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Malaysia to review Boeing 737 Max orders after second crash

Singapore, China and Indonesia ground jet, as US says plane is safe to fly

Governments and airlines across Asia are reconsidering whether to use the Boeing 737 Max 8 after one of the aircraft crashed south of Addis Ababa on March 11, killing 157.   © AP

HONG KONG -- The Malaysian government will reconsider the purchase of Boeing's 737 Max 8 aircraft for the country's flagship carrier Malaysia Airlines, after the second fatal crash in less than five months of the U.S. company's new passenger jet.

Economic Affairs Minister Azmin Ali said on Monday that Malaysia's sovereign wealth fund, Khazanah -- which owns Malaysia Airlines -- would have to "revisit" the agreement to buy 25 of Boeing's 737 Max aircraft after the crash on Sunday of Ethiopian Airlines flight ET302 soon after takeoff, killing all 157 on board. "The management of Khazanah should look into the matter urgently. This is to ensure the safety of the airline, which is paramount," he said.

Other Asian airlines told the Nikkei Asian Review they were also reviewing the situation.

Meanwhile, Singapore on Tuesday became the latest country to ground the 737 Max aircraft. The suspension will affect SilkAir, Singapore Airlines' subsidiary, as well as China Southern Airlines, Garuda Indonesia, Shandong Airlines and Thai Lion Air that fly the aircraft to Singapore. The move followed similar orders from regulators in Indonesia, China, Mongolia and Ethiopia to suspend flights of the 737 Max 8.

The decisions have been prompted by similarities to the crash last October of a 737 Max 8 operated by Lion Air, which killed all 189 passengers and crew on board.

The U.S. Federal Aviation Administration issued a notification on Monday to operators of the Boeing 737 Max, assuring them that the plane was safe to fly. It said it continued it collect information about the crash, as well as on the Lion Air incident, though it stressed it was too early to draw any conclusions.

Nevertheless the FAA has demanded that "design changes" to the 737 Max be implemented by April. Boeing said it was working closely with the U.S. regulator and it would implement a required "flight control software enhancement" for the 737 Max in the "coming weeks." 

The decisions by international regulators to ground the planes raise questions over the future for Boeing's single-aisle 737 Max jet in Asia, and in China in particular, the world's fastest-growing aviation market.

"Given that two crashes both involved newly delivered Boeing 738-8 planes and this happened shortly after take off, they have some degree of similarity," the Civil Aviation Administration of China said in a statement. Indonesia's director general of air transportation Polana Pramesti said the measures were to "ensure that the condition of the aircraft is airworthy."

The company logo for Boeing is displayed on a screen on the floor of the New York Stock Exchange on Monday.   © Reuters

Boeing's stock price plunged 12% at one point Monday denting the Dow Jones Industrial Average by 345 points on its own. The company's stocks closed 5.3% lower at $400.

Analysts say the grounding of 737 Max 8 aircraft has cast a shadow over Boeing's position in China, which is on the course to surpass the U.S. to become the world's biggest aviation market by 2022.

"The action taken by CAAC just underlines how severe the situation is for Boeing," said Michel Brekelmans, managing director at consulting company SCP/Asia.

"People are clearly very worried. If there is no confidence, regulators will be on the side of 'better be safe than sorry'," Brekelmans said. "Authorities would say now we have had two incidents. ... As we haven't been given all the answers, we had better take cautious measures. I would not be surprised if others would take the same step."

Malaysia's decision to review its order for the 737 Max is also the first indication that the region's carriers are reconsidering their commitment to the new jet, the latest variant of an aircraft long considered an important workhorse for Asian airlines.

Some analysts voiced concern that others could follow. "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. "This impact will be most significantly felt on domestic and regional routes."

Asia's 4.46 billion strong population and rising economic status has driven explosive growth in the number of air travelers. In 2016, roughly 1.8 billion passengers traveled by air in the Asia-Pacific region, according to the International Air Transport Association. That figure is expected to nearly double to 3.1 billion by 2035.

The rise in air travel has also fueled strong demand for aircraft such as the 737 Max. Asia accounts for roughly a third of the 378 Max aircraft in service, with China operating some 25% of the jets currently in the air, 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.

China Southern is the country's No.1 operator of this model, followed by Air China, Hainan Airlines and Shanghai Airlines.

Many more Chinese airlines are waiting for the aircraft to be delivered. But the recent incidents and CAAC's decision have prompted some to review their positions.

Kunming-based Ruili Airlines told Nikkei that it was "in the process of re-evaluating our order with Boeing." The carrier has ordered 37 Boeing 737 Max aircraft since 2017, but has taken no deliveries so far.

Taiwan's Far Eastern Air Transport also appears to have adjusted the position it took after the Lion Air crash, when the company insisted it was not reconsidering plans to introduce the Boeing 737 Max by the end of 2019.

Lu Chi-jun, spokesperson and vice president, told Nikkei on Monday that Far Eastern Air Transport had not yet finalized the deal with Boeing. It would only be signed after Boeing clarified the causes of the accidents involving the 737 Max 8, she said.

"We haven't inked the contract with Boeing," Lu said. "We are waiting for Boeing's latest reviews and probe results of the two accidents, and we will only continue with the deal after these review results are clear enough."

Elsewhere in Asia, other airlines have decided to wait and see.

Japan's ANA said that the accidents have not led to a review of its order, as the cause of the accident is still being investigated. The company has purchased 20 737 Max 8 planes so far and is considering the purchase of 10 more.

Additional reporting by Nikkei staff writers Shotaro Tani and Jun Suzuki in Jakarta, CK Tan in Kuala Lumpur, Kentaro Iwamoto in Singapore, Eri Sugiura in Tokyo, Kim Jaewon in Seoul, Cheng Ting-fang and Lauly Li in Taiwan and contributing writer Jenny Chen in Hong Kong.

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