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Garuda Indonesia to cancel Boeing 737 Max orders

Analysts fear cascade of cancellations by Asian airlines after crashes

Garuda Indonesia's lone Boeing 737 Max 8 is parked at Soekarno-Hatta International Airport near Jakarta on March 13.   © Reuters

JAKARTA -- Garuda Indonesia has moved to cancel its 49 remaining orders for Boeing 737 Max 8 jets after two other airlines suffered deadly crashes involving the aircraft, prompting a worldwide grounding.

The Indonesian flag carrier appears to be the first to formally take this step in the aftermath of the tragedies, dealing a major blow to the U.S. manufacturer and raising the prospect that other carriers will follow suit. A Garuda spokesperson said the airline sent a letter to Boeing requesting the cancellation due to "low confidence of our passengers" in the model.

The two parties are to meet in Jakarta next week to discuss the matter, including the possibility of switching the orders to other Boeing jets. Garuda President Ari Ashkara told local reporters that "shifting [to another manufacturer] is possible if the negotiation meets a dead end, although we're facing a risk of losing the down payment."

Ashkara said that payment came to $26 million. Despite the concerns about the 737 Max, he said he is "confident with Boeing because they have been our manufacturer since the 80s."

Garuda placed 50 orders for the 737 Max 8 in 2014, in a deal worth $4.9 billion at the time. Although only one has been delivered, the spokesperson said worried passengers have been asking the company whether they will be flying aboard the model.

Shares in Garuda fell as much 7% on Friday.

Garuda's lone 737 Max 8 was grounded after an Ethiopian Airlines plane of the same type crashed on March 10, killing all 157 people on board. This crash occurred just months after another Max 8 flown by Indonesian budget carrier Lion Air plunged into the sea, killing all 189 passengers and crew.

Ethiopia's transportation minister has said that an initial analysis of the black boxes recovered from the Ethiopian Airlines wreckage revealed "clear similarities" between the two accidents.

Some analysts voiced concern that other airlines could follow Garuda's lead. "If more airlines decide to defer or cancel their aircraft deliveries, the Asian airline industry's future growth plans will need to be scaled back," said Corrine Png, regional head of equities research at AIA Investment Management.

Lion Air, which flew 10 Max 8s before they were grounded, previously said it postponed the arrival of four more of the jets, initially scheduled for May.

The Malaysian government intends to review a purchase of 25 of the planes for Malaysia Airlines.

Rising demand for air travel has driven Asian airlines to expand their fleets, including with the updated 737. Asia accounts for roughly a third of the 378 Max aircraft that were in service, with China operating some 25%, according to aviation consultancy Capa.

Overall, Asian airlines represent more than a quarter of the total 5,526 orders for the Max 8 and 9, listed at $122 million and $129 million, respectively.

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