American Airlines Pilots Attempt To Crush Boeing Jet

Summary:

• Allied Pilots Association opposes waiver for uncertified MAX models, but is it providing misleading press?
• American Airlines has no MAX 7 or MAX 10 aircraft on order.
• While the need for new regulations is clear, motives and arguments of APA are questionable at best.
• Boeing is still positioned well to significantly improve results in quarters to come.
• American Airlines stock has little to gain or lose from MAX 7 and MAX 10 regulatory changes.

For Boeing (NYSE:BA), the coming months will be important. Previously, Boeing had been aiming to get the MAX 10 delivered by year-end. However, for months the consensus has been that the MAX 10 would not be certified by this year and it seems that a certification by mid-2023 is more realistic. That provides a headache to Boeing as it would require changes to the flight deck of the MAX variants that are not certified by the end of the year. Boeing has embarked on a mission to gather airline support to force a waiver for its MAX aircraft. The company is now facing opposition from an unexpected side, namely the Allied Pilots Association representing pilots of American Airlines, a big customer for Boeing jets. In this report, I will focus on that opposition and explain why motives other than safety concerns likely has led to the opposition from APA.

Rulemaking And Deadline: Not A Show Stopper For The Boeing 737 MAX

First, I want to have a brief look at what the deadline actually is and what is required after the deadline from Boeing. In 2020, the 29th of September to be more precise, the Aircraft Certification Accountability Act was introduced by Rep. Peter DeFazio. The act among other things seeks for a flight crew alerting system, which increases situational awareness. By introducing such a system, crashes like have happened with the Boeing 737 MAX should never happen again. As can be seen below, following the date of the enactment plus two years the FAA is no longer allowed to provide a type certificate or amended type certificate for aircraft that do not comply with the new regulations. The bill was passed on the 17th of November 2020 in the Houses of Representatives and enacted on the 27th of December 2020 meaning that by the end of the year the two-year period encapsulated in the act expires.

SEC. 17. FLIGHT CREW ALERTING.

A. In General.-Not later than 1 year after the date of enactment of this Act, the Administrator shall fully implement National Transportation Safety Board recommendations A-19-11 and A-19-12 (as contained in the safety recommendation report adopted on September 9, 2019).

B. Prohibition.-Beginning on the date that is 2 years after the date of enactment of this Act, the Administrator may not issue a type certificate for a transport-category aircraft unless-

(1) in the case of a transport airplane, such airplane incorporates a flight crew alerting system that, at a minimum, displays and differentiates among warnings, cautions, and advisories, and includes functions to assist the flight crew in prioritizing corrective actions and responding to systems failures; or

(2) in the case of a transport-category aircraft other than a transport airplane, the type certificate applicant provides a means acceptable to the Administrator to assist the flight crew in prioritizing corrective actions and responding to systems failures (including by cockpit or flight manual procedures).

Important to realize is that while this generally is seen as a rule specifically made for the Boeing 737 MAX 10, it is not. This rulemaking was invoked by the crashes with the MAX aircraft but apply to all aircraft that will be certified going forward. The system was never created to halt development of the MAX family or apply exclusively to the uncertified members of that family although many interpret it as such. In fact, it was widely assumed that the MAX family would be fully certified within the two years buffer that was provided in the bill and the two year waiver was included to allow for the MAX family to be recertified.

Opposition And Hypocrisy From APA

Boeing has embarked on a rather successful mission to gather sales for the MAX 10 equivalent to airline support to push for a waiver for the MAX types that are currently not certified. It is, however, met with opposition from a rather unexpected side namely the Allied Pilot Association, which issued the following press release:

Allied Pilots Association Opposes Extension of Equipment Exemption for Boeing 737-7 MAX and 737-10 MAX Aircraft

FORT WORTH, Texas (Oct. 5, 2022) – The Allied Pilots Association (APA), representing the 15,000 pilots of American Airlines, expressed its strong opposition to any extension of the equipment exemption for the Boeing 737-7 MAX and Boeing 737-10 MAX.

The exemption expires in December.

“Boeing needs to proceed with installing modern crew alerting systems on these aircraft to mitigate pilot startle-effect and confusion during complex, compound system malfunctions,” said APA President Capt. Edward Sicher. “Once these systems are installed and pilots have been properly trained on them, our crews will be better able to identify system failures and prioritize corrective actions that could save lives.”

Sicher noted that American Airlines pilots fly more than 300 B-737s for the airline.

“We oppose any extension of the exemption and don’t agree with Boeing’s claim that pilots could become confused when moving from an airplane without the modern alert system to one that is equipped with it. Nothing could be further from our flight deck reality,” Capt. Sicher said. “Consider the Boeing 757 and Boeing 767 – they’re substantially different airplanes, yet operate under a single certificate. Pilots have routinely flown both on the same day without any confusion.

“Pilots must have the tools we need to keep our passengers safe. By equipping these aircraft with modern crew alerting systems, Boeing can maintain a strong order book for them, which will in turn protect the jobs of the thousands of hard-working men and women who build the airplanes. Doing so will also help Boeing to continue rebuilding public trust.”

