It’s been months since the initial headlines about Boeing’s 737 MAX scandal initially hit the media. Hundreds dead. Planes grounded. Intervention from the Federal Aviation Administration (FAA). Now, months later, the plane is no closer to a return to the skies and the industry has even more questions. The only thing that’s come to light in any real capacity is how much Boeing will end up paying for its lackadaisical approach to aircraft safety.
Breaking down the numbers
The big number facing Boeing right now is $4.9 billion. That’s the amount of a special charge the company will absorb in the second quarter of 2020. The true cost actually comes out to a roughly $5.6 billion reduction of revenue and pre-tax earnings, according to the company. This large sum may be the biggest to crater Boeing’s balance sheet, but it’s far from the last.
Alongside this special charge, Boeing anticipates increased production costs for future 737 MAX aircraft as well. That figure currently stands at $1.7 billion on top of the original cost of production cited by the company earlier in the year. Perhaps the most damaging aspect of this cost is its effect on future cash flow. It’s likely to be realized throughout 2020 as it’s incorporated into the next 3,000 or so planes produced by the company.
In addition to higher production costs, Boeing’s production numbers are down dramatically from 52 to 42 planes per month. The lost revenue from this lowered production output compounds its already mounting charges.
Ironically, the smallest sum within the scope of Boeing’s costs is a $50 million fund the company is establishing to deliver near-term relief to families of crash victims. Despite an unwelcome response from families calling this commitment a “PR stunt,” it’s nonetheless another cost to the business.
The total cost to Boeing at this point? Estimates put the number at roughly $8.3 billion. For a company with a $191 billion market cap, the cost may not seem insurmountable, but it’s certainly enough to hamstring the company headed into 2020 — especially as it loses orders to rival Airbus and its favor with the FAA.
Looking ahead … at upcoming costs
The dollar value attached to the 737 MAX scandal isn’t close to concrete. The tallied cost we have today only represents the near-term. Boeing stands to lose much more money in the coming months and years.
For starters, no one is certain when the 737 MAX will fly again. There is no end to the grounding in sight, which means lost revenue for every airline with a handicapped fleet. American Airlines, Southwest Airlines, and other major players have already begun reporting lower-than-expected earnings, citing the grounding as a prime contributor. Their lost revenue is soon to become Boeing’s. The company has already agreed to compensate customers affected by the grounding — namely in future discounts, representing even more costs to be paid in the future.
Boeing has also lost favor with the FAA. Initially slow to take action, the FAA has faced major backlash in recent months over the lack of oversight to Boeing. The agency appears to be on the outset of issuing new regulations aimed specifically at increasing its reach. For Boeing, a more involved FAA likely means higher costs and more regulatory hoops in the future.
The 737 MAX scandal itself may be in the rearview mirror, but Boeing’s costs are just beginning to mount. How high will they go? The next breakpoint appears to be tens of billions of dollars.
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The reason for the grounding has been traced back to three separate incidents of malfunction with the SF50’s stall warning and protection system. A statement issued by Cirrus frames the problem and the subsequent decision to ground the fleet:
“In early April of this year, one of our company pilots experienced the engagement of the stall warning and protection system when not appropriate during a flight at altitude. The pilot followed the published airplane flight manual (AFM) procedures and landed the aircraft safely. Out of an abundance of caution, we immediately began working with the FAA and our internal teams to determine the root cause and began our operator communication process.” — Cirrus company statement
Following major air travel catastrophes like the Boeing 737 MAX scandal, the decision to ground the fleet was largely proactive. The company noted in a more detailed statement that pilots have “full ability to manually override the stall warning and protection system.” No injuries, deaths, or reports of damage resulted from the system malfunction.
