Buying The Boeing 737 MAX Timeline (NYSE:BA)


It’s been a challenging year overall. Not just for Boeing (BA), not just for jet makers, not just for airlines… but for everyone, and one thing we have in common with the industry is that we all have been looking for positive developments. Those positives have been easing lockdowns, increasing test capacity and vaccine developments and availability.

Many of those positives we’d appreciate to normalize our day-to-day life are also catalysts for the travel industry. Improving test capacity and easing lockdowns offer better prospects for rebuilding the airline network, while a vaccine development is the long-term solution supporting a full recovery of the industry. Those elements also add positively to the equation for Boeing, which faces a double crisis as it suffers a blow to demand for new aircraft due as well as the ongoing Boeing 737 MAX crisis.FAA Boeing 737 MAX recertification

Source: The Seattle Times

For Boeing, the added positive is the prospect of the Boeing 737 MAX recertification. In a piece that I wrote before COVID-19 became an immediate pressure to the world, I noted that the (prospect of) recertification could provide a pop in Boeing share price – and that did happen, as the price has been lifted by nearly 15% in 2 trading days.

Over the past few weeks, I’ve been asked what the MAX schedule looks like. In July 2020, I looked at the schedule after it was reported that recertification could slip to 2021, and while since October 2019 I had been bearish on the timeline for the Boeing 737 MAX schedule, I became somewhat more upbeat on the timeline of the MAX schedule, as I noted that a lot of sequential activities would stretch the timeline, and from that point on, it would only be a matter of days for the schedule to slip into 2021. So, stating that schedules could slip to 2021, while true, wouldn’t be as dramatic as it sounds, and we saw possibilities for the recertification to occur towards mid- or end of October.

In this analysis, we look at how things have developed, and in my view, those have been very positive developments that should be considered by investors.

Big steps in the recertification timeline

Previously, we expected that with some tasks being performed in parallel or on a shorter time frame would put recertification in the mid- or end of October. While a sequential rundown would put the certification, including flight crew training, at the end of December. So, anywhere, between mid-October and the end of the year was what our schedules have showed as the recertification date for the MAX since July.

We are now seeing that certain parts of the process have been completed ahead of our template schedule, but there are more milestones to be cleared than we initially anticipated.

Figure 1: Timeline Boeing 737 MAX recertification activities (estimate)

Boeing 737 MAX certification timeline schedule

(Source: AeroAnalysis)

The certification flights occurred between the 29th of June and the 1st of July. For the flight data handover and review, we expected that to be a two-week process followed by a 6-week report compilation for the Notice of Proposed Rulemaking (NPRM) from the FAA (Federal Aviation Administration). That process, however, took 3 weeks less than initially anticipated, as flight data transfer likely took less than the 2 weeks scheduled and probably has been an almost instantaneous process. Handing over flight data can take a while, but from my own experience on a Cessna Citation test flight, the data transfer is a swift process.

Additionally, part of the flight data review previously modeled into those two weeks happened during the drafting of the FAA NPRM, which itself took one week less than previously modelled, while the commenting period took 45 days instead of 45 business days. The Joint Operational Evaluation Board (JOEB) consisting of the Flight Standardization Board (FSB), EASA, Transport Canada and ANAC (Brazil) performed a review of proposed training for flight crews, based on the design change and crew procedures.

That is where we currently are in the process. The upcoming events are the release of a draft of the FSB report, a comment period (possibly 20 days) followed by a final FSB report and a final design documentation report and a Technical Advisory Board report, which would be one of the final steps to take before reinstating the flight certificate for Boeing 737 MAX ending the grounding of the Boeing 737 MAX that started in March 2019. After that it would take roughly a month for airlines to get up to speed with required flight crew training.

So, I have to say that while there have been more milestones to be cleared versus our earlier expectations, the expected recertification and possible service entry date has moved 2-3 weeks forward, which is a positive.

Boeing 737 MAX recertification

Source: CNBC

Underpinning these positive developments are a shorter period of time needed to complete the FAA NPRM and a shorter commenting period. Added positives are that Transport Canada and EASA have also carried out test flights, which already was a strong sign that the FAA NPRM satisfied the agencies to perform their own test flights and take steps forward in the timeline towards certification. The parties involved headed with a positive feeling into the JOEB Validation, and that is something that we haven’t seen for a long time, as previously, we saw the lists of concerns from other aviation administrations get longer instead of shorter.

For the 30th of September, a flight test has been scheduled where FAA Administrator Steve Dickson and FAA deputy Daniel Elwell will fly the Boeing 737 MAX using the new proposed training procedure, which suggests that not accounting for the required commenting period and a final report issue, much of the work of the JOEB and the FSB has been completed.

It’s not the case that once the FAA representatives land the aircraft, the Boeing 737 MAX is cleared for flight again, since Boeing’s final submission needs to be reviewed for compliance. But the FAA flight is an important milestone, as Steve Dickson vowed that he would fly the aircraft himself to determine it is safe, and he wouldn’t send the MAX back to the air until he would feel comfortable putting his family on the aircraft.

So, there is a big test coming up, but with some of the leading participating agencies seemingly positive on the changes made to the Boeing 737 MAX, chances are also higher that approval will also be gained from Dickson, which leaves some final steps that should be easier to take to end the grounding of the Boeing 737 MAX.

Conclusion

We’ve seen some positive developments were that certain required steps in the recertification process have been cleared ahead of what I envisioned. At the same time, we still see recertification for the Boeing 737 MAX happening in November and service entry somewhere in December. So, the schedule hasn’t really changed much. The big positive is that all parties involved seem to be more in agreement that the current proposed fixes and those that are to be implemented in the future will be sufficient for the Boeing 737 MAX to be operated safely. Previously, it was considered a sign of disagreement that 3 agencies performed their own test flights. The added requests from the Canadian and European agencies gave the impression that even if the FAA would clear the Boeing 737 MAX for service, the other parties could follow much later. However, we are now seeing that schedules are converging towards November – and that, although good news, shouldn’t be a complete surprise, since the fact that EASA and Transport Canada carried out evaluation flights after the FAA NPRM was released should be considered a sign of confidence in the proposed rulemaking from the FAA, while the parties are represented in the JOEB.

For Boeing, the prospects of the parties involved being in agreement on the required changes for the MAX is a big positive, as it means that if the reviews are carried out diligently, the more you march further towards the recertification, the fewer obstacles there will be that need to be overcome. So, my expectation is that the US, Canada and EASA will be more aligned in the certification process going forward, and actually, the only big question is what China – the biggest customer for aircraft – will do, because that could very well turn into a politically influenced recertification process. For Boeing 737 MAX, even in a soft demand environment for aircraft, the recertification is big news, as it should stop or taper Boeing 737 MAX liabilities growth, possibly slow down cancellation rates for the Boeing 737 MAX and start burning off inventory, while starting to regain efficiency in the assembly and supply chain.

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Disclosure: I am/we are long BA, EADF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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