April 23, 2019

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Indonesia’s National Airline Seeks to Cancel Order of Boeing Max 8s

Indonesia’s National Airline Seeks to Cancel Order of Boeing Max 8s
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JAKARTA, Indonesia — Indonesia’s national airline has told Boeing that it wants to cancel an order of 737 Max 8 jets, the carrier’s spokesman said on Friday, adding that its passengers had lost confidence in the model after two deadly crashes in five months.

The airline, Garuda Indonesia, said that it sent a letter to Boeing on March 14 seeking to cancel its order of 49 planes, of which just one had been delivered so far. The deal is estimated to be worth $4.9 billion.

But Garuda’s spokesman acknowledged that it is difficult to cancel such agreements once they have been signed, and that talks with Boeing would continue.

“Continuing the Max order does not benefit Garuda,” said the spokesman, Ikhsan Rosan. “Our passengers, psychologically, they don’t trust flying with Max anymore. They often asked during booking what type of aircraft they would be flying on.”

He said Garuda officials would meet with Boeing executives in Jakarta, the Indonesian capital, on Thursday to discuss alternatives.

“It still all has to be discussed,” Mr. Ikhsan said.

A Boeing spokesman declined to comment. Overall, more than 4,000 737 Max planes are on order by airlines around the world.

Garuda’s move is the first publicly confirmed attempt to cancel a Max 8 deal since the planes were grounded around the world this month after the crash of Ethiopian Airlines Flight 302, in which all 157 people aboard were killed.

That accident, in which the plane’s course became erratic almost immediately after takeoff, was eerily similar to the crash of Lion Air Flight 610, also a Max 8. That plane plunged into the sea off the Indonesian coast on Oct. 29, killing all 189 people aboard.

Investigators examining both crashes are looking into, among other things, whether Boeing’s changes to the Max 8’s flight control system might have played a role.

Garuda could find it difficult to get out of its Max 8 order. Airlines typically put down a deposit of as much as 20 percent of the price of the plane, which costs $120 million before discounts, modifications and other adjustments. To get out of such a commitment, an airline has to show that the plane suffers from a structural problem or some other debilitating flaw, industry experts say.

Airlines also have limited alternatives, as Boeing and Airbus are the primary manufacturers of airliners used by most of the world’s commercial carriers. Airlines maintain longtime relationships with manufacturers and it would be difficult to cut ties with one of the two manufacturers making the aircraft they need, something that Mr. Ikhsan acknowledged on Friday. He said it was possible “that we change to another model, not Max, but still from Boeing.”

It could also be hard to find replacements. Airbus has a yearslong backlog of orders to fill for its rival to the Max 8, the A320neo. China’s rival plane, the C919 — built by the Commercial Aircraft Corporation of China, or Comac — has not yet flown commercially and must prove that it is both fuel-efficient and economical to operate.

Until investigators determine exactly what happened on both the Ethiopian Airlines flight and the Lion Air flight, it could be difficult for airlines to change contracts with Boeing.

Norwegian Air, a low-cost airline with one of the largest Max 8 fleets outside the United States, said last week that it expected Boeing to cover the costs of the aircraft being grounded. But compensation could also be difficult to argue for at this stage, experts said.

A spokesman for Norwegian said on Friday that the airline had no plans to cancel its orders from Boeing. Representatives of other airlines with Max 8 planes on order, including Tui, Icelandair and FlyDubai, also said they had no current plans to cancel orders.

Garuda’s decision to back out of its order and the indication that many passengers do not trust that they can fly safely in a Boeing’s best-selling plane is nevertheless a blow to the company, which has been thrust into crisis by the crashes.

Dennis A. Muilenburg, Boeing’s chief executive, said this week that the company was “taking actions to fully ensure the safety of the 737 Max.” He also said that the company was working on an update to the software, which investigators are examining as a possible cause of the Lion Air crash.

With its best-selling plane grounded, no firm timetable for a return and airlines questioning their contracts, the company also faces increased scrutiny from regulators. Canada’s aviation regulator is reviewing its certification of the 737 Max plane.

Boeing’s share price has dropped about 12 percent since the Ethiopian Airlines flight crashed on March 10.



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