Boeing’s Max 10 Regulatory Delays Threaten $16 Billion Bonanza

Boeing Co. may be moving to Washington, but right now it needs Washington to move.

Regulatory delays are bogging down the launch of a new jet model with an estimated $16 billion in potential orders, threatening the planemaker’s comeback in the critical market for midsize jets. With Airbus SE holding a lopsided sales lead, repairing relations with regulators and lawmakers is crucial for Boeing as it shifts headquarters to the nation’s capitol after two decades in Chicago.

Boeing’s 737 Max 10 is its next entrant to the hottest segment of the travel market: narrow-body jets that can haul 230 travelers across the country. But it is also among the first jets to undergo a more rigorous certification after Congress bolstered the Federal Aviation Administration’s authority in the aftermath of two fatal Max crashes in 2018 and 2019.

The review has been slow and isn’t likely to be completed by year-end, the FAA warned Boeing in a March letter. That leaves Boeing vulnerable to long delays due to a quirk of the 2020 FAA reform law — and at risk of missing a rare market opening as Airbus struggles to build its A321neo fast enough to match demand. The European planemaker has amassed 4,130 orders for its jet over a decade, and Boeing is running out of time to catch up.

“You’ve got a nightmare scenario where if they don’t get the Max 10 certification, they’re abandoning the middle of the market, possibly forever,” said Richard Aboulafia, a managing director with AeroDynamic Advisory.

On the line are hundreds of jet sales Boeing is working to close in the next few months, including Max 10 orders for Delta Air Lines Inc. and International Consolidated Airlines Group SA, the corporate parent of British Airways, according to people familiar with the matter. Delta has been pressing Boeing on its backup plans if the certification isn’t completed by the deadline, said three of the people, who asked not to be identified as the talks are private.

Looming deadline

The Max 10 is already three years behind schedule as a result of the crashes that killed 346 people and brought harsher scrutiny of the planemaker’s safety culture. The FAA is grappling with a greater workload and limited resources, while Boeing is wrestling with the agency’s demands for more detailed documentation.

Boeing has been pouring engineering resources into meeting the year-end deadline, Dave Calhoun, Boeing’s chief executive officer, said last month. While he’s optimistic that Congress will give the FAA a few extra months to finish its work, gaining an extension isn’t a given for a company that has been bashed by lawmakers from both parties.

“I believe our chances are good with respect to getting legislative relief,” Calhoun said during an April 27 earnings call. “Doesn’t mean we’ll get them. And if we don’t, it’s a problem.”

Boeing is working with the FAA and is “committed to meeting their expectations to achieve 737-10 certification,” a spokesman said. “We continue to believe that a common, consistent operational experience across the 737 MAX family is an industry best practice that ultimately benefits flight crews by enhancing safety and reducing risk.”

If it misses the window, the planemaker may have to retrofit the Max 10 with a new system aimed at helping pilots troubleshoot emergencies, which is mandatory for planes entering the market starting next year. Installing the technology would add “significant extra cost and time” to certifying the jet and dampen its sales appeal, according to analyst Robert Spingarn of Melius Research.

Pilots would also need special training because of how the flight deck would have to be reconfigured — a costly headache and potential safety hazard for airlines that swap crews among 737 models. Alaska Airlines has warned that any major changes to the Max 10’s cockpit or training would cause it to “reassess” its order.

Boeing is studying its options, Calhoun said. “We have other airplanes and substitution that we could implement.” A spokesman declined to elaborate.

In addition to the competitive opportunity, Boeing needs aircraft deliveries to start bringing in cash. Its debt leverage is likely to climb close to 10 times earnings this year, according to Bloomberg Intelligence, and Calhoun is under pressure to maintain an investment grade credit rating.

Pricing power

The regulatory uncertainty comes just as the 737 Max 10, which is Boeing’s largest single-aisle jet, makes headway, scoring large commitments over the past year from United Airlines, Alaska and Qatar Airways. Airbus’s A320 family is largely sold out into 2027 while its newest member, the A321XLR, is sliding behind schedule as regulators scrutinize a potential fire risk.

The A321neo gained its overwhelming sales lead because its longer range offered airlines a cheaper alternative to widebody aircraft that traditionally cruised across the North Atlantic ocean. But for trans-continental routes like Boston to Los Angeles, the Max 10 competes head-to-head with the Airbus model, according to an analysis by AirInsight Group.

“From an operating standpoint, the Max 10 has a better rate of climb and descent, while the A321 offers longer range and better runway performance,” said Ernest Arvai, AirInsight’s president.

Delta is considering ordering up to 100 of the Boeing aircraft, while IAG is mulling taking 50 in an order that could be showcased at upcoming trade shows in June or July, said people familiar with the talks. Ryanair has said it is interested in buying between 100 and 200 of the largest Max. In all, the deals are potentially worth around $16 billion, based on Bloomberg Intelligence’s estimates of $52 million per jet.

But the certification issue could give buyers leverage to demand steeper concessions that cut into Boeing’s profits. Ryanair, known as one of aviation’s toughest bargainers, would look to capitalize if other customers bolted. “We’re essentially Boeing’s last narrow-body customer in Europe, and Boeing needs us more than we need Boeing,” Michael O’Leary, the budget carrier’s CEO, said in a March interview.

Delta’s deliberations

While Delta is closely following the wrangling over the Max 10 certification, it is also concerned about the availability of the A321neo with supplier snarls threatening Airbus’s production plans, said three of the people.

“All factors go into that evaluation, and certification is certainly one of those,” Ed Bastian, Delta’s chief executive officer, told Bloomberg of its fleet deliberations.

One high-profile buyer thinks the certification issue should be a wake-up call for Boeing to get moving on a new midsize plane, like the jet family it tabled two years ago as the company’s financial crisis worsened. They need to “refocus their efforts on developing a new aircraft in that 200-seat plus or minus category,” said Steven Udvar-Hazy, chairman of Air Lease Corp.

Boeing used to split the commercial jetliner market 50-50 with Airbus in better days. Now the beleaguered titan’s market share could shrink to 30% if the Max 10 is hung up in regulatory limbo and executives don’t address its mid-market gap, AeroDynamic Advisory’s Aboulafia said.

“They could fade out faster,” he said of Boeing. “Or they could become the kind of company that prioritizes engineering and new product development. I don’t see a third option.”

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