Aviation regulators and Boeing have made steady progress on the recertification of the Boeing 737 MAX. However, a number of regulatory uncertainties could further delay the return to service (RTS) of the aircraft and the risk of continued order cancellations or deferrals by airlines and lessors due to coronavirus-related travel restrictions also remains, says Fitch Ratings.
Downside cushion with respect to MAX deliveries and Boeing’s rating currently exists but regulatory and backlog uncertainties indicate risks are weighted to the downside.
Sources of potential recertification delays include timing of the US Federal Aviation Administration’s (FAA) public comment evaluation and the Joint Operations Evaluation Board recommendations and Flight Standardization Board (FSB) report public comment period.
In addition to other FAA reports and events that are part of the ungrounding process, uncertainty also remains regarding additional requirements by international aviation regulators and whether there will be a separate certification for the 737 MAX 200 variant of the MAX 8. The US Congressional report on the Boeing 737 MAX released today is not expected to materially affect the timing of RTS.
We do not expect a coordinated global ungrounding but there could be coordination among a few countries. Coordination between the FAA and the EU Aviation Safety Agency (EASA) would be a positive, as they are the two main aircraft certification bodies in the industry. Once the grounding is lifted in one or two key aviation markets, such as the US and EU, MAX deliveries should resume.
Additional order cancellations are anticipated, given the pandemic’s effect on the industry, but the backlog should remain sufficient to support our current delivery forecasts.
We estimate total 737 MAX program deliveries for the 2019–2023 period will be at least 1,700 aircraft lower than expected at the beginning of 2019. This is a reduction of approximately 50% compared with Fitch’s previous expectations, due to the grounding and the pandemic’s effect on the global airline industry.
Delivery ranges are driven by the coronavirus’ uncertain evolution, the timing of the FAA’s ungrounding and the timing of the ungrounding in other regions. Visibility into 2021 and 2022 deliveries are further muddied by the lack of the typical signalling from production rates. Additionally, it is not clear at this time how the MAX settlements between Boeing and its customers will affect deliveries.
Regulatory and cancellation risks could cause deliveries to be at the bottom of, or even below, these ranges. The timing of the ungrounding will be important, as delays would pressure deliveries before the Northern Hemisphere summer of 2021, causing some airlines to defer additional deliveries. We expect it will take at least 18 months for Boeing to clear its existing 737 MAX inventory of more than 450 aircraft.