By now you probably know all about the current 737 MAX 8 disaster. But another factor that many have not considered is the 737 MAX aircraft that Boeing was just about to build and deliver, many of which were practically ready to go out of the door.
Boeing has been left holding the bag; half a trillion dollars worth of 737 MAX family aircraft sitting on their factory floor.
What are the details?
To understand why the grounding of the Boeing 737 MAX series is such a huge deal for the company, we need to know just how many of these jets are on order. The 737 MAX is by far their most popular product, which means they have 4,700 unfulfilled orders for the type. This is around 80% of their entire order book.
A conservative sum of $100 million USD list price per order puts their order book at four hundred seventy billion USD, or $470,000,000,000 ~ half a trillion dollars.
And Boeing needs this capital. They may have to replace aircraft or financially compensate airlines who are currently running the plane. This is without the potential lawsuits that will come if it is proven to be their fault. They need every dollar they can get.
This stark realization has made the stock market jumpy. Boeing shares have slipped by nearly 10%. If the aircraft is proven to have a flaw, then the stock price will continue to tumble further.
Boeing must keep these 737 MAX 8 orders
Many of these orders are not even ‘orders’ in any sense of the word, simply MOUs – Memorandums of Understanding. These documents, whilst only sometimes legally binding, are agreements that when the time comes money will be transferred and orders will become real. There is one problem with this arrangement…
The airlines themselves are under pressure to change or cancel their orders with the company. Lionair is rumored to be changing their huge 737 order to the Airbus equivalent (the A320). Virgin Australia, who expected their first 737 MAX 8 in November is facing heat from the public to switch to a rival aerospace builder.
But Boeing has a history of being confident. In the past when the 787 Dreamliners were grounded due to battery problems, Boeing took it in their stride and simply parked their fleet for a few months. They continued to build the aircraft as they solved the problem, and paid airlines for the replacement aircraft in the meantime. They did not lose any 787 orders during the process.
However, the skeptic in us must raise the issue that 300 people lost their lives on the 737 MAX, which is far more than were harmed by the 787. This might just be more than Boeing can easily walk away from.
What do you think? Will Boeing recover from this setback?