Chinese aircraft leasing firm hits pause on US$5.8 billion Boeing 737 MAX order as it awaits assurance on jet’s safety
- Hong Kong-listed China Aircraft Leasing Group Holdings has 75 Boeing 737 MAX jets on firm order with an option for 25 more
China Aircraft Leasing Group Holdings (CALC) has put its order for 100 Boeing 737 MAX jets temporarily on hold until it is assured of the aircraft’s safety.
The Hong Kong-listed lessor, controlled by the state-owned conglomerate China Everbright Group, placed an order for 50 aircraft in June 2017. CALC then increased it by another 25 in December with an option for 25 more as part of its plan to grow its overall fleet from 133 in 2018 to 232 by 2023. According to the original schedule, the first MAX jet was expected to be delivered to CALC in the third quarter of this year and continue up to 2023.
“The purchasing procedure has been temporarily put on hold and we have stopped the payments” because the matter is being worked out with the aircraft manufacturer, said Chen Shuang, chairman of CALC and chief executive of China Everbright, the financial arm of China Everbright Group.
The order for the first 50 aircraft was valued at US$5.8 billion.
In a separate interview on April 9, Mike Poon, the CALC chief executive, clarified the company had not stopped payments, but as its deliveries were on hold, it did not need to make payments for the time being.
The MAX has been grounded by regulators around the world after two aircraft of the same type were involved in fatal crashes within five months of each other – one operated by Ethiopian Airlines on March 10 and another by Lion Air on October 29 – that claimed 346 lives.
Last week, the US Federal Aviation Administration (FAA) said it would set up a Joint Authorities Technical Review team to evaluate the safety of the Boeing 737 MAX. China’s aviation regulator has also invited to join the task force.
China was the first country to ground all Boeing 737 MAX 8 jets.
Boeing is working on a software upgrade to fix the Manoeuvring Characteristics Augmentation System – the anti-stall flight system, but the system is taking longer than expected to be rolled out, according to the FAA.
Meanwhile, Boeing has temporarily cut the production of the MAX jet from 52 a month to 42 as it focuses on the software certification to get the aircraft flying again.
A CALC spokeswoman said that since most of the deliveries to the company were to be made from 2021, “we see little or no impact on our operations”. The lessor has no plan to alter its aircraft orders, she added.
Chen said that they have received assurances from Boeing that “a better solution will be submitted to CALC within two months”, adding that they have not yet discussed compensation.
Chen said both sides are actively seeking a solution to the problem.
“One option being considered is to replace it with other aircraft. But there aren’t too many options,” said Chen.
But he believes that the 737 MAX does not have any serious fundamental problems and that “the software issue can be fixed within months”.
Peter Huijbers, former chief executive of China International Aircraft Leasing Services, said Boeing’s 737 MAX customers were keen to be reassured of the aircraft’s safety after a review by aviation authorities globally.
“Boeing is and has been a very fine and good partner to its aviation customers with a very strong engineering pedigree, and I believe they have all the skill sets to fix the current issue,” he said.
On the cancellation of MAX orders, Huijbers said: “To cancel an existing contract, there needs to be a legally valid reason to do so, and legal firms say that a temporary suspension of the aircraft operation normally should not provide such reason,” he said.
But some airlines such as Indonesian flag carrier Garuda have lost confidence in the MAX. The airline has signalled its intention to cancel its order of 49 MAX planes.
CK Asset Holdings, which has diversified into aircraft leasing through its wholly owned subsidiary Accipiter Holdings Designated Activity and joint venture Vermillion Aviation Holdings, also believes that the 737 MAX safety issue could be settled within months.
CK Asset, however, has not ordered and does not own any MAX jets.
“There are various reasons [for this],” said Gerald Ma Lai-chee, CK Asset Holdings’ general manager of corporate business development. “One is that Airbus has a higher popularity than Boeing according to surveys with our clients. As a lessor, we focus on what our customers need.”
