Boeing sends 737 Max to brand rehab to avoid fate of Ford Pinto

Boeing Co.’s 737 Max is about to join the list of brands trying to come back from ignominy.

Analysts are digging into decades-old safety scares for clues to the future of the jetliner -- and Boeing’s finances. There’s the Chevrolet Corvair rollovers that launched Ralph Nader as a consumer advocate in the 1960s, gas-tank explosions that sank Ford Motor Co.’s Pinto in the 1970s, and the Tylenol poisonings of 1982 that spurred tamper-proof packaging.

But there’s little precedent for the tangle of safety, regulatory and financial issues buffeting a workhorse jet that’s vital to sustaining the surge in global air travel. After two crashes of the aircraft model in five months and a grounding that’s nearing the two-month mark, some nervous passengers are vowing to avoid the Max. Boeing has added to the mess by not fully explaining the apparent flaws in the best-selling jet in company history.

Longtime Boeing watcher Nick Cunningham said he’s starting to wonder if “this has become too serious and too protracted for the Max to escape unscathed.” The accidents in Indonesia and Ethiopia killed 346 people. Nader’s own grand niece was among the victims.

The longer the crisis drags on, the greater the risk that the cumulative effect “will have acted to permanently lock it into people’s memories,” said Cunningham, founding partner at Agency Partners.

 

Confidence Shaken
 

Boeing is finalizing an update to software linked to both crashes, which it will submit to the Federal Aviation Administration in a crucial step toward getting the plane back in the air. A May 23 summit of global regulators “may lay out a path towards certifying fixes and removing the grounding,” Morgan Stanley analyst Rajeev Lalwani said in a note Thursday.

Rebuilding consumer confidence is an urgent priority, as the Chicago-based company works with airlines to prepare resuming flights of the 737 model over the next few months. Boeing must also win over pilots, flight attendants and fractious regulators.

Chief Executive Officer Dennis Muilenburg and commercial-airplane chief Kevin McAllister have been hosting regular conference calls with airline executives. And the company has invited Max operators and lessors to a half-dozen sessions around the world to discuss the specifics of the software changes, along with the logistics of taking planes out of storage.

“It’s a multifaceted approach to taking the steps necessary to preserve the fleet, return it to service safely and restore any lost confidence that pilots, regulators and the traveling public have had in the Max,” Boeing spokesman Gordon Johndroe said.

U.S. President Donald Trump has even weighed in with advice on how to rehabilitate the largest U.S. export, suggesting that Boeing re-brand its marquee single-aisle jet. “No product has suffered like this one,” he said in an April 15 tweet.

There’s been “no discussion” of a name change, Johndroe said, including dropping “Max” and referring to the jet family by product numbers such as 737-8.

Jetliner Recovery

Commercial jetliner programs have recovered time and again from horrific accidents. The trend started at the dawn of the jet age with de Havilland Comets that blew apart due to a window-design flaw. A redesigned version was never a hot seller, but flew for the U.K. military until 2011. Bargain-hunting consumers in the Internet age quickly forgot their aversion to Boeing’s 787 Dreamliner after battery fires grounded it in 2013.

Brazil’s Gol Linhas Aereas Inteligentes SA is assuming the crisis will have faded by December. The company is already touting new, nonstop service from Sao Paulo to Lima starting Dec. 12 on a “modern Boeing 737 Max 8,” although an older model can be substituted if necessary.

“The consumer has a very short attention span,” said George Ferguson, an analyst at Bloomberg Intelligence. He pointed to United Continental Holdings Inc.’s rebound from social-media furor after one of its passengers was dragged off a plane.

But Boeing is struggling against deep damage to its reputation as a safety-conscious designer of aircraft. Cunningham pointed to General Motors Co.’s Chevy Corvair and the Ford Pinto as cautionary tales.

“Obviously GM and Ford survived the issues, but the Corvair and Pinto brands didn’t,” he said. “The cases are still remembered 40 or 50 years later.”

Those scandals helped spawn safety regulations that transformed the auto industry. Boeing’s travails could spur a similar review of airplane certification and oversight amid criminal and Congressional investigations.

The Tylenol poisonings are remembered today in part because Johnson & Johnson’s reaction became a case study in effective crisis management -- a feat that has so far eluded Boeing.

‘Wrong Calculation’
 

The planemaker worsened its own plight by waiting months to explain publicly how a software subsystem known as MCAS repeatedly shoved the nose of the doomed jets down, eventually overwhelming pilots. With the company facing $1 billion or more in potential liability from lawsuits, executives have been careful not to admit their approach was flawed.

“They made the wrong calculation,” said Richard Aboulafia, an aerospace analyst with Teal Group, in weighing short-term liability costs versus the risk of long-term brand damage. “Just explain what went wrong with the subsystem, and explain everything about it. Make this as transparent as possible.”

Compounding its dilemma, Boeing revealed a separate problem with a cockpit warning light in late April. The company followed that up this week with an admission that it had known about the problem but waited about a year to tell airlines or the Federal Aviation Administration.

“We have a number of areas where we know we need to improve, and transparency is one of them,” said Johndroe, the Boeing spokesman.

Passenger Fears
 

The lack of full disclosure has fanned a narrative that the Max itself is badly flawed because of its larger engines. Aboulafia, who forecasts aircraft markets, says his estimate of Max sales “is predicated on this getting better in the long run. If they make this worse by making it a publicly reviled product, all bets are off.”

At stake is not just the manufacturer’s image, but the vitality of the jet that accounts for about one-third of Boeing’s profit and has added 4,625 unfilled orders to the company’s backlog. If demand fades because of jittery consumers, airlines could postpone deliveries or force Boeing into a pattern of deeper discounts that erode its profit and cash, Aboulafia said.

Investors are counting on the furor dying down as global regulators sign off on the new software Boeing is finalizing. But 44% of travelers in North America and Europe say they would wait a year or more to fly the Max, according to a survey of 1,756 fliers by Barclays Plc.

“I don’t know,” said David Strauss, a Barclays analyst, who downgraded Boeing after the study. “It feels different to me this time.”