Airlines: Choosing the 737MAX

If you were at Etihad today, or running an airline, would you take on the MAX? Let’s say that Boeing fix it and upgrade the software, again and FAA approve it. Would you take that aircraft?

You’re getting this confluence of all these different factors. First of all, usually, a contract is pretty hard to get out of. However, usually, in the contracts, there are reasons that, if the manufacturer doesn’t deliver within a specific time period, you have a right to get out. Some people might not have that in their contract, which makes life pretty difficult for them. But if you had that, you’re going to be tempted to look pretty hard at it. With fuel at the price that it is at the moment, and god knows what the demand of the network is, you’re going to be very careful about wanting to add anything to your fleet requirements.

If I were in any situation, at the moment, I’d hold off any obligation I could get out of, until I could get a better view. That’s always what happens. Then you get this tipping point. The tipping point comes when everyone thinks, we’re on again. Then they all go running off after whatever they can get, and prices start going up. You’ve got to be a very fine judge and, usually, you can afford to take risks if you’ve got a lot of capital. If you don’t have a lot of capital, you’ve got to be careful.

On the MAX issue, what is the time period, typically, in these contracts, where you can leave the contract with no penalty?

Usually, between one and two years.

So we’re getting into that period, now, for the MAX. I think they were grounded March 2019?

Yes, you’re right. I think it was March 14th 2019. A lot of it is triggered and you’ve seen that people have started exercising that. What Boeing needs, is the FAA, the Federal Aviation Authority of America, to come out and say that the aircraft is fine. But another issue that has happened in the industry, is that because the FAA approved in originally, a lot of governments or their aviation authorities – who have always treated the FAA as the gold standard of the industry – have said, we’ve gone along with you in the past. Maybe we’re going to make a bit of a more self-informed decision, in the future.

The original intention was that everybody could go, hey, the FAA has done it, let’s go. Now people are saying, we’re going to be participating in this. You’re getting this big grouping of governmental authorities, all wanting to be involved. It might not happen in one go. It might be that some people aren’t willing to or take longer or have their own due process, which is their right.