Analysis: China Eastern crash could set back Boeing’s China recovery, return of MAX

FILE PHOTO: Airshow China in Zhuhai
FILE PHOTO: A model of Boeing 737 Max airliner is seen displayed at the China International Aviation and Aerospace Exhibition, or Airshow China, in Zhuhai, Guangdong province, China September 28, 2021. REUTERS/Aly Song/File Photo

March 22, 2022

By Jamie Freed and Eric M. Johnson

(Reuters) – The deadly crash of a China Eastern Airlines 737-800 could set back Boeing’s efforts to regain ground in the world’s biggest aircraft market and deliver more than 140 737 MAX jets already constructed for Chinese customers.

The 737-800 that crashed on Monday does not have the equipment that led to 737 MAX crashes more than three years ago, but that may not make a difference to Chinese passengers and a national regulator known for scrupulous safety requirements.

China Eastern said the cause of the crash was under investigation. Such accidents typically involve multiple factors, and experts warned it was far too early to draw any conclusions on the potential causes, especially in light of the scarce information available.

China was the first country to ground the 737 MAX after fatal crashes in Indonesia and Ethiopia more than three years ago, and it is the only major market where the MAX has not resumed commercial flights.

A 737 MAX built for China Eastern subsidiary Shanghai Airlines took off from Seattle bound for Boeing’s completion plant in Zhoushan last week, industry sources said, in a sign the model’s return to service in China was close.

The plane landed in Guam on March 15 as part of a multi-leg journey and has not moved in the week since, according to flight tracking website FlightRadar24. Boeing declined to comment.

Colin Scarola, senior equity analyst at CFRA Research, said he would not be surprised if the crash further delays the return of the MAX in China, where the aviation regulator is known for being very thorough on safety issues.

Chinese airlines do not need new MAX planes because demand is down following the country’s biggest COVID-19 outbreaks in two years, industry sources said. But the U.S. manufacturer has more than 140 MAX jets already built for Chinese customers waiting to be delivered once the jet returns to commercial service there, a person familiar with the matter said.

Boeing’s shares closed 3.6% lower on Monday.

The 737-800 that crashed is an earlier model with a strong safety record and there are nearly 1,200 in service in China, making it the world’s largest market for the plane, according to aviation consulting firm IBA.

More than 4,200 737-800s are in service globally, data from aviation firm Cirium shows.

China Eastern has grounded its fleet of 737-800s, state media reported. It is the country’s sixth-largest operator of the type, with 89 planes, IBA said, but other Chinese carriers are continuing to fly the jets and China Eastern has not grounded its similar but slightly smaller 737-700s.

Jefferies analysts said China’s aviation regulator was unlikely to ground the 737-800 fleet unless it specifically suspected a technical failure as the root cause because of the operational consequences of grounding more than 1,000 planes in the world’s second-biggest domestic aviation market.

However, there are concerns the Chinese public could look to avoid flying on 737-800s until the cause of the crash is determined, given the broader reputational issues with the 737 family caused by the MAX, Cowen analyst Cai von Rumohr said in a note.

“Hence, isolating the cause of the crash will be critical,” he added, noting the leading causes of commercial air transport crashes tend to be maintenance issues, pilot error or sabotage, rather than manufacturing or design issues.

Boeing cancelled a meeting of its senior executives scheduled for this week in Miami to focus its attention on assisting the investigation and China Eastern, a second person familiar with the matter told Reuters.

“We have been in close communication with our customer and regulatory authorities since the accident, and have offered the full support of our technical experts to the investigation,” Boeing CEO Dave Calhoun said in a memo to employees, which was seen by Reuters.

(Reporting by Jamie Freed in Sydney and Eric M. Johnson in Seattle; additional reporting by Abhijith Ganapavaram in Bengaluru, Allison Lampert in Montreal, David Shepardson in Washington and Rajesh Kumar Singh in Chicago; Editing by Peter Henderson and Leslie Adler)

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