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Wednesday, October 20, 2021

Simply Put: Trade wars, taken to the MAX

Among countries that have grounded B737 MAX 8 after crash, many were targeted in US trade policies. A look at how these moves are a manifestation of trade wars as well as rivalry between plane-makers.

Written by Pranav Mukul , Anil Sasi | New Delhi |
Updated: March 14, 2019 1:24:05 pm
boeing 737, boeing 737 max 8 aircraft, boeing 737 banned, india bans boeing 737, ethiopian air crash, ethiopian airlines crash, boeing 737 max, boeing 737 max ban, indian express A seal is seen on Garuda Indonesia’s Boeing 737 Max 8 airplane parked at the Garuda Maintenance Facility AeroAsia, at Soekarno-Hatta International airport near Jakarta, Indonesia, March 13, 2019. (REUTERS/Willy Kurniawan)

A global outcry over safety concerns involving the Boeing 737 MAX aircraft over the last three days comes amid the strong undercurrent of tension involving the United States’ trade relations. While the domino effect that led to scores of countries grounding or banning the plane in their airspace was put into motion by China, the latest in the long list of grounding announcements came from Canada, which was among the first countries to face the heat from the trade policies of US President Donald Trump.

On Monday, the first to ground Boeing’s flagship narrow-body aircraft was China’s Civil Aviation Administration, which said that its decision was in line with the principle of “zero tolerance for security risks”. China, which is also on the path to build its own passenger jet, has one of the largest 737 MAX fleets with 97 planes. US negotiations with China to end the tariff war between the two countries have entered a critical phase, and according to news reports quoting US trade representative Robert Lighthizer, talks with Beijing have probably entered their “final weeks”.

China’s move to ground the planes was followed by major aviation markets of the world, including the European Union, the UK, India, the UAE, South Korea among over 15 other countries. All of the countries cited safety concerns with the Boeing airliner.

Read | Boeing’s new 737 Max jets under scrutiny following Ethiopian Airlines crash

After the European Union’s aviation safety regulator EASA Tuesday suspended all flights on the Boeing 737 MAX aircraft in the bloc, only the US and Japan were left allowing the aircraft to fly among the world’s top 10 countries by air passenger travel. While safety concerns are the primary trigger point for global regulatory action against the B737 MAX, all this has also pitched the US against some of the trading partners targeted by the Trump administration, especially China and the EU.

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Boeing and Airbus

This trend is also being seen as a broader manifestation of the rivalry in the passenger jet segment, where Boeing and Airbus enjoy a cosy duopoly. The latest rivalry between the two companies has come on the narrow-body battlefield where the 737 MAX has been pitted against Airbus A320neo. So far, 5,012 Boeing 737 MAX aircraft have been ordered, of which the plane-maker has delivered 376. Airbus, on the other hand, received orders for 6,501 aircraft of A320neo, A319neo and A321neo models. The French company has delivered 687 of these.

Less than 10 months prior to the grounding of the B737 MAX by the EASA and 15 other countries, the World Trade Organization (WTO) had ruled that the EU had failed to comply with requests to end subsidies for Airbus. The US Trade Representative (USTR) had, immediately after the May 2018 ruling in the WTO dispute that began over 14 years ago, said the verdict proved that European countries had extended $22 billion in subsidies to Airbus to help launch its wide-bodies A380 and A350 jets, triggering losses for Boeing. Airbus is also waiting for the outcome of a similar WTO case challenging US government support for Boeing.

READ | Behind crashes that killed 346: Problem with Boeing 737 MAX

Further, US aviation authority FAA’s stand against grounding of the aircraft, at a time when almost the entire world has banned it, is also being seen as a threat to credibility of the regulator that is considered to be the a benchmark for regulatory authorities across the world. India was one of the later participants to the grounding bandwagon, but said that groundings happened after its communications with the American manufacturer and the FAA, which is the certifying authority of the 737 MAX, failed to satisfy the Directorate General of Civil Aviation.

In a statement, the FAA said that its review revealed no evidence to warrant the groundings nor could any of the other regulators provide it with any reason behind their actions. It is noteworthy that the American safety watchdog, in 2013, had ordered grounding of Boeing’s wide-body 787 aircraft after it was discovered that the plane’s lithium ion batteries could potentially catch fire. Announcing Canada’s decision to ground the 737 MAX aircraft on Wednesday, the country’s transport minister Marc Garneau said that the move was based on “new data”.

Boeing & US govt

Hours before the FAA reiterated that US flights of the Boeing 737 MAX planes would continue service, US President Donald Trump had reportedly called Boeing CEO Dennis Muilenburg to discuss the safety aspects the 737 MAX plane that crashed in Ethiopia.

The Trump administration has repeatedly backed American manufacturing flag-bearers, a list where Boeing figures alongside iconic motorcycle manufacturer Harley Davidson and carmaker GM.

Boeing has nominated Nikki Haley, Trump’s former US Ambassador to the United Nations and a key ally, to join its board of directors at the company’s annual shareholders meeting later next month. Trump is also reported to have exerted pressure on US allies to buy products from Boeing, which is the US’ second largest defence contractor. Government support, especially in terms of funding, is key to developing large aircraft. Apart from the US and the EU, this is evident in countries such as Russia and China, both of which are funding major civil aircraft programmes.

What could bring in deeper financial troubles for Boeing is the fact that its customers have started demanding compensation on account of the groundings. Norwegian Air said on Wednesday it will seek compensation from plane maker Boeing for costs and lost revenue after grounding its fleet of 737 MAX 8 aircraft.

Notably, the troubles for Boeing on regulatory, financial and engineering fronts towards its largest selling product could have a spillover effect on its other offerings. Lufthansa, which announced purchase of 20 Boeing 787-9 Dreamliner aircraft along with 20 Airbus A350-900 long-haul planes on Wednesday, said it had negotiated a significant price reduction on the order, which has a list-price investment volume of $12 billion, but did not disclose how much it had paid for the aircraft.

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