Timeline for MAB to resolve 737 Max orders slips further away

The carrier says its technical review on the multibillion plane orders is still ongoing and hinged on authorities’ decision

by RAHIMI YUNUS/ pic by BLOOMBERG

MALAYSIA Airlines Bhd (MAB) will continue discussions with Boeing Co for a solution over its 737 Max orders at least until mid-year before deciding on the next steps as the Covid-19 pandemic continues to jeopardise the future of the aviation industry.

The state-owned carrier revealed to The Malaysan Reserve (TMR) that its technical review on the multibillion plane orders is still ongoing and hinged on authorities’ decision to allow the single-aisle aircraft to fly again.

Last January, MAB confirmed with the media that it will not be taking delivery of the 737 Max scheduled this year as a result of Boeing’s move to suspend the jetliner production.

The efforts by Boeing to resolve the 737 Max issue both on the recertification and negotiation with airlines are already complicated.

Then came the Covid-19 pandemic which has grounded the global aviation industry to a standstill and forced airlines clawing desperately for cash.

“Boeing has temporarily suspended its 737 Max production beginning January 2020. Although its return-to-service estimate as communicated by Boeing remains mid-year 2020, it is subject to the FAA (US Federal Aviation Administration) and other global regulators, including the Civil Aviation Authority of Malaysia.

“Until then, our technical due diligence and discussions with Boeing are still ongoing as communicated before,” MAB told TMR.

Boeing still struggles to rectify the technical problems found in 737 Max.

Over 380 737 Max aircraft have been grounded since March last year after two fatal air crashes involving Lion Air and Ethiopian Airlines flights.

Boeing has dealt with flooding 737 Max cancellations from airlines and aircraft lessors in the past few months on the back of the pandemic.

The Chicago-based planemaker recorded 150 cancellations on its best-selling jetliner in March 2020, including 75 orders by Irish leasing firm Avolon Holdings Ltd and 34 units by Brazilian carrier Gol Linhas Aereas Inteligentes SA (GOL).

GOL, which has outstanding 95 firm orders, said it has reached the cancellation agreement with Boeing on “cash compensation and changes to future orders and associated payment schedules”.

MAB ordered 25 737 Max from Boeing with another 25 purchase rights in a deal valued at US$5.5 billion (RM23.82 billion) in 2017.

It is not known whether the agreement provides for termination or swap options and how committed MAB is to the 737 Max as a result of the current uncertainties due to the global Covid-19 pandemic.

As the 737 Max grounding stretches over one year and winning the approval from FAA is months away at the earliest, Boeing customers could escape from orders without penalty under condition precedent within one year of the agreed delivery date.

In January, global head of consultancy at Cirium’s Ascend aviation unit, Rob Morris said there were more than 400 737 Max aircraft that have been built and flown and which customers are expecting delivery of in the near future.

Considering an average selling price of US$50 million, Morris said that will equate to more than US$12 billion of inventory cost that would have to be written off.

He said the backlog stood at 4,420 units, which could conservatively be valued at some US$220 billion in 2020 economic conditions and which Boeing would also have to wipe off its backlog.

With hundreds of billions worth of cancellation, the industry experts are evaluating the likelihood of Boeing launching a new single-aisle aircraft in this decade or the next to replace the troublesome 737 Max.

Morris said even if Boeing were to launch a new future small airplane today, they would unlikely be able to deliver that aircraft before 2027 at the earliest due to many issues, including technology readiness.