“The order is no longer there.”
That simple statement, attributed to China Southern‘s UK and Ireland key account manager Dean Saxby, appears to leave the carrier’s future deliveries of the 737 MAX dead. The comment was made at a breakfast briefing in London this morning.
UPDATE (15:00 EDT 31 July 19): The statement in question is now claimed to be a misquoted remark. That removes most of the speculation about the future of the order, though not necessarily all of it. Potential options for the future state remain fluid as the recertification process continues. The original story continues below, because some of that discussion remains interesting, even if the order is not really dead (in public) yet.
The carrier owns 26 of the type today and with an additional 64 on order. While several airlines have suggested that they might cancel or that they had concerns about the future of the type this appears to be the first airline that has stated outright that it will not take the additional aircraft since the grounding.
But the comment also lacked much in the way of detail or clarification. Why would a middle-manager in the UK be making such announcements, for example?
Saxby did, however, confirm that the carrier is able to run its operation without the 26 grounded MAX planes. The other 800+ planes in the fleet, along with some new deliveries, are picking up the slack.
Paying the Penalties
Typically an order cancellation comes with significant financial penalties. As reported in The Air Current earlier this month, the contracts offer airlines an out for cancellation when the deliveries are six months delayed. This would not be sufficient for China Southern to scuttle its entire 64-frame backlog immediately, however, as the delivery timing of those planes is not all within the narrow time window.
Moving from an individual aircraft cancellation without penalty to a full order book scrubbing is a significant step, both for the airline and for Boeing. But it is also not unprecedented that future state orders are shifted, adjusted and swapped without penalties applying. Order deposits from the 737 MAX could transition to 787 or NMA frames, for example, when China Southern makes a future fleet order. American Airlines made a similar shift with its now-scuttled A350 order, picking up additional single-aisle Airbus family aircraft instead.
An alternate view
Maybe there is some confusion embedded in Saxby’s comments. Maybe the order isn’t truly dead. Or maybe the future state was not supposed to be shared just yet. Maybe this is a (terribly awkward) attempt to negotiate for future compensation and concessions through public comments rather than in private.
Indeed, it is highly unlikely that a formal order cancellation has been submitted and processed yet. The penalty situation alone makes that idea bad business for everyone. But that doesn’t mean the intention is not there from company management. And that correlates well with reports from Boeing’s media relations team that the cancellation news is inaccurate. Where along the timeline of such a move does the situation sit right now??
There are still plenty of ways this situation could play out. Maybe the planes are delivered but leased to another airline rather than operated by China Southern. Maybe it is just a deferral eventually. Maybe it is just that the route planning team is not currently accounting for the planes in the fleet because the timing of their return to service is so opaque.
But the fact that someone of his rank was willing to comment publicly on the topic in such a blunt manner definitely bears consideration.
Does it matter?
With just under 5,000 737 MAX aircraft on order (officially the order book crossed 5,000, but that included a large number from Jet Airways that must now be discounted), the loss of 64 frames from the backlog is a relatively small blip for Boeing. Aircraft manufacturers often oversubscribe their delivery schedule a bit, knowing that airline needs will shift and that new orders might pop up. Indeed, European conglomerate IAG signed an MoU for 200 of the type recently, with delivery timings that make this sort of shift mildly useful to Boeing. In that context this could be seen as a non-event for the aircraft manufacturer.
It also, however, could be seen as the canary in the coal mine. Most airlines with 737 MAX orders outstanding are avoiding too much in the way of direct public comment. They talk about awaiting information from regulators and that they’ll negotiate compensation claims as deliveries resume. Planning too much now for an uncertain future timeline makes little sense. If comments like this one from China Southern start to multiply and spread to other carriers, the news could quickly turn much worse for Boeing.
The company already accounted for billions of dollars in costs related to the grounding and fixing the broken planes. Those numbers are likely to grow anyways but airlines walking away will exacerbate the effect.
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Jet Airways, Garuda, Flyadeal and now China Southern. Can’t see Lion Air nor Ethiopian taking any more Max’s either.
BTW – that LOI from IAG was just a ploy to sooth investors. No one even knew there was a need for these aircraft and Airbus wasn’t even approached for a counter bid – which NEVER happens. They always shop around, just to play one off against the other, “Hey! That dealer is giving me floor mats, A/C and winter tires at no additional charge – will you match it?”
Seth Miller says
Jet doesn’t really count; the company went out of business. The others remain just as unclear as this China Southern story.
There will be some cancels. There will be new orders. The bigger risk to Boeing in China IMO is the C919. If they really get production standards up to snuff and start rolling those out the order book could shift pretty quickly.
The Jetset Boyz says
And in recent days IAG have apparently said they’d like their first Boeing 737 MAX aircraft delivered in 2022.
They’ve not yet ordered the aircraft – they’ve only issued a letter of intent – so will be interesting to see what becomes of this ‘order’ or if it’s just a play to get other airlines & passengers have more confidence in the aircraft or to get Airbus to give them an amazing deal on their next order? Time will tell.