Minimal impact from groundings of Boeing 737 Max 8 jets, but future orders may be affected

An American Airlines Boeing 737 Max 8 parked at LaGuardia Airport in New York, on March 13, 2019.
An American Airlines Boeing 737 Max 8 parked at LaGuardia Airport in New York, on March 13, 2019. PHOTO: EPA-EFE

SINGAPORE/DUBAI • Groundings of brand new Boeing 737 Max 8 jets have sent shock waves through global aviation after a crash in Ethiopia, but many airlines are managing to keep to schedule with other jets, while economic woes mean some may be grateful for a pause.

The B-737 Max 8 upgrade to Boeing's best-selling jet entered service only in 2017, meaning there are not many in the skies compared with other more establi-shed workhorses.

"If you had a grounding of something like the 737-800, wow what an impact. But with the Max, there are fewer than 400 of these flying globally," one aviation analyst said, adding that most airlines could "backfill most of the capacity".

The Ethiopian Airlines crash that killed 157 people on Sunday was the second B-737 Max crash in less than six months, with 189 others killed when a Lion Air jet went down in Indonesia last October.

There were 371 B-737 Max family jets in operation before this week's groundings, led by China, according to FlightGlobal. About two-thirds of the fleet is now grounded, based on Reuters calculations.

That compares with more than 6,000 of the previous model, the B-737 NG series, giving airlines the ability to use other jets in their fleets as a replacement for at least some of the flights.

"At present, the impact of any groundings is contained by the relatively small global fleet currently in service," aviation consultant John Strickland told Reuters.

 
 

The time of the year and signs of concerns about a peak in global aviation growth and a slowdown in the economy mean that cutting capacity is not necessarily a negative for airlines.

"It is off-season, so it is an easier gesture to make, and some airlines are more worried about having too much capacity,"a Western aviation official said.

For others who are able to make do without the B-737 Max 8 for a period, doing so is likely to come at a cost.

"It is a headache for airlines to take aircraft out of service, with flights likely to be cancelled and an impact on revenues," said Mr Strickland.

The bigger impact from the Ethiopian crash could be on future deliveries because other carriers, including Korean Air Lines, have placed relatively large orders for B-737 Max 8 jets, said Mr Um Kyung-a, a senior analyst at Shinyoung Securities.

"It might turn into a big headache for them if Boeing fails to nail down the causes of the recent crashes," Mr Um said. "If that turned out to be the case, they need to come up with different plans to replace their B-737 Max 8 orders."

Lion Air, which suffered a B-737 Max 8 crash in October last year, has refused to take delivery of some of the jets, but analysts say it is suffering from overcapacity and may benefit from a slowdown.

Meanwhile, Malaysian officials said on Monday that they had asked national carrier Malaysia Airlines to revisit its order for 25 such jets.

 
 

"I feel there are other factors apart from safety, including finance and politics, for that move," said Mr Shukor Yusof, head of Malaysia-based aviation consulting firm Endau Analytics.

"I doubt there will be outright cancellations for orders already placed by other carriers because there are still many unanswered questions."

Despite Boeing's woes, its stock rose 0.7 per cent yesterday, snapping a seven-day losing streak after its shares took their biggest beating this week.

Still, the company's troubles are far from over.

Adding to the pressure, Norwegian Air said that it would seek recompense for lost revenue and extra costs after grounding its B-737 Max 8 aircraft.

Norwegian, whose finances are currently under pressure, cancelled 19 flights yesterday, the day after it decided to ground all flights with the B-737 Max 8.

"We are going to send the invoice to those who built the plane," a spokesman for the company, Mr Lasse Sandaker-Nielsen, told Agence France-Presse in an e-mail.

He said the airline "should not suffer financially from this".

 
A version of this article appeared in the print edition of The Straits Times on March 14, 2019, with the headline 'Minimal impact from groundings, but future orders may be affected'. Print Edition | Subscribe