Complex Made Simple

Boeing stands to lose flydubai orders for 737 MAX aircraft?

The American plane maker is losing face with flydubai following two deadly crashes. flydubai is a $27 billion customer, and not one Boeing would want to upset.

“Communication with Boeing could be better. We want to know exactly what’s happening" - flydubai and Emirates Group chairman Sheikh Ahmed bin Saeed Al Maktoum Sheikh Al Maktoum said that Airbus is still an option on the table flydubai might have a bigger concern than just the 737 Max controversy to contend with

Low-cost airline flydubai has received 14 Boeing 737 Max aircraft from a total 250 plane order worth $27 billion. The thing is, they’ve been collecting dust on the tarmac, grounded following two international tragedies where the model in question crashed.

With no end in sight for the grounding order, and with 17% of their seating affected, flydubai has shifted its focus to a rival airline to bring it liftoff: Airbus. 

Boeing is losing face

Boeing has been having a few rough months. Ever since the Lion Air crash in October last year, Boeing has been under the microscope for its seemingly faulty 737 Max 8 aircraft. Suspicions were reaffirmed when another airline flying the 737 Max plane also crashed in March this year. The Ethiopian Airlines tragedy has led to several airlines grounding their inventories of the relatively new 737 Max’s.

Of those affected has been flydubai, the region’s number one customer of 737 Max aircraft in the Middle East, and 2nd in the world. Their entire fleet of 14 current 737 Max 8s and 9s have had to be grounded.

Now, flydubai has addressed the issue.

According to Bloomberg, flydubai and Emirates Group chairman Sheikh Ahmed bin Saeed Al Maktoum said on the matter at the 2019 Arabian Travel Market (ATM) that “Communication with Boeing could be better. We want to know exactly what’s happening, the details. There are still areas that aren’t being answered 100 percent yet.”

He told reporters at the event that flydubai has a “right” to seek compensation from Boeing for the groundings.

It is suspected that the two 737 Max crashes had been caused by a faulty MCAS (Maneuvering Characteristics Augmentation System). A fix will reportedly be tested by next week, a Boeing spokesperson said on Monday. 

Naturally, flydubai has suffered. Speaking to CNBC at the ATM in Dubai, Sheikh Al Maktoum said that the grounding of 737 Max airplanes has cost flydubai a “lot of profitability.” Speaking to Gulf News, flydubai CEO Ghaith Al Ghaith said that 17% of the airline’s seats have been affected by the groundings. 

Shiekh Al Maktoum added that with more than 100 Max 8 planes currently on order, he couldn’t “sit and do nothing.” As such, he is now considering turning to Airbus for similarly sized aircraft options, such as the Airbus A320.

“That gave me an option to talk to Airbus to see what exactly will happen because you have to understand until today we don’t have a definite date when this aircraft will be flying,” Sheikh Ahmed told reporters, as reported by the National. “I cannot just not do anything about it.”

Saj Ahmad, Chief Analyst at StrategicAero Research, shared a differing opinion in a statement to AMEinfo last month.

“It is highly unlikely that flydubai will either cancel or defer orders,” Ahmad said. “The costs would be immense and equally, the airline wouldn’t exactly be able to knock on Airbus’ door and get new airplanes any faster.”

“Schedules for airlines build in provisions for either airplanes stranded due to technical issues etc, so there will be ample buffer in flydubai’s scheduling to cycle the existing 737-800 fleet to compensate.”

737 Max controversy least of flydubai’s concerns?

On the other hand, the low-cost airline’s CEO Ghaith Al Ghaith has shown renewed faith in the American plane maker, pointing out bigger issues.

“We are full of confidence that the plane will be back and will return as the safest plane in the world because it will undergo many procedures,” Al Ghaith told The National.

Al Ghaith singled out a larger issue for the airline: “Fuel has a bigger impact than anything else such as, in our case, the Maxs.”

In February, the airline posted similar losses. The culprit behind the 2018 decline was none other than rising fuel costs.

Francois Oberholzer, Chief Financial Officer of flydubai, commented on the report, saying: “Our performance in 2018 was impacted largely due to increasing fuel costs, rising interest rates and unfavourable currency exchange movements.” Fuel costs were 29.8 % of total annual operating costs compared to 25% for the same period as last year.

According to the report, total operating cost includes a price impact of $112 million due to a 31% increase in the Average Brent Crude Oil prices over the same period in 2017.

Flydubai has enjoyed some reprieve this week, however. It was named the “Best Low-Cost airline serving the Middle East” at this year’s Business Traveller Middle East Awards, which was held during the ATM.