When it comes to aircraft, people are often inclined to think that everything a pilot says about the aircraft is true as if they know how the aircraft is built. Reality is that engineers who design the planes and in the same way an engineer does not necessarily have the skills to fly the plane, a pilot does not necessarily know how to design and build the plane. They fly the aircraft, but designing them is a whole different ball game. Admittedly, when it comes to the MAX, Boeing messed up as its used assumptions on human-machine interactions that were systematically incorrect. That’s where pilot input can be of value as also became clear in the recertification effort of the MAX where simulator sessions showed that assumptions made on the hazard qualification of MCAS failure was incorrect, but for a pilot association to put out a press release like this is a bold move but not necessarily one that radiates knowledge on the matter. I have a background in aerospace engineering and the press release is simply misleading. It’s an absolute shame that a respected pilot association would release something like this. Especially, the reference about pilots transitioning between the Boeing 757 and Boeing 767 daily without any issues is an odd comparison as these aircraft were developed in parallel with cockpit commonality in mind.

There’s no doubt that a crew alerting system will increase situational awareness and it’s a good thing that regulations are evolving. Regulations always have evolved based on lessons learned and those lessons unfortunately also are learned when lives are lost in aircraft accidents. However, by requiring the currently uncertified MAX types to have a crew alerting system while that would not be required for the MAX 8, MAX 8-200 and MAX 9 would definitely create a safety hazard as you would have a system that increases situational awareness on the MAX 10 and likely also the MAX 7, but not on the MAX 8 and MAX 9. That means that if you go from flying the MAX 8 to MAX 10 you are receiving additional aid, but if you transition the other way around you are missing those safety and situational enhancing features. As a pilot, if you start to rely on those safety enhancing features while they are not present across the family there’s most definitely a possibility of confusion. In that regard, the comparison between the 757/767 makes absolutely no sense.

Now, the Allied Pilot Association should look in the mirror once more. Not only are they putting out a highly misleading press release, but they are also the association that quickly after the second MAX crashed showed support for the aircraft and the association did that in such a way that the argument that a crash like this could never happen in the US because US pilots are properly trained was born. In the years that I have been covering the MAX debacle this argument was often used to blame the pilots of the crashed aircraft and the Allied Pilot Association’s press release from the 12th of March 2019 played a role in that mischaracterization. It’s possible that the association holds some grudge against Boeing, because they backed the MAX at an early stage without awaiting details and in the months after it would become clear that the MAX did have shortcomings.

Protecting Jobs And Weakening The Competition

To me it really seems that the Allied Pilot Association, which represents pilots of American Airlines, are misusing the safety element for purposes other than actually backing safety. In the best case they hold some grudge against Boeing that’s now coming out in the form of a misleading press release, in the worst case they are trying to protect their own jobs. To understand why, let’s take a look at the orders and deliveries for the MAX among US airlines:

What’s striking is that APA, a labor union for American Airlines pilots, is opposing any extended waiver for the MAX. Looking at American Airlines orders and deliveries, APA should be the last union concerned since American Airlines has no aircraft on order that would be affected by extending or not extending the grace period. In fact, American Airlines is the only airline that does not have the MAX 7 or MAX 10 on order. So, if there were unions that should be protesting it should have been from the actual customers and that is not the case. Out of 1,247 orders and deliveries around 46% is either for the MAX 7 or MAX 10, so this very much looks like APA is opposing a waiver extension to make the competition less competitive and there is little doubt that the union is using safety as an excuse to safeguard the position of American Airlines and subsequently their own seat in the flight deck.

Conclusion: Advocating Safety For All Wrong Reasons, Boeing Is Still A Buy

I believe that APA speaking out against a waiver for the MAX 10 and MAX 7 is in no way related to their best interests in safety, but serves their interests for rendering the competition less competitive when a waiver is not granted. The press release already contained some dubious elements and their premature statement in 2019 did not show their vested interest in safety either. Now, I’m not saying that APA pilots do not care about safety but other than weakening the competition they don’t seem to have a vested interest in safety enhancements being required or not on the to be certified MAX models.

For Boeing, not getting a waiver would be a big blow but regardless of that the company is seeing improvements in its delivery flow and mix which should continue in 2023. As a result, I maintain my Buy rating for Boeing as the company should be able to leverage its improved delivery mix and quantities.

For shares of American Airlines, I believe there’s not much to gain or lose here. Indeed if APA gets it their way, the competition will be weakened in the sense that they might see additional delays on their deliveries or have to swap to other models. Southwest (LUV) and Allegiant Air (ALGT) would likely lean more towards the MAX 8, upgauging and potentially bringing down unit costs while Delta (DAL) and United (UAL) could opt for the MAX 9 or even order the Airbus A321neo. So, while American Airlines pilots seem to be overly protective of their jobs attempting to weak the competition. I don’t think that will happen and I also do not believe that there will be any positive or negative impact that will be strongly reflected in American Airlines share prices.

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Disclosure: I/we have a beneficial long position in the shares of BA, EADSF either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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