Indonesia’s Garuda Cancels $6 Bn 737 MAX Order, The First Airline To Do So

Citing reasons of loss of trust of passengers on the Boeing Co’s 737 MAX 8 jets, Indonesian airlines Garuda Indonesia has informed the United States aircraft manufacturer that it wanted to cancel its earlier order of 49 of the 737 MAX 8 jets. The company has however also informed that it was reconsidering the order even before the latest crash of a model of craft belonging to Ethiopia last week.

This is the first time that any airline in the world has officially communicated and confirmed the cancellation of an order for the Boeing 737 MAX jets following the fatal crash of one such craft belonging to Ethiopian Airlines which killed all of the 157 people on board. That crash followed another similar crash involving the same model of the 737 MAX jets belonging to Lion Air about five months ago in which all of the 189 passengers and crew were killed. Following those two crashes, dozens of countries and airlines across the world either grounded or banned the use of 737 Max aircraft, which was followed by the US some time later. Soon after, Boeing grounded all of its 737 Max aircrafts throughout the world and stopped all deliveries of the craft before the glitches are fixed.

“Many passengers told us they were afraid to get on a MAX 8,” Garuda CEO Ari Askhara the media while talking about the cancellation of the orders.

However, according to an analyst, the airline had been contemplating cancellation of the order and re-planning the combination of its fleet even before the Ethiopian crash.

“This is an opportunity to make some changes that otherwise may be difficult to do,” CAPA Centre for Aviation Chief Analyst Brendan Sobie said.

After the massive global grounding of the 737 MAX fleet, there were a number of analysts who said last week that this would give the opportunity to a number of airlines to either delay or even cancel the purchases which would ultimately help such airlines save on cash as seen on their balance sheets.

Chief Financial Officer of Garuda, Fuad Rizal said that after cancellation of the order – valued at $6 billion at list prices, the airline could replace the orders with other models from Boeing. The company is holding negotiations with Boeing about the order cancellation currently, he informed and the company is not at al considering procurement of any crafts from Airbus SE.

There is one 737 MAX in the fleet of the Garuda and the age of the prior generation 737s with the airline is still relatively low. Earlier in 2017, the company had delayed the delivery of the rest of the orders for the crafts to 2020 and later because of financial issues.

There was a possibility that its orders for 20 of the jets would be cancelled by it, Askhara had said last week, and had informed that the final decision depended on the action taken by the U.S. Federal Aviation Administration following the Ethiopian Airline crash.

(Adapted from Business-Standard.com)

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