Lion Air ponders cancelling Boeing jets in row over crash

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Lion Air ponders cancelling Boeing jets in row over crash

Unread post by bimjim » Tue Dec 04, 2018

https://www.reuters.com/article/us-indo ... SKBN1O21UD

Exclusive: Lion Air ponders cancelling Boeing jets in row over crash - sources
Tim Hepher, Cindy Silviana
DECEMBER 3, 2018

PARIS/JAKARTA (Reuters)

Indonesia’s Lion Air is reviewing airplane purchases from Boeing Co and has not ruled out cancelling orders as relations worsen in a spat over responsibility for a 737 jetliner crash that killed 189 people in late October, sources told Reuters.

Group co-founder Rusdi Kirana is furious over what he sees as attempts by Boeing to deflect attention from recent design changes and blame Lion Air for the crash, while the airline faces scrutiny over its maintenance record and pilots’ actions, said the people, who have knowledge of the matter.

Kirana is examining the possibility of cancelling remaining orders of Boeing jets “from the next delivery”, according to one of the sources who is familiar with his thinking. Another source close to the airline said it was looking at cancelling orders.

Kirana, a former group CEO who now serves as Indonesia’s ambassador to Malaysia, remains closely involved with Lion Air and hosts a monthly meeting in Kuala Lumpur with the heads of the group’s airlines based in Indonesia, Malaysia and Thailand, according to the second person and an industry source.

No final decision been made by Lion Air, but discussion over the fate of $22 billion of remaining orders highlights the stakes surrounding an investigation involving Boeing’s fastest-ever selling jet, the 737 MAX, which entered service last year.

Lion Air has 190 Boeing jets worth $22 billion at list prices waiting to be delivered, on top of 197 already taken, making it one of the largest U.S. export customers.

Any request to cancel could be designed to put pressure on Boeing and may require lengthy negotiations. Many airlines defer orders, but industry sources say aerospace suppliers rarely allow much scope for unilateral cancellations.

Lion Air declined to comment. It was also not immediately clear how much of the airline is owned by Kirana.

A Boeing spokesman said: “We are taking every measure to fully understand all aspects of this accident, and are working closely with the investigating team and all regulatory authorities involved. We are also supporting our valued customer through this very tough time.”

MAINTENANCE, SOFTWARE

Kirana, who co-founded the airline with his brother in 2000, ordered the review of airline purchases in response to Boeing’s statement last week focusing attention on piloting and maintenance topics, the person said.

Boeing released the statement focusing on maintenance actions spread over four flights in the run-up to the fatal flight on Oct. 29, after investigators issued an interim report that did not give a cause for the crash.

Boeing is also examining software changes in the wake of the crash, while insisting longstanding procedures exist for pilots to cancel automated nose-down movements experienced by the 737 MAX in response to erroneous sensor readings.

It has come under fire from U.S. pilots for not mentioning the MCAS system - a modification of existing anti-stall systems - in the manual for the 737 MAX, which began service last year.

“Why are they changing (software) if there was nothing wrong?” the person familiar with Kirana’s thinking said.

Boeing has said all information needed to fly the 737 safely is available to pilots and that its workhorse model is safe.

Bankers and some analysts say Lion Air and Southeast Asian rivals over-expanded and would be comfortable with fewer orders.

But the row highlights an unusually polarized dispute over the causes of the crash. Experts say most accidents are caused by a cocktail of factors and parties rarely comment in detail before the final report, which often follows a year of analysis.

In its statement, Boeing recapped the interim report and listed questions on maintenance and pilot behavior that it said remained unanswered in the 78-page document, but did not mention the MCAS modification covered in an earlier safety bulletin.

It is not the first time an airline has crossed swords with its supplier after a crash.

Lion Air’s rival AirAsia Group Bhd clashed with Airbus SE after its Indonesian subsidiary lost an A320 in 2014. It continued to take deliveries, but relations never fully recovered and it later toyed with buying 787s from Boeing.

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Re: Lion Air ponders cancelling Boeing jets in row over crash

Unread post by bimjim » Thu Dec 06, 2018

https://www.bloomberg.com/news/articles ... ing-orders

‘Betrayed’ Lion Air Preparing Documents to Cancel Boeing Orders
Harry Suhartono and Julie Johnsson
December 5, 2018

Lion Mentari Airlines’ owner threatened to cancel $22 billion in aircraft orders from Boeing Co., saying the planemaker’s response to an accident report for a recent deadly crash unfairly implicated his carrier.

