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Thursday, March 14, 2019, 21:26
Boeing's US$600 billion in max orders at risk as airlines waver
By Bloomberg
Thursday, March 14, 2019, 21:26 By Bloomberg

A 737 Max 8 plane destined for China Southern Airlines sits at the Boeing Co manufacturing facility in Renton, Washington, US, on Mar. 12, 2019. (DAVID RYDER / BLOOMBERG)

Boeing Co’s US$600 billion-plus order book for its 737 Max began shaking after several big customers threatened to reconsider their purchases in the wake of the Ethiopian Airlines crash, the second deadly accident involving the plane since October.

VietJet Aviation JSC, which doubled its order to about US$25 billion only last month, said it will decide on its future plans once the cause of the tragedy has been found. Kenya Airways Plc is reviewing proposals to buy the Max and could switch to Airbus SE’s rival A320. Russia’s Utair Aviation PJSC is seeking guarantees before taking delivery of the first of 30 planes.

ALSO READ: Countries and carriers around globe ground Boeing 737 Max

That’s as Indonesia’s Lion Air firms up moves to drop a US$22 billion order for the 737 in favor of the Airbus jet, according to a person with knowledge of the plan. Separately, a US$5.9 billion order from a unit of Saudi Arabian Airlines hangs in the balance.

The 737, which first entered service in the late 1960s, is the aviation industry’s best-selling model and Boeing’s top earner. The re-engineered Max version has racked up more than 5,000 orders worth in excess of US$600 billion, including planes that have already been delivered.

Boeing, whose shares have lost 11 percent of their value this week, faces escalating financial risk after two disasters involving its newest narrow-body jet in the past five months. The stock inched up 0.5 percent on Wednesday in New York after seeing its biggest two-day drop in almost a decade.

With extensive grounding of the 737 Max, near term news could get worse for Boeing before it improves

Cai von Rumohr, Analyst with Cowen & Co

The deadly crash in Ethiopia comes just about five months after the Oct 29 crash of another Boeing 737 Max plane, operated by Indonesia’s Lion Air. The relationship between the carrier and Boeing soured after the manufacturer pointed to maintenance issues and human error at Lion as the underlying cause, even though the planes pilots had been battling a computerized system that took control following a sensor malfunction.

Sunday’s loss 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.

Boeing is in crisis as most of the world grounded the plane. On Wednesday, US regulators joined the global chorus by grounding the plane, citing evidence showing the Ethiopian Airlines flight may have experienced the same problem as the plane that went down five months ago off Indonesia.

READ MORE: US grounds all Boeing 737 Max 8 & 9 aircraft as pressure mounts

“With extensive grounding of the 737 Max, near term news could get worse for Boeing before it improves,” Cai von Rumohr, an analyst with 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.”

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.

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