The fix and return to safety
The solution to the SF50 Vision’s improper triggering of the stall warning and protection system was a replacement of the angle-of-attack sensor. Designed as a safety feature, the sensor would malfunction abruptly during specific periods of takeoff or landing, making it more difficult for pilots to control their craft. In each of the three reported incidents, pilots swiftly overrode the feature to regain control of their craft. No accidents or mishaps have resulted from this condition and each pilot landed their aircraft without incident, according to the company.
Cirrus reports that as of May 2019, all SF50 aircraft in service have had their angle-of-attack sensors replaced and are once again safe in the skies. And, unlike Boeing — which faces a similar scandal on a much larger and more gruesome scale — Cirrus doesn’t appear to have garnered ill will from either the FAA or customers. Reinstatement of the aircraft’s airworthiness took less than 30 days, and the company reports as many as 500 orders on the books.
A growing concern in aviation
While the SF50 Vision is back in the skies and functioning properly, there’s growing discontent among those in the aviation industry linking safety incidents together. The 737 MAX, which faced a similar sensor malfunction, is still grounded in the U.S. Issues with angle-of-attack and other equipment forcing abnormal pitch and roll behavior are piquing the attention of regulators, manufacturers, and pilots.
Cirrus and Boeing are just two companies that have faced incidents with safety features behaving erratically. The fear is that more will follow. For now, however, it seems as though Cirrus’ response has set the standard for handling these issues. Boeing, on the other hand, remains in hot water with the FAA.
1996 was a milestone year in business aviation as it marked the first release from a game-changing joint venture between Boeing Corporation and General Electric. Their goal was to build a corporate version of Boeing’s popular 737 airliner, and it resulted in a new company — Boeing Business Jets (BBJ). It also meant the availability of a line of ultra-long-range ultra-large-cabin business jets that are now hugely popular choices for private, corporate, and charter operations. Today, BBJ offers a wide range of its commercial-based airliners outfitted for the private and corporate market that provide luxury flight experiences incorporating the comfort and amenities fliers are used to having while on the ground.
Bigger is better
The original BBJ had the fuselage of a 737-700 combined with the higher-fuel-capacity 737-800 wing. The interior was basically a blank slate with customizations limited only by the depth of buyers’ pockets. The belly is large enough to accommodate as many as 10 auxiliary fuel tanks, offering an eight-passenger range of 6,196 nautical miles.
A subsequent model, the BBJ2, was longer and had 25% more cabin space than the original. However, to achieve this, it had to lose the extra fuel tanks and, therefore, has a shorter range. A third model based on Boeing’s Next Generation 737-900ER airliner, the even larger BBJ3, appeared in 2005 with a range similar to the BBJ2.
When these aircraft are outfitted for the private market, they provide unmatched durability, reliability, and comfort in addition to their abundance of personal space. Prepackaged options are now available for the BBJ, making cabin customizations easier and quicker to deliver. And now a new generation of BBJ aircraft, the BBJ MAX, is soon coming to market.
The BBJ MAX
In April, Boeing celebrated the first BBJ MAX flyaway. The BBJ MAX 8 flew from Seattle Boeing Field to Georgetown, Delaware, to have auxiliary fuel tanks fitted, which will allow the business jet to fly as far as 6,640 nautical miles. From there, it goes into the cabin completion stage and is scheduled for customer delivery in fall 2019.
The new Boeing 737 MAX series is the basis for the BBJ MAX family, which “will fly farther and at a lower operating cost than its predecessors.” It has more space, greater comfort, and further range than any business jet in its class. More than 20 BBJ MAX aircraft have already sold, making it one of the best-selling business jets in history.
If you aren’t yet ready to commit to a new BBJ, some preowned models are available for much less than the $100 million BBJ MAX 7 price tag. Because of their robust durability, buyers are likely to find quality preowned BBJ models with plenty of life left in the $19 million to $48 million range. Whether new or preowned, BBJs can provide owners with the most economical long-range flight available in luxury airliners of their size.
To make sure you get the best aircraft for your needs at the right price, enlist the help of an expert to guide you through the buying process.