“I feel betrayed,” the Indonesian carrier’s co-founder, Rusdi Kirana, said by telephone Wednesday. “I’m preparing documents to propose cancellations. Everything is still under consideration now.”

The rupture between airline and planemaker is particularly striking since a Lion subsidiary was the launch customer for the Max, taking the model’s initial delivery in May 2017. Lion is the third-largest buyer of the updated 737, behind Southwest Airlines and Flydubai. The carrier is slated to get seven of the jetliners next year, followed by 24 in 2020 and 35 the following year, said George Dimitroff, head of valuations for Flight Ascend Consultancy.

“Lion Air is a valued customer and we are supporting them through this difficult time,” Boeing said in a statement. “Our hearts go out to everyone who has been impacted by this, and safety remains our number one priority. We are taking every measure to fully understand all aspects of this accident, and are working closely with the investigating team and all regulatory authorities involved.”

Questions surrounding the crash of a two-month-old 737 Max have hovered over the Chicago-based manufacturer and weighed on its shares. The stock has declined 4.7 percent since the Oct. 29 accident, which killed all 189 people aboard. U.S. pilot unions have questioned why flight crews weren’t alerted to new anti-stall software installed on Boeing’s newest models of the 737, a single-aisle workhorse that is the company’s biggest source of profit.

The preliminary report last month from Indonesia’s transportation safety commission didn’t specify the cause of the tragedy, but contrasted how pilots handled confusing anti-stall warnings on the final two flights and recommended that Lion Air improve its safety culture.

Boeing responded with a lengthy statement summarizing details of the plane’s final flights and maintenance issues. The communique didn’t mention the new system on the 737 Max, which was activated by erroneous data from a sensor and repeatedly tilted the plane’s nose downward as pilots battled for control.

Meanwhile, India’s Directorate General of Civil Aviation, the regulator, has asked Jet Airways (India) Ltd. and SpiceJet Ltd. to advise their pilots to land 737 Max planes in case of the jet showing or developing problems regarding the ‘Maneuvering Characteristics Augmentation System’ during a flight, a top official said on Thursday, asking not to be identified.

Pilots must proceed to land at the nearest airport instead of attempting to complete the flight, the official said.

U.S. pilot unions have criticized Boeing for not mentioning the flight-control software, known as the MCAS in flight-crew manuals or training for the Max.

“Ethically, nobody should give their opinion to the preliminary report,” said Kirana, who’s also Indonesia’s ambassador to Malaysia. “I’m one of their biggest buyers. Right now we are in a difficult situation. As a partner, they should have helped, not give a negative impression on us.”

The airline’s potential cancellation of Boeing orders was reported earlier by Reuters.
‘Ambitious’ Growth

Airlines can’t unilaterally scrap aircraft purchase agreements, however. Boeing and Airbus SE typically won’t agree to cancel orders or postpone deliveries without lengthy negotiations over the financial penalties for the buyer.

“We will deal with the consequences later, whatever they are,” Kirana said.

The public critique may strengthen Kirana’s hand in future talks if Lion Air decides to trim an order book that is among the aviation industry’s largest. The fast-growing carrier has 368 undelivered aircraft on order from Boeing and Airbus, more than triple the fleet of 117 jetliners that it operates.

“This is something to watch,” JPMorgan Chase & Co. analyst Seth Seifman said in a note to clients Wednesday. “But it is far from clear Lion will follow through, and its growth plans had always looked ambitious. More important to us is that global airlines continue taking delivery” of Max planes.
Order Book

Lion Air has 188 pending orders for the 737 Max, two for the stretched 737-900ER and 178 orders for Airbus A320neo family models. The company operates in one of the toughest air-travel markets on the globe, where airline profits have been pressured by a glut of capacity, said George Ferguson, an analyst with Bloomberg Intelligence.

“If you’re Lion Air, this is a great opportunity to maybe right-size an order book that you got a little aggressive on,” Ferguson said.

So far, the controversy over the accident doesn’t seem to have dimmed perceptions of the Max, said Dimitroff of Flight Ascend Consultancy, which tracks aircraft sales and leasing activity. But finding other airlines to step into Lion’s delivery slots could create headaches for Boeing.

“While the 2019 seven might be manageable, the order stream after that could be quite challenging to remarket,” Dimitroff said by email.

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