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China's big three airlines seek Boeing compensation over 737 MAX grounding

Stock MarketsMay 22, 2019 04:50AM ET
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© Reuters. FILE PHOTO: Boeing logo LABACE in Sao Paulo

By Stella Qiu and Brenda Goh

BEIJING (Reuters) - China's three biggest airlines have asked U.S. planemaker Boeing (NYSE:BA) Co to compensate them for losses caused by the grounding and delayed deliveries of 737 MAX jets, just as regulators gather to discuss design changes for the troubled aircraft.

The triple compensation requests come at a sensitive time in Sino-U.S. relations, with a string of tit-for-tat import tariffs culminating in Washington accusing Beijing of backtracking on almost all aspects of a proposed trade deal.

The U.S. administration's latest tariff increase on $200 billion worth of Chinese imports - and hints of more - has prompted fear that China could retaliate against U.S. companies.

On Wednesday, Air China Ltd and China Southern (NYSE:SO) Airlines Co Ltd told Reuters the pair have added their voices to a compensation request from China Eastern Airlines Corp Ltd announced a day earlier.

The latest requests were first reported by Chinese state TV.

China was the first country to ground the 737 MAX two months ago after a crash in Ethiopia killed 157 people in March, in the second such incident for Boeing's newest aircraft.

"China has grounded 96 aircraft, which is about 4 percent of its airplanes. The grounding causes huge losses for Chinese airlines," China aviation expert Li Xiaojin told Reuters.

Daily losses are likely to be at least 100,000 yuan ($14,469.90) per aircraft for each airline, Li estimated.

"The potential costs are huge too. Slower growth in passenger volume across China's major airports for March and April was largely due to the grounding of 737 MAX jets, according to my calculations," Li said.

China's state-asset regulator put the number of 737 MAX jets operated by the three biggest Chinese carriers at 53.

Outside of China, carriers that have requested compensation include Turkish Airlines, United Airlines, Ryanair and Flydubai.

COORDINATED EFFORT

Bloomberg last week reported the big Chinese airlines were considering teaming up to seek compensation. On Tuesday, state newspaper People's Daily said China Eastern had not communicated with the other carriers on the topic before making its request. China Eastern confirmed the content of that report to Reuters.

On Wednesday, however, widely read tabloid Global Times reported that the action appeared to be a "concerted effort".

"China seems to be ready now to put more pressure on Boeing as the company happens to have a genuine safety issue, and the trade friction between the U.S. and China started to go into a downward spiral," Global Times quoted Shen Yuxin, a partner at law firm Freshfields Bruckhaus Deringer, as saying.

The latest compensation requests also come a day before the U.S. Federal Aviation Administration hosts global regulators in Dallas to review 737 MAX software and training proposals from Boeing before regulators decide whether to end the grounding.

China and the European Union each have their own aerospace industries and so are likely to determine their own conditions for allowing 737 MAX flights to resume, analysts said.

The International Air Transport Association has also convened a meeting of airlines with grounded 737 MAX jets on Thursday in Montreal.

($1 = 6.9109 Chinese yuan renminbi)

China's big three airlines seek Boeing compensation over 737 MAX grounding
 

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