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China Airlines Enterprise Collective Claim Boeing: How is the loss of 4 billion yuan affected?

via:CnBeta     time:2019/5/29 8:01:41     readed:146

What is the basis for Chinese air transport companies to claim from Boeing? How big is the loss caused by the Boeing 737 MAX flight to Chinese air transport companies? What is the impact on China's civil aviation industry? This has become a topic of concern to the industry and the public.

On May 27, the 澎湃 journalist contacted Professor of the Law School of Civil Aviation University of China, Director of the Center for Aviation Law and Policy Research, Yang Hui, Secretary General of the Aviation Law Research Society of the Chinese Law Society, and Hu Huaqing, Dean of the Civil Aviation Development Research Institute of the Academy of Aeronautics and Astronautics. The above questions are specifically analyzed.

Why is the Chinese airline’s claim against Boeing?

Regarding the basis for Chinese air transport companies to claim against Boeing, Yang Hui said that the suspension and delayed delivery of the Boeing 737 MAX aircraft caused significant losses to the capacity, production operation, flight support and economic benefits of the airline fleet of China. In accordance with international practice and the relevant legal provisions of the Contract Law, the Product Quality Law, etc., if Boeing does not perform the relevant contractual obligations due to the 737 MAX grounding event, it shall be liable for breach of contract, such as continued performance, remedial measures or compensation for losses. Losses caused by Boeing's default, including the revenue available to airlines after the aircraft is delivered. The Chinese airline’s claim to Boeing is reasonable and lawful.

Then, in the purchase contract signed by China’s air transport companies and Boeing, how do you define the scope of Boeing’s compensation?

In this regard, Yang Hui believes that Boeing is one of the two major civil aircraft manufacturers in the world. The civil aviation aircraft market is the seller's market. Boeing is in an advantageous position when it comes to signing contract terms. This possibility is not ruled out. At present, the purchase contract signed by China Airlines and Boeing Company lacks compensation clauses for the loss caused by the manufacturer's own reasons, such as grounding and delayed delivery. The contract may further protect the seller's rights. In order to reflect the principle of fairness, our airline has the right to request Boeing to make reasonable compensation.

At present, 13 airlines operating 737MAX 8 in China have filed a formal claim with Boeing, and the collective claim against Boeing is relatively rare.

In this regard, Yang Hui said that in recent years, China's civil aviation has developed rapidly, and the airline's development strategy and development plan are more rational. The collective claim to Boeing Company is rare, but it is reasonable and legal. In fact, other international airlines, such as Norwegian Airlines and Turkish Airlines, are also or are planning to claim from Boeing. Chinese air transport companies claim from Boeing that they will urge aircraft manufacturers to be more cautious in aircraft R&D and production processes to ensure product quality and maintain a safe lifeline.

How much is lost by the Chinese aviation company due to the grounding event?

Up to now, China Airlines has operated a total of 96 737 MAX 8 models.

Since the two aircraft of the same type have crashed in succession, the 737 MAX has been grounded for more than two months since the 737 MAX was grounded worldwide. Although many aviation companies in China have chosen to adjust the aircraft to low temperature and dry areas for parking and storage, it still cannot avoid the losses caused by factors such as long-term parking and undeliverable orders.

At present, more than 1/4 of the world's Boeing aircraft are delivered to the Chinese market. China's air transport companies are the largest users of the 737MAX aircraft, and the losses caused by this incident are also the biggest. At present, all relevant airlines are stepping up their calculations for their losses.

According to Hu Huaqing, after the 737 MAX 8 was grounded in 2019, it is expected that the number of flights affected will be 36,769 in the first half of the year, with a traffic volume of 5,517,800. By the end of December, the number of flights affected was 97,175, with a traffic volume of 13,631,400. According to the original plan, 67 aircraft will be delivered in the first half of the year and 65 aircraft will be delivered in the second half of the year. It is estimated that the total number of flights affected will be 62,166 in the first half of the year, with a traffic volume of 8,704,400. By the end of December, the number of flights affected was 202,770. 28.44 million people.

For the specific losses caused by the B737 MAX grounding incident to Chinese air transport enterprises, Hu Huaqing analyzed that the loss of the Boeing 737 MAX 8 aircraft can be mainly caused by marginal contribution loss (or opportunity cost), aircraft storage and decoupling loss and pending delivery. Aircraft related losses.

Specifically, the marginal contribution refers to the balance after the company's sales revenue minus the variable cost (air fuel consumption, engine maintenance fee, landing fee, etc.). (Opportunity cost refers to another opportunity for an enterprise to abandon another business activity in order to engage in a certain business activity, or to abandon certain resources to obtain certain income.)

The cost of aircraft storage and deblocking is that after the Boeing 737 MAX 8 aircraft is grounded, the airline must complete the dynamic storage of the aircraft and the engine according to the requirements of the technical manual. During the storage period, it is necessary to perform repeated inspections and periodic inspections on all the sealed aircraft. Before the operation, it is necessary to carry out related recovery inspections such as unsealing to keep the aircraft in an airworthy state.

Loss of aircraft to be delivered means that the airline must pay a certain percentage of the advance payment before the aircraft is delivered. The aircraft acts as an important asset of the airline, such as failure to deliver the damage to the airline's assets on time.

In addition, it can also be measured according to direct losses and indirect losses caused by aircraft grounding. For example, direct losses include: aircraft depreciation and operating lease or financing lease fees, supplementary capacity rentals floating 10%-20%, aircraft airworthiness maintenance and storage costs , parking fees, staff salaries and other fees. Indirect losses are the expected loss of revenue of the airline.

Hu Huaqing said that it is estimated that if the aircraft is grounded until the end of June 2019, the total amount of delivered and pending aircraft will be about 4 billion yuan; if it is grounded until the end of December 2019, the total number of delivered and pending aircraft will be about 13.2 billion yuan.

Then, at a more macro level, what impact will the Boeing 737MAX grounding event have on China's civil aviation industry?

In this regard, Hu Huaqing believes that this incident led to the suspension of 96 aircrafts of China's air transport enterprises. According to the airline's original aircraft introduction plan, it is expected that in 2019, our airline will introduce more than 130 Boeing 737 MAX aircraft. The grounding caused the airlines to be tightly transported, and the flights were cancelled a lot, which caused inconvenience to passengers. The stop aircraft occupied the parking space, resulting in a decline in airport support capacity and operational efficiency. Affected by this, in April this year, there were negative growth in passenger throughput of 10 tens of millions of airports in China, and the economic efficiency of airlines declined, causing the industry to slow down.

Hu Huaqing emphasized that in this incident, Chinese air transport enterprises hope that Boeing Company will rationally treat the legitimate and legitimate claims of Chinese air transport enterprises, and have the responsibility to act and propose practical and feasible compensation solutions and timetables to assist Chinese air transport enterprises to be proper. Solve the losses caused by the grounding event.

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