The airline Garuda Indonesia wants to cancel its order of 49 Boeing 737 Max 8 planes, but contracts make it expensive to do so.
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Until recently, Boeing’s 737 MAX jet has been extremely popular. The company builds 52 of them a month and has more than 4,600 on order. But after the recent pair of deadly crashes, at least one airline is negotiating with Boeing to get out of its contract. NPR’s Daniella Cheslow reports.
DANIELLA CHESLOW, BYLINE: A meeting between Boeing and Garuda Indonesia, the national flag carrier, took place earlier this week in Jakarta. Garuda spokesman says the airline’s passengers don’t have faith in the 737 MAX 8, and so it wants to cancel an order for 49 of the planes. He says it’s open to swapping out the 737 MAXs for other Boeing models. That’s a tiny fraction of Boeing’s orders, but still a concern.
MARC SZEPAN: I would not be surprised if there would be some airlines trying to reshuffle the order book.
CHESLOW: Marc Szepan is a lecturer in international business at the University of Oxford and a former Lufthansa executive. He says it can be costly to break an airline purchase contract. A MAX 8 cost $122 million. There are discounts for large orders. Airlines pay a deposit to lock in their slot, then they make payments as the plane is built. Boeing could keep those payments if an airline cancels its orders. But Szepan says he expects Boeing to be flexible as airlines lose money while the 737 MAX planes sit idle.
SZEPAN: They could ask for compensation, direct financial compensation. They could ask for delayed deliveries, spare parts at discount, the spare parts for free, training for free.
CHESLOW: The 737 MAX has been Boeing’s best-selling plane. American Airlines captain and pilot union spokesman Jason Goldberg has spent hundreds of hours piloting the aircraft, and he’s a fan.
JASON GOLDBERG: It’s a really nice flying aircraft. The controls feel to it is really solid. It’s a quiet airplane. It’s extremely fuel-efficient.
CHESLOW: American has 24 of the MAX 8s. It’s ordered more than 60 more, over the next few years. Southwest and United also fly the MAX. But Goldberg was stunned to learn that a new automated flight control system called MCAS may have caused the crashes.
GOLDBERG: We were not even informed of the existence of the MCAS system, not to mention how we deal with any particular malfunctions that might occur with that system.
CHESLOW: Senators pressed government officials about that this week. And although Boeing has announced a software upgrade, it could take months until regulators around the world approve the plane to fly. Both the airlines and Boeing need each other to succeed. The other major producer of fuel-efficient single-aisle aircraft is Europe’s Airbus, and it also has thousands of planes to build. Szepan says, even if airlines like Indonesia’s Garuda could get out of their contracts…
SZEPAN: Airbus would not have the capacity to fulfill these orders.
CHESLOW: Financial adviser Susan Kaplan says she still has confidence in Boeing. It’s got more than a century of aviation experience. And until these two crashes, it had a stellar safety record. It’s also probably too big to fail.
SUSAN KAPLAN: Their business is so immense, whether it be fighter jets, helicopters, guided weapons, satellites. They’re just an enormous colossus. And the assumption in the field is they’ll fix it.
CHESLOW: American, Southwest and United all say they’re sticking to their orders. The stakes are high. Southwest revised its revenue forecast downward for this quarter, in part because of the Boeing groundings. Germany’s TUI Group did as well. And Lufthansa says it will soon replace at least a hundred single aisle planes, and it hasn’t decided whether to go with Boeing or its rival, Airbus. But CEO Carsten Spohr says, we have not lost our trust in Boeing. Daniella Cheslow, NPR News.
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