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Airlines rethink Boeing 737 orders after second crash in five months

FILES-INDONESIA-LION-AIR-ACCIDENT-TRANSPORT
Indonesia’s Lion Air said it was postponing the delivery of four Boeing 737 Max 8 jets after the crash of one of its Max 8s in 2018 and this week’s crash of an Ethiopian Airlines Max 8.
(Adek Berry / AFP/Getty Images)
Bloomberg

The Boeing Co. 737 Max crash in Ethiopia looks increasingly likely to hit the plane maker’s order book as mounting safety concerns prompt airlines to reconsider purchases worth about $57 billion.

VietJet Aviation, which doubled its order to 200 of the aircraft priced at about $25 billion only last month, said it will decide on its future plans once the cause of the tragedy has been determined, while Kenya Airways is reviewing plans to buy the Max and could switch to Airbus’ rival A320, and Russia’s Utair Aviation is seeking guarantees before taking delivery of the first of 30 planes with a $3.65-billion value before customary discounts.

That’s as Indonesia’s Lion Air moves to drop a $22-billion order for the 737 in favor of the Airbus jet, according to a person with knowledge of the plan. Separately, a $5.9-billion Flyadeal order hangs in the balance.

Boeing, whose shares have lost 10.7% of their value this week, faces escalating financial risk after two disasters involving its newest narrow-body jet in the last five months. On Wednesday, the Federal Aviation Administration followed other aviation authorities worldwide in grounding Boeing 737 Max planes.

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A Lion Air Max plane crashed Oct. 29, souring the airline’s relations with Boeing after the manufacturer pointed to maintenance issues and human error as the underlying causes, even though the flight’s pilots had been battling a computerized system that took control after a sensor malfunction.

Sunday’s crash of an Ethiopian Airlines 737, in which 157 people died, bore similarities to the Asian tragedy, stoking concern that a feature meant to make the upgraded Max safer than earlier planes has actually made it harder to fly.

The 737, which first entered service in the late 1960s, is the aviation industry’s bestselling model and Boeing’s top earner. The re-engined Max version has racked up more than 5,000 orders worth in excess of $600 billion.

“With extensive grounding of the 737 Max, near term news could get worse for Boeing before it improves,” Cai von Rumohr, an analyst at Cowen & Co., said in a note. However, he added, because the company is readying an update to its flight-control software, “we don’t see meaningful long-term risk.”

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Indeed, the only real rival to Boeing is European planemaker Airbus, whose production line for the A320neo is full well into the next decade. Alaska Air Group Inc. said Wednesday it would take delivery of its first Max aircraft.

VietJet is monitoring the situation and will reach a decision on whether to go ahead with its purchase after “official conclusions” from global regulators and the Civil Aviation Authority of Vietnam, the airline said in a statement Wednesday.

Utair told the Russian state news agency Ria Novosti that it’s waiting for results of the Ethiopian crash investigation before proceeding with the first delivery on an order for 30 737 Max jetliners. The company is seeking assurances from Boeing, it said.

Flyadeal said in December it would switch from Airbus and purchase as many as 50 737 Max jets, subject to final terms being reached. The carrier, a unit of Saudi Arabian Airlines, said it’s waiting on the results of the investigation. “We’re closely monitoring the situation and are in constant contact with Boeing,” the company said in an email. “There are no conclusions to be drawn at this time.”

Lion Air was already looking at scrapping its Boeing deal after October’s crash, which killed 189, and the African disaster has made co-founder Rusdi Kirana more determined to cancel the contract, according to the person familiar with the situation, who asked not to be named as the plans are private.

Kenya Airways will consider switching to Airbus or could opt to take more of the older 737-800 version of the Boeing jet, which doesn’t feature the suspect system, Chairman Michael Joseph said in an email without ruling out sticking with the Max. The company revived plans to expand its network last year with a proposal to buy as many as 10 of the planes, worth about $1.2 billion.

Some 32 of those killed in the Ethiopian crash, which happened minutes after the plane took off from Addis Ababa for Nairobi, were Kenyan citizens, the most for any country.

“We will carefully follow the developments around the 737 Max,” Joseph said. “No decision has been taken yet.”

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Sub-Saharan Africa’s third-largest carrier is almost 50% state-owned after a reorganization in 2017, with longtime investor Air France-KLM Group shrinking its holding to less than 10%.

Kenya Airways has about 40 aircraft, including eight 787 wide-bodies and the same number of 737-800s. The Dreamliner fleet will probably expand to add long-haul services, Joseph said, requiring more smaller planes to feed them with customers. Those might include turboprops and Airbus A220 or Embraer E2 regional jets, as well as 737-size models.


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