Boeing and the FAA Already Lost Control of the Narrative

(Bloomberg Opinion) -- Boeing Co.’s “proactive” grounding of its top-selling, and troubled, 737 Max plane is too little, too late. It already lost control of the narrative. 

On Wednesday afternoon, the planemaker said it recommended to the U.S. Federal Aviation Administration that all 371 of the aircraft currently in operation globally be temporarily grounded as a “proactive step out of an abundance of caution” following the second fatal crash in just five months. Indeed, President Donald Trump had announced moments before that the FAA would prohibit U.S. airlines from continuing to fly the planes, abandoning a defense of their airworthiness that was becoming an increasingly isolated proposition after Canada joined regulators across the world in deciding precautionary measures were justified. A more conservative approach by Boeing and the FAA was long overdue, but their new-found appreciation for putting safety first doesn’t excuse their previous reluctance.

We still don’t know for sure what caused the most recent crash of an Ethiopian Airlines flight Sunday that killed 157 people, although the CEO of that airline told CNN there were “substantial” similarities to the deadly incident involving a Lion Air flight in Indonesia in October. Canada’s Transport Minister Marc Garneau backed up that stance Wednesday, noting that new satellite data suggested a link and while inconclusive, it was enough to justify safeguards. The FAA, a key regulator of the aviation industry in America, will have to explain why it was so late to do its job. But Boeing also had a responsibility to err on the side of safety and an opportunity to control the story by advocating conservatism earlier. It chose not to, and it will have to wrestle with the reputational damage wrought by that decision.

My colleague David Fickling made the comparison to Johnson & Johnson’s handling of the crisis spurred by the death of seven people after a criminal lacing of its Tylenol painkiller. The incident is a PR case study for a reason: J&J got out in front of the issue, recalled all its Tylenol products, and replaced them free of charge; today, households everywhere buy the drug regularly, without concern. Boeing should have mimicked this strategy and recommended that airlines ground its planes until it had more information and could get more answers on the causes of the crash. Or it could have recommended that the FAA put limits on the operation of the plane or require the temporary disabling of the flight-control system that’s being highlighted as a possible cause of the crashes. Instead, CEO Dennis Muilenburg reportedly called Trump personally to express his confidence in the plane, which risks only further deepening the perception that the FAA and Boeing are too closely entwined for either’s own good. Trump said the U.S. worked with Canada on the plane grounding. Maybe; I am personally skeptical that the U.S. would have allowed Canada to go first if that was the case. 

Again, we still don’t know what caused the Ethiopian Airlines crash, and Boeing maintains that it has full confidence in the safety of the plane — but we do know that a combined 346 people have died on board brand new 737 Max aircraft at a time when fatal commercial-jet incidents are rare. I think it could have been anticipated that passengers and governments alike would be concerned, and that repeated assurances of confidence might not be enough on their own. The 737 Max program is likely to be perfectly safe over the long term, and Boeing is finalizing a software fix for the flight-control system that’s being tied to the Lion Air crash. It would have been in Boeing’s best interest to vow from the start to remove even the slightest shadow of a doubt before putting these planes back in the sky. 

There’s undeniably a cost to this: a global grounding will likely lead to a pause in deliveries until a fix is installed and certified, which Vertical Research Partners analyst Rob Stallard estimates would require Boeing to house an additional $1.8 billion a month in inventory. Norwegian Air has already said it expects to be remunerated by Boeing for the cost of sidelining 1 percent of its overall seat capacity. But Boeing now has to take on those expenses and cash flow hits without any PR benefit. Whether it’s true or not, by deflecting, the company now comes across as trying to hold on to every last dollar of profit that it can. 

Boeing’s miscalculation may have stemmed from faith in the FAA as the global arbiter of flight safety. That perception has been upended by foreign governments’ decision to decide for themselves whether or not they feel comfortable boarding their citizens on Boeing’s planes. In another snub, Ethiopia plans to send data and voice recorders collected from the crash site to European authorities, rather than to the U.S., which the carrier’s public relations director called “a strategic decision.”  Playing follow the leader — in this case, China — on grounding the plane has damaged both Boeing and the FAA’s credibility and put them on the defensive in dealing with this crisis.

The Financial Times reports that large U.S. companies are asking travel agencies to avoid booking their staff on 737 Max 8 planes.

Ethiopia reportedly wanted to send the black boxes to Germany, but regulators there declined to receive them because they lack the necessary software.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.

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