The commercial aircraft giant Boeing has been navigating a turbulent phase following a series of unfortunate technical failures over the past several years.
Boeing's fall from grace began with two catastrophic crashes involving the 737 Max 8 aircraft in 2019, which resulted in the deaths of 346 people and started the public exploration into the scandalous relationship between the Federal Aviation Administration (FAA) and Boeing. Though the two crashes resulted in a $100 billion decrease in market cap, the company remained otherwise unscathed from the tragedy. However, a recent incident involving a 737 Max 9 that saw a door get ripped off mid-flight has reignited concerns over whether or not Boeing's manufacturing quality and oversight are sufficient.
A Protective Duopoly
While the most recent incident has resulted in $9 billion of lost market cap, Boeing still seems incredibly resistant to financial impacts that would devastate most companies. At the heart of that surprising resilience is Boeing's duopoly with Airbus in the commercial aircraft market. The two companies dominate ~90% of the market, creating an environment where airlines have limited alternatives, effectively making the two manufacturers untouchable.
Despite repeated safety lapses, Bank of America analysts believe that 737 Max orders will likely remain unaffected thanks to the duopoly-dominated market. This perspective, offered by industry professionals who spend their lives analyzing the airline industry, underscores the protective buffer that Boeing undeservedly benefits from. Despite putting lives at risk, Boeing can continue to navigate its repeated crises without facing existential financial threats.
Regulatory Challenges
Even with the duopoly nature of the commercial airline market, the government still has the power to regulate and avoid such situations from arising--right? After the 2019 crashes, the FAA received significant criticism that supposedly forced them to take steps to tighten its oversight. Yet, the most recent incident would suggest that systemic issues persist and that the Administration is not keeping as close an eye on Boeing as their public releases suggested. The discovery of mis-drilled holes and the need to rework dozens of jets proves that there are ongoing oversight challenges.
Assuming the FAA is doing everything possible to keep tabs on Boeing, its limited resources may make sufficient oversight impossible. At the 737 assembly plant, Boeing employs more than 12,000 employees, while the FAA only had two inspectors stationed there in 2018 and 8 in 2023. At a current ratio of over 1,500 employees per inspector, proper regulation can't exist.
Navigating Forward
The implications of Boeing's ongoing troubles extend beyond the immediate financial impacts. They touch on fundamental concerns about trust in regulatory systems and the sustainability of a market that permits two giants to dominate and have their way with an industry that impacts 2,900,000 Americans daily.
In conclusion, the current Boeing situation exposes the complexities of balancing safety and regulation without stifling innovation and creativity. As the industry moves forward and forgets about the recent door incident, regulatory industries and market players must work hand-in-hand to maintain trust and keep people safe. However, whether or not the involved parties will commit to the highest quality standards, transparency, and accountability is yet to be seen.
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