PT Garuda Indonesia aircraft stand on the tarmac at Soekarno-Hatta International Airport in Cengkareng, near Jakarta, Indonesia. (Photographer: Dimas Ardian/Bloomberg)

Indonesia Carrier Will Still Take Boeing 737 Max Jets After Lion Air Crash

(Bloomberg) -- Indonesian flag carrier Garuda will keep taking deliveries of Boeing’s 737 Max jet, giving the new aircraft a vote of confidence while local rival Lion Air threatens to cancel its $22 billion order after suffering a plane crash in October.

“Our Max jet has been performing well, we have no significant issue with it,” PT Garuda Indonesia President Director I Gusti Ngurah Askhara Danadiputra said in an interview in Jakarta Thursday. The state-owned airline has one Max aircraft in its fleet and is due to take 49 more through 2030.

While Garuda isn’t one of the biggest customers of Boeing Co.’s newest model of the 737, its support is coming at a time when questions surrounding the crash of a two-month-old Max belonging to PT Lion Mentari Airlines have hovered over the Chicago-based manufacturer and weighed on its shares. U.S. pilot unions have also questioned why flight crews weren’t alerted to the plane’s anti-stall software, a feature that has been the focus of investigations into the Oct. 29 accident that killed all 189 people on board.

India’s Directorate General of Civil Aviation, the regulator, asked the country’s two operators of the Max jet to advise their pilots to land the jets in case it showed or developed 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.

What’s Next?

  • Garuda has delivery of three jets in 2020, Danadiputra said.
  • “We will wait for the final accident report. We will see what was the problem and if there are any repairs or recalls required we will follow it through,” Danadiputra said about the investigation into the Lion Air plane crash.
  • Garuda plans to start flying to Istanbul early next year with a possible connection to major European cities. The carrier plans to fly to the U.S. from Seoul in the second quarter of next year.

Fleet Review

  • Danadiputra said Boeing’s 787 Dreamliner might be an ideal option for the new destinations as the carrier would prefer to have smaller size jets for some routes and fill up the entire aircraft
  • Garuda is currently doing a review on its fleet requirement as the carrier now has to manage planes from Sriwijaya Air, which recently entered into an operational agreement with Garuda’s low-cost-carrier unit Citilink
  • Danadiputra said Garuda is experiencing a shortage in planes of the size of Boeing 777, but hasn’t made a decision on whether they want to add more such jets.

Earnings Improvement

  • Garuda expects to reduce 2018 net loss to less than $50 million from an earlier guidance of less than $100 million and the state-owned carrier is aiming to achieve 1 trillion rupiah ($69 million) net income next year.
  • Garuda has reached a new agreement with its lessors to extend the contract for its narrow-body jets to an average of 16 years from 12 years and for wide-body jets to 20 years from 16 years. This has allowed Garuda to reduce the monthly rental on its aircraft by 10 percent to 30 percent.
  • The carrier has been adding more frequency on certain routes as customers from Lion Air switch to Garuda after the rivaling airline suffered the fatal crash, Danadiputra said.

©2018 Bloomberg L.P.