This aircraft avoided the FAA certification process through a loophole called Grandfather Rights. Even though there is not a single system left on the 737MAX that has anything in common with the original Boeing 737–100 series launched in 1967, it was allowed to be flown on the certificate granted 50 years earlier.
More thoughts on the 737Max groundings
• We published our initial thoughts on the impact on Airbus of the 737Max groundings last week here, concluding that 1) although the grounding would be likely weeks/months, there was an outside chance it could be years; and 2) given the A320neo is sold out until 2024 there is probably little upside for Airbus even if there is a long grounding (although it probably would increase the impetus to go to rate 70, which is already in our forecasts).
• Overnight, there have been three new developments:
• Reuters reported that the US Department of Transport would launch an inquiry into the original 737Max certification.
• Reuters reported that Canada and Europe may not accept the FAA certification for the fix and conduct their own independent certification.
• Donald Trump announced his nomination of Steven Dickson to be the new head of the FAA (previously there had been an acting head).
• We look into all three of the above in detail on the next page, but believe that these lengthen the time that the 737Max will be grounded, probably to several months rather than weeks.
• Finally, when considering the tail risk of a complete flight control system redesign (which might require aircraft recertification, taking 2-4 years), it struck us that it might be deemed better to launch the NSA (new single aisle) instead with 2025 EIS. In this scenario, this would likely be negative for Airbus – although it would have a monopoly on narrow body sales out to 2025: 1) it is sold out until 2024 anyway, allowing little incremental upside to either pricing or volumes; 2) the new competitor product would likely be significantly better than the A320neo family, prompting a requirement for a new Airbus aircraft 5+ years earlier than planned.
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