Boeing to withdraw MAX 7 exemption request as safety crisis deepens

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WASHINGTON/DUBLIN (Reuters) -Boeing said on Monday it would withdraw its request for a exemption that would have allowed U.S. regulators to certify the upcoming 737 MAX 7 without making immediate design changes, as it faces increasing scrutiny from lawmakers and regulators.

The company, long a symbol of America’s manufacturing prowess, is attempting to quell ongoing safety concerns following a harrowing mid-air cabin panel blowout on a 737 MAX 9 jet operated by Alaska Airlines on Jan. 5.

The withdrawal of the exemption request, first reported by Reuters, puts in question the certification timeline for the MAX 7, which Boeing (NYSE:BA) had predicted would occur in 2023 and has been drawn out due to the request made in December.

The exemption would have allowed the MAX 7, like the MAX 8 and 9, to be put into service before making changes to nacelle inlet structure and engine anti-ice system that are necessary to “address overheating during certain conditions that may result in failure of the engine inlet inner barrel and severe engine inlet cowl damage,” according to a notice on the Federal Register.

The upcoming MAX 10 – the largest variant of the jet, which Boeing had also hoped to certify this year – uses the same nacelle design and anti-ice system and will also require design changes if an exemption is not sought.

Boeing originally proposed the MAX 7 exemption run through May 31, 2026 – the time period the company believed necessary to develop and certify design changes, but its ability to gain approval was seen as doubtful after the Alaska Airlines accident.

“While we are confident that the proposed time-limited exemption for that system follows established FAA processes to ensure safe operation, we will instead incorporate an engineering solution that will be completed during the certification process,” Boeing said in a statement.

U.S. Senator Tammy Duckworth, who leads the Senate Commerce Committee’s aviation safety subcommittee, said last week she requested that Boeing withdraw the exemption request during a meeting with the planemaker’s CEO Dave Calhoun. She said Calhoun told her he would consider it.

RESULTS IN FOCUS

The announcement came ahead of Boeing’s fourth-quarter results on Wednesday, to be delivered while the planemaker is in the middle of its biggest safety crisis since the two fatal 737 MAX crashes in 2018 and 2019.

Analysts said Caulhoun will try to assure regulators and the public that its focus is on safety and production quality, building on moves like it withdrawing the MAX 7 exemption request.

Executives at the Airline Economics conference in Dublin on Monday publicly backed Calhoun and the rest of Boeing’s management, but made clear the challenge the company faces to regain industry confidence. Even so, multiple sources said industry speculation was swirling behind closed doors about various permutations of leadership changes at Boeing or its commercial division ahead of a potentially critical U.S. National Transportation Safety Board (NTSB) report due in coming days and what could be a tricky hearing in front of the Senate Commerce Committee in coming weeks. However, AerCap CEO Aengus Kelly dismissed talk of a leadership change. “They’re under no illusions about the severity of the situation,” Kelly told Reuters on the sidelines of the conference.

Before the Alaska accident, Boeing was expected to release a new financial and delivery target for 2024 and provide an update on its forecast for 2025-26, the timeframe in which the planemaker’s operations were expected to stabilize.

Boeing had previously projected free cash flow of about $10 billion by 2025 or 2026, with 737 production expected to reach 50 jets per month.

That is now in question after the U.S. Federal Aviation Administration last Wednesday announced it would not approve further production rate increases for the 737 MAX.

The company’s projections now will be delivered with a cloud over the management’s head, with an influential industry leader saying in Dublin that the regulatory scrutiny will get worse if its record going forward is not flawless.

If there is one more significant problem “the FAA will stop (737) production”, Air Lease (NYSE:AL) Executive Chairman Steven Udvar-Hazy told reporters at the conference.

The door plug that blew out is present on most 737 MAX 9 planes, in place of an exit airlines could have added if they wanted a greater number of seats.

Trade publication The Air Current last week reported that the door plug on the affected MAX 9 reached Boeing’s factory from Spirit AeroSystems (NYSE:SPR) with bolts installed, but that the planemaker re-opened it to give access to nearby rivets that had been mis-installed by Spirit.

Spirit and Boeing referred queries on the probe to the NTSB. The agency’s chair Jennifer Homendy said on Jan. 18 it was too early to say if the root cause of the blowout was missing or mis-installed bolts.

In a letter to Calhoun reviewed by Reuters on Monday, New York state comptroller Thomas DiNapoli requested the CEO provide details on the short and long-term steps necessary to “ameliorate” immediate quality and safety issues, and asked about the role of Boeing’s board in overseeing the current crisis.

Despite the public support for Boeing’s leadership at the Dublin conference, several delegates and industry officials said privately that questions remained over the future of Boeing’s management.

“Behind the scenes everyone is livid,” a person familiar with lessor discussions with Boeing said.

In response, Boeing referred to comments made by Boeing Commercial Airplanes President Stan Deal in a message to employees on Friday.

“Our long-term focus is on improving our quality so that we can regain the confidence of our customers, our regulator and the flying public,” he said. “We own these issues and will make them right.”