Economic Impact of the Boeing Fiasco

Boeing Corporation which is headquartered in the United States is one of the biggest names in the airline industry. When it comes to the manufacturing of planes, there is an effective duopoly in the global market. Boeing and Airbus are the only two companies in the world which manufacture the jets which are used by airlines all over the world.

The problem is that Boeing has suddenly found itself in what many critics are calling a “passenger safety crisis.” Simply put, two jets manufactured by Boeing have crashed in almost identical fashion. This has triggered fears that the Jets have not been properly designed or tested.

Since Boeing 737 Max jets are used by a lot of airlines all across the world, the economic impact of this passenger safety crisis is bound to enormous. In this article, we will look at this issue from the point of view of various parties. We will try and understand the economic impact on all the parties involved.

How The Crisis Spread Worldwide

Two Boeing jets crashed in quick succession within the past few days. Both the jets which crashed were the same model, i.e. the Boeing 737 Max. One was operated by Lion Air whereas the other was operated by Ethiopian Airlines. Together both these crashes left around 350 people dead causing a massive panic in the airline sector!

Now, there could be various factors which could cause a plan to crash. The pilot could be untrained, or it is possible that the maintenance has not been done properly. However, both these planes crashed in an identical manner. They crashed minutes after the take-off when the pilot had put the plane on autopilot mode.

Experts had already raised concerns about the safety aspects of Boeing 737 Max planes. According to many experts, this plan is simply a stretched out version of the Boeing 737 which has been a bestseller across the world. However, by mindlessly stretching the plane, the company has changed the aerodynamics such as the center of gravity of the plane. This could be one of the reasons why the plane loses control when it is put on autopilot and ends up crashing.

As concerns about the safety of these jets spread across the world, governments started acting out in order to ensure passenger safety. One by one, the governments of the United States, Canada, and even India ordered the grounding of all Boeing 737 Max jets till further notice.

At the present moment, there are about 400 Boeing 737 Max which is supposed to be operational, i.e. they are meant to ferry thousands of passengers to and fro. Many airlines have these planes in higher concentration than the others. For instance, Air Canada has 24 of these planes in its fleet. Hence, the sudden grounding of these planes is having a massive impact on the financials of its customers.

Fixing the Issue

The first and most obvious financial impact of these events will be that Boeing will have to fix whatever the issue that the planes have. Also, this needs to be done fast without compromising on passenger safety. It needs to be understood that airlines are losing close to $25 million per day since these planes are grounded. However, passenger safety is of utmost importance and hence ignoring the same would raise questions about the viability of the entire industry.

There are two possibilities. Firstly, the issue could be due to faulty software. In this case, the fix would be relatively cheaper and easy to implement. Changing the software can be done relatively quickly and at a lesser cost. Secondly, it is possible that Boeing would have to make physical changes to the design of each and every plane. This could be a very expensive proposition and may also take a lot of time.

There is no doubt about the fact that the cost of fixing these issues has to be borne by Boeing itself. This is the reason that the stock price of Boeing has crashed as soon as the news of these crashes spread.

Lawsuits from Passengers

At the present moment investigation regarding the culpability of Boeing are going on. If Boeing is found to be responsible for these crashes, the company could face a barrage of lawsuits in different courts across the world. Firstly, there are a lot of passengers who have faced economic impacts of cancellations and delays which have ensued once these jets have been grounded. However, more importantly, there about 400 people who could have lost their lives due to the negligence of Boeing. Also, the lives of thousands of others have been risked since these planes were carrying thousands of people and flying over populated areas every day! Boeing could end up paying through its nose if they are found to be guilty.

Lawsuits from Airlines

Most airlines which have these planes are losing millions of dollars per day because of the failure of Boeing Corporation. Now, since passengers know that these planes are unsafe, they will be skeptical while traveling on those planes even after Boeing has fixed them. Hence, the time taken by Boeing to fix these planes will impact the bottom lines of these airlines. Also, there will be a secondary impact since their brand will also get diluted. It is likely that many airlines might cancel their orders with Boeing Corporation and will actually move on to Airbus instead.

The bottom line is that the financial impact of this ongoing Boeing fiasco is going to be huge. Billions of dollars are going to be lost. However, it is not clear, whether Bowing will have to pay all of the damages or whether some of these costs will be absorbed by the airlines and the end customers.