has promised a software solution for this, but its deployment is delayed and airlines around the world keep their 737 Max aircraft on the ground.
This is an expensive situation for the airlines. If we badume that an airline operating in the United States uses its 737 Max aircraft three times a day and carries 145 pbadengers per medium flight, we can estimate some of the losses incurred.
According to the US Department of Transportation, the average fare for a plane ticket in the United States is 343.28 USD. Assuming it's a round-trip flight, a 737 Max type aircraft will generate about $ 150,000 in revenue per day for the airline.
Of course, about 10 to 15% of this amount is taxes, but the US Department of Transportation data does not account for any revenue that airlines could obtain for ancillary services such as checked baggage .
Southwest Airlines – the largest operator of the 737 Max in the United States – has 34 of these aircraft on the ground. This means that a day of all those planes that do not fly could cost up to $ 5 million to the airline in lost revenue.
For all of the 737 Max immobilized aircraft, the total business figure that airlines lose each day could be around $ 60 million. And these calculations take into account only potential revenue losses – airlines must bear additional costs related to mitigation planning, rescheduling and potential longer-term business loss due to suspension resulting routes.
Canceled orders
Of course, the $ 60 million figure above must be viewed with caution. It may not be entirely appropriate to extrapolate the US market figures to calculate a figure for the rest of the world, and at best one-tenth of the amount above is a profit.
Nevertheless, we can easily predict that Boeing will face hundreds of millions of dollars in lawsuits from airlines if planes remain immobilized for a long time. No international convention limits the amount of liability of aircraft manufacturers if they are found to be responsible.
Hundreds of millions of dollars may seem like a reasonable sum for a company that made a profit of 10.5 billion US dollars in 2018. But the long-term costs for Boeing because of the loss of activities will likely represent billions of dollars. For example, the order for 50 aircraft canceled by the Indonesian airline Garuda amounted to $ 4.9 billion.
The long-term viability of Boeing as a manufacturer, however, is not in doubt. Airbus predicts that the global commercial aviation sector will need 37,400 new aircraft over the next 20 years – and Airbus can not build all these planes on its own. Even with the entry of Comac – the nascent Chinese aerospace manufacturer – there will still be a lot of market for Boeing, which currently shares roughly the narrow-body market with Airbus.
The US manufacturer will probably learn from all of this. The 737 Max's disasters could remain a dark point in Boeing's history and a warning for the future. But in the end, it is impossible to put a price on the lives of the 346 victims of the two recent accidents, as well as the pain and suffering inflicted on their loved ones.
Volodymyr Bilotkach is a senior lecturer in economics at the University of Newcastle in the United Kingdom.
This article is republished from The Conversation. Read it original article.
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