MAB’s compensation possible over Boeing 737 Max 8 order

By MARK RAO / Pic By TMR File

MALAYSIA Airlines Bhd (MAB) can claim compensation from Boeing Co if its purchase of the latter’s 737 Max 8 aircraft is proven to be inherently defective, according to International Islamic University Malaysia assistant professor and deputy legal advisor Dr Wan Mohd Zulhafiz Wan Zahari.

The national carrier agreed to purchase US$5.5 billion (RM22.44 billion) worth of Boeing 737 Max 8 aircraft — comprising 25 firm orders and 25 purchase rights — in 2016, with the first jet expected to be delivered next year.

This is the same model of planes currently under scrutiny after two fatal crashes involving the model occurred within a five-month period.

The latest incident had killed all 157 people on board an Ethiopian Airlines flight en-route to Nairobi, Kenya.

“MAB has grounds to claim for compensation if they can prove that the vendor supplied goods that are unfit for purpose.

“If CAAM (the Civil Aviation Authority of Malaysia) decides to permanently ban the Max 8 aircraft, MAB can claim compensation from Boeing if they (the airline) substantiate their claims,” he told The Malaysian Reserve (TMR).

Last Friday, Reuters reported that MAB is reviewing its order for the aircraft as the company “had started its process of due diligence to ascertain future operations of the Boeing 737 Max in light of the recent incidents”.

The statement came after numerous countries acted swiftly over the tragic incident by grounding or suspending the operations of the Max 8 jets in their respective airspace on suspected fear of defects.

Malaysia began suspending the aircraft from coming in and out of the country, including those in transit, until further notice following an announcement from CAAM last Tuesday.

The national carrier has been dogged by years of mismanagement and bad luck, struggling with losses since 1998 which resulted in government bailouts amounting to billions of ringgit.

Khazanah Nasional Bhd took MAB private in 2014 and undertook a RM6 billion restructuring plan to turn the company profitable by 2017.

The airline reported a RM812.11 million loss after tax that year and remained in the red in 2018.

Shutting down MAB is among the considerations being mulled by the Malaysian government. Other exercises being considered include selling the asset to interested parties and refinancing.

Meanwhile, an analyst, who preferred to remain anonymous, said the suspension of all 737 Max 8 aircraft from Malaysian airspace is expected to increase the demand for AirAsia flights in the short term as the low-cost carrier has been using non- Boeing planes.

AirAsia Group Bhd and AirAsia X Bhd (AAX) are the only Malaysian-based carriers that use Airbus SE aircraft for operations.

The analyst said although none of the six Malaysia-based scheduled airlines — comprising MAB, AirAsia, AAX, FlyFirefly Sdn Bhd and Malindo Airways Sdn Bhd — are operating the 737 Max 8 aircraft, the recent negativity surrounding Boeing could steer passengers to use alternative aircraft models for air transport.

“It is still too early to say, but there will definitely be some impact with certain airlines benefitting and others losing out.

“AirAsia will be positively impacted as they use Airbus models as opposed to Boeing,” the analyst told TMR.

The industry expert added that any gains noted by AirAsia will be temporary as the suspension of Boeing 737 Max 8 aircraft is not likely to be permanent.

“The bigger development would be the possible shutting down of MAB. Though unlikely, it would be a boon for its competitors, namely AirAsia and Malindo,” the analyst said.

On Oct 29 last year, a 737 Max jet operated by Indonesia’s Lion Air crashed into the Java Sea 12 minutes after takeoff, killing all 189 passengers and crew on board.

The Max 8 aircraft operated by Ethiopian Airlines faced the same fate when it crashed only six minutes after taking off.

In response, the US Federal Aviation Administration (FAA) said its review of the aircraft models in question showed “no systemic performance issues” and that there is no basis to ground the aircraft.

“Nor have other civil aviation authorities provided data to us that would warrant action.

“In the course of our urgent review of data on the Ethiopian Airlines flight ET 302 crash, if any issues affecting the continued airworthiness of the aircraft are identified, the FAA will take immediate and appropriate action,” it said in a statement last Monday.

The US aviation authority said such a statement was made after extensively reviewing all available data and aggregate safety performance from operators and pilots of the Boeing 737 Max.