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Commercial Awareness Update - March 2019!
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<blockquote data-quote="Bugsy Malone" data-source="post: 10381" data-attributes="member: 201"><p><strong><u>2. Boeing under fire for 737 Max fleet ([USER=260]@Abstruser[/USER])</u></strong></p><p></p><p><strong>The story:</strong></p><p></p><p>On March 10, an Ethiopian Airlines aircraft crashed south of Addis Ababa, just 6 minutes after take-off. All 157 passengers on board were killed in the accident. The aircraft was a Boeing 737 Max 8 carrier. The 737 Max is Boeing’s latest range of aircrafts, and only entered service in May 2017.</p><p></p><p>The Ethiopian Airlines incident comes just 5 months after a brand-new 737 Max 8 operated by Indonesian airline Lion Air crashed 12 minutes after take-off, killing all 189 passengers on board. Preliminary investigations into the Lion Air crash revealed issues with the plane’s flight control software shortly after take-off, with the automated system repeatedly pushing the plane downwards despite the pilot’s attempts to gain altitude.</p><p></p><p>In a highly unprecedented move, the Civil Aviation Administration of China ordered its domestic airlines to ‘ground’ and suspend operations of all Boeing 737 Max aircrafts on March 11, despite no official action from the US Federal Aviation Authority (“FAA”), which is the authority responsible for certifying the Boeing 737 Max. Indonesian authorities promptly followed suit. Shortly after, the FAA issued a “continued airworthiness notification” to all international operators of 737 Max aircrafts, insisting on Twitter that there was “no basis to order grounding the aircraft."</p><p></p><p>Despite the FAA’s announcement, aviation authorities in Singapore, Malaysia, Australia and the EU all moved to ground the 737 Max on March 12. On March 13, the FAA gave in to pressure from President Donald Trump and other international authorities, and grounded all 737 Max planes until further notice. Boeing grounded its global fleet of 737 Max planes on 14 March.</p><p></p><p><strong>Impact on businesses and law firms:</strong></p><p></p><p>The Ethiopian Airlines incident prompted a steep sell-off in Boeing shares, with the company losing over $25 billion in market value in the week that followed the incident. The incident has already impacted broader customer confidence in Boeing. Speaking on the 737 Max 8, Indonesian airline Garuda Indonesia stated that “[w]e have lost confidence in the product”, and is currently in talks with Boeing to cancel orders for 20 Boeing 737 Max carriers. Similarly, Malaysian Airlines’ order for 25 Boeing 737 Max planes is now under review.</p><p></p><p>Boeing has since suspended all deliveries of 737 Max carriers, and has announced that it will be fixing future 737 Max aircrafts with a software update. Analysts estimate the fixes to cost $500 million to the company, and around 6 months to implement. According to Morgan Stanley, this is a “worst-case scenario” for Boeing, as the 737 Max currently makes up 70% of Boeing’s commercial production, and accounts for over $600 billion in orders. Some analysts estimate that each month of delay could cost Boeing between $1.8 billion to $2.5 billion in delayed revenue under the current state of affairs. Delayed delivery could also negatively affect Boeing’s supply chain, as it has to make arrangements to store extra components and products that are no longer being used or delivered.</p><p></p><p>For law firms, the financial side-effects of the Max 737’s grounding may prompt airlines to seek damages or compensation from Boeing. Analysts at Morningstar have estimated that airlines are losing up to $75,000 in revenue for every day that the 737 Max remains grounded and inoperable. That figure is likely to rise as summer approaches and airlines receive more travellers. Norwegian Air has already publicly stated that it would seek compensation from Boeing for all revenue lost due to the 737 Max’s grounding. While the legal success of such claims would depend on the specific clauses of each contract, aviation law firm Kreindler & Kreindler stated that “One way or another, whether there's a contractual provision that covers it or not, there are almost certainly going to be claims made against them.” Analysts from JPMorgan estimate that such claims could cost Boeing up to $115 million per month.</p><p></p><p>Quite aside from seeking damages, the delay in deliveries is likely to trigger late delivery clauses for airlines who have already placed 737 Max orders with Boeing. While some airlines may try to use late delivery to cancel delivery altogether, analysts note that it may be impractical for airlines to do so, as the only industry alternative to the 737 Max is the Airbus SE A320, which has no delivery slots available for the next few years. As such, industry seniors have noted that where airlines do not receive an aircraft as promised, it is not uncommon that the planemaker cover the cost of financing. In other words, where airlines have taken out loans to purchase 737 Max aircrafts, Boeing may compensate them for repayments plus interest. However, the exact cost of compensation remains unknown.</p></blockquote><p></p>
