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Garuda to switch 737 Max orders to other Boeing planes

Indonesian flag carrier still 'believes in' the embattled US manufacturer

Garuda Indonesia's Boeing 737 Max 8 airplane sits at a maintenance facility at Soekarno-Hatta International airport near Jakarta.   © Reuters

TANGERANG, Indonesia -- Flag carrier Garuda Indonesia will swap its orders for Boeing's embattled 737 Max 8s with other aircraft made by the U.S. company.

The Indonesian airline is the first to formally take this step following two fatal crashes involving the 737 Max 8.

Garuda informed Boeing of its decision to cancel its orders for 49 of the planes last month. Both companies had been in negotiations on whether to outright cancel, or to replace the order with other Boeing aircraft.

"We will replace the orders with Boeing's Max 10s and 787s," Garuda President Ari Ashkara told the Nikkei Asian Review on Wednesday. He said the value of the new deal will be roughly the same as the Max 8 orders, adding that the airline "believes in Boeing aircraft and its technological capabilities."

Ashkara said further details will be decided later this year.

Garuda ordered 50 of the 737 Max 8 in 2014 in a deal worth $4.9 billion at the time. One has been delivered so far, but was grounded after an Ethiopian Airlines plane of the same type crashed on March 10, killing all 157 people on board. That crash occurred just months after another Max 8 flown by Indonesian budget carrier Lion Air plunged into the sea, killing 189.

Though the Max 10 has a slightly shorter travel range than the Max 8 does, it can fit more seats. This advantage will help Garuda improve its top line. The state-run carrier eked out a net profit of about $800,000 in 2018 after suffering a net loss of $216 million the previous year.

The 787 is a wide-body aircraft for longer flights, and is expected to be used in Garuda's overseas expansion. The airline plans to open new routes to China. It also is weighing increased service between the Tokyo area's Narita Airport and the Bali holiday destination of Denpasar, as well as a route between Makassar, on Sulawesi island, and Osaka.

The airline made a net profit of $20 million in the first three months of this year, improving from a $65 million net loss in the year-ago period.

The flag carrier had decided in early 2018 to reschedule the delivery of 25 aircraft, including some of the Max 8s, to 2020 as it looked to maximize the utilization of its existing fleet.

Rising demand for air travel has driven Asian airlines to expand their fleets. 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 one-quarter of the total 5,526 orders for the Max 8 and 9, listed at $122 million and $129 million, respectively.

Lion Air, which flew 10 of the Max 8s before they were grounded, has 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.

Garuda's decision to stick with Boeing aircraft comes amid a tough time for the U.S. manufacturer. When Boeing released results Wednesday for the January-March quarter, the company withdrew its financial guidance for the year "due to the uncertainty of the timing and conditions surrounding return to service of the 737 Max fleet," its biggest cash generator.

First-quarter revenue at Boeing's commercial aircraft division sank to $11.8 billion, from $12.9 billion in the year-ago period. The net earnings of $2.1 billion represent a 13% decrease. Boeing delivered only 89 of its 737 models in the first three months of this year, down from 132 in the same period of 2018.

"Across the company, we are focused on safety, returning the 737 Max to service, and earning and re-earning the trust and confidence of customers, regulators and the flying public," Dennis Muilenburg, Boeing's chairman and CEO, said in a statement. "As we work through this challenging time for our customers, stakeholders and the company, our attention remains on driving excellence in quality and performance and running a healthy, sustained growth business built on strong, long-term fundamentals."

Nikkei staff writer Bobby Nugroho in Jakarta contributed to this story.

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