The expert jet brokers at L & L International are here to help you acquire the perfect jet.
Two big names in private aviation, Boeing and Embraer, have confirmed they are in talks concerning a merger of the two companies. Although they haven’t disclosed details about the structure of such a deal, the Brazilian government — along with regulators and shareholders — will have final say if and when they announce a deal. So, what would a merger mean to them, their competitors — and members of the private and business aviation industry in general?
What these industry giants bring to the table
Boeing is the largest aerospace company in the world. It is a leading manufacturer of commercial and military jets, satellites, launch and defense systems, as well as advanced communication systems. It provides aftermarket aircraft support and training for customers in the U.S. and governmental clients in more than 150 countries. Boeing Capital Corporation, a global financing solutions provider, supports its three business units: Commercial Airplanes; Defense, Space & Security; and Boeing Global Services.
Embraer is an aerospace conglomerate headquartered in São José dos Campos, Brazil. It manufactures commercial, military, executive, and agricultural aircraft as well as provides aerospace services and support. It has been around since 1969, although it didn’t enter into the business aviation sector until 2000.
Reasons to merge
So, why would these two giants join together? It could bring Embraer increased sales authority with the major airlines. Other potential gains for the Brazilian company could come with maintaining jets already in service and savings with suppliers.
In exchange, Embraer’s strength in regional jets would boost Boeing offerings. In fact, Embraer is a chief rival of Canadian manufacturer Bombardier in 100-to-150-seat regional commercial jets. This is significant because Bombardier jets are the targets of a trade dispute between Boeing and Bombardier: Boeing has filed a complaint against Bombardier for “dumping” its C-series on a U.S. airline below cost and receiving unfair Canadian government subsidies.
Another impetus for the potential partnership may be the recent merger between Bombardier and Airbus. Airbus is buying a majority stake in the Bombardier C-Series jet program, which is a direct rival of Embraer’s E-Jets, and partnering with Embraer could give Boeing an aircraft to compete with the C-Series.
Although there are benefits to be had, potential issues exist, too. Brazilian government officials say they back the partnership, but a company takeover would not be acceptable. According to a Reuters article, Brazil’s President Michel Temer “would welcome an injection of foreign capital into Embraer” but would veto any attempt at a takeover. Because of Embraer’s primary role in Brazil’s defense industry, the government would use its “golden share” to prevent giving company control to a foreign government. Boeing may also have to make concessions such as allowing the Brazilian government to retain some measure of control over Embraer.
A large acquisition like this always comes with potential risks, and unforeseen problems can crop up after the fact. However, if the deal does see completion, it would expand Boeing’s range into the smaller end of business jets and could enhance manufacturer competition in that sector.
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The European Business Aviation Convention and Exhibition is the premier European event for business aviation experts and fans. This year’s event, held May 24-26, 2016, in Geneva, was no exception. Presenters offered more than 450 exhibitions, representing over 40 countries, and attendees came from more than 100 countries around the world.
Features of this year’s event included a discussion panel on business aviation skills and careers with about 40 students and recent graduates from Hamburg University and the University of Applied Sciences, among others. Panelists from Europe and the U.S., including Christian Weiss of the Hay Group and Margriet Bredewold of Co-Guard gmbH, discussed diversity in the business aviation sector and answered students’ questions about green technology, aircraft management, and flying.
The cabin is decorated in neutral earth tones and highlighted with metal accents and recessed lighting.
With the next big National Business Aviation Association event coming up in November, Gulfstream executives had big announcements to share: The first scheduled flight of the new G600 business jet will take place in the fourth quarter of 2016. The new schedule advances the first flight from the previously scheduled early 2017 and has members of the business aircraft jet industry all ears. The G600 is a shorter-range sister to the G500, which piled up 1,000 flight hours with test pilots reporting speeds up to Mach 0.995. The G600 is set for certification in 2018 with entry into service in 2019.
Check out the 2012 Boeing BBJ in our inventory.
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