[QUOTE="Bugsy Malone, post: 10381, member: 201"] [B][U]2. Boeing under fire for 737 Max fleet ([USER=260]@Abstruser[/USER])[/U][/B] [B]The story:[/B] On March 10, an Ethiopian Airlines aircraft crashed south of Addis Ababa, just 6 minutes after take-off. All 157 passengers on board were killed in the accident. The aircraft was a Boeing 737 Max 8 carrier. The 737 Max is Boeing’s latest range of aircrafts, and only entered service in May 2017. The Ethiopian Airlines incident comes just 5 months after a brand-new 737 Max 8 operated by Indonesian airline Lion Air crashed 12 minutes after take-off, killing all 189 passengers on board. Preliminary investigations into the Lion Air crash revealed issues with the plane’s flight control software shortly after take-off, with the automated system repeatedly pushing the plane downwards despite the pilot’s attempts to gain altitude. In a highly unprecedented move, the Civil Aviation Administration of China ordered its domestic airlines to ‘ground’ and suspend operations of all Boeing 737 Max aircrafts on March 11, despite no official action from the US Federal Aviation Authority (“FAA”), which is the authority responsible for certifying the Boeing 737 Max. Indonesian authorities promptly followed suit. Shortly after, the FAA issued a “continued airworthiness notification” to all international operators of 737 Max aircrafts, insisting on Twitter that there was “no basis to order grounding the aircraft." Despite the FAA’s announcement, aviation authorities in Singapore, Malaysia, Australia and the EU all moved to ground the 737 Max on March 12. On March 13, the FAA gave in to pressure from President Donald Trump and other international authorities, and grounded all 737 Max planes until further notice. Boeing grounded its global fleet of 737 Max planes on 14 March. [B]Impact on businesses and law firms:[/B] The Ethiopian Airlines incident prompted a steep sell-off in Boeing shares, with the company losing over $25 billion in market value in the week that followed the incident. The incident has already impacted broader customer confidence in Boeing. Speaking on the 737 Max 8, Indonesian airline Garuda Indonesia stated that “[w]e have lost confidence in the product”, and is currently in talks with Boeing to cancel orders for 20 Boeing 737 Max carriers. Similarly, Malaysian Airlines’ order for 25 Boeing 737 Max planes is now under review. Boeing has since suspended all deliveries of 737 Max carriers, and has announced that it will be fixing future 737 Max aircrafts with a software update. Analysts estimate the fixes to cost $500 million to the company, and around 6 months to implement. According to Morgan Stanley, this is a “worst-case scenario” for Boeing, as the 737 Max currently makes up 70% of Boeing’s commercial production, and accounts for over $600 billion in orders. Some analysts estimate that each month of delay could cost Boeing between $1.8 billion to $2.5 billion in delayed revenue under the current state of affairs. Delayed delivery could also negatively affect Boeing’s supply chain, as it has to make arrangements to store extra components and products that are no longer being used or delivered. For law firms, the financial side-effects of the Max 737’s grounding may prompt airlines to seek damages or compensation from Boeing. Analysts at Morningstar have estimated that airlines are losing up to $75,000 in revenue for every day that the 737 Max remains grounded and inoperable. That figure is likely to rise as summer approaches and airlines receive more travellers. Norwegian Air has already publicly stated that it would seek compensation from Boeing for all revenue lost due to the 737 Max’s grounding. While the legal success of such claims would depend on the specific clauses of each contract, aviation law firm Kreindler & Kreindler stated that “One way or another, whether there's a contractual provision that covers it or not, there are almost certainly going to be claims made against them.” Analysts from JPMorgan estimate that such claims could cost Boeing up to $115 million per month. Quite aside from seeking damages, the delay in deliveries is likely to trigger late delivery clauses for airlines who have already placed 737 Max orders with Boeing. While some airlines may try to use late delivery to cancel delivery altogether, analysts note that it may be impractical for airlines to do so, as the only industry alternative to the 737 Max is the Airbus SE A320, which has no delivery slots available for the next few years. As such, industry seniors have noted that where airlines do not receive an aircraft as promised, it is not uncommon that the planemaker cover the cost of financing. In other words, where airlines have taken out loans to purchase 737 Max aircrafts, Boeing may compensate them for repayments plus interest. However, the exact cost of compensation remains unknown. [/QUOTE]
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