Economic Highlights

New Delhi, 8 July 2024

Boeing Crisis Hits India

AIR FARES TO SHOOT UP

By Shivaji Sarkar

Air fares are to shoot up sharply as airlines in India, the third largest in the world, face shortage of aircraft.The airlines are to sufferas Boeing, aerospace company, is in crisis for its Starliner space vehicle leakage and two fatal crashes, defrauding the US government.

The Boeing has lost more than $32 billion since 2019. Fewer companies could lose that kind of money and not be facing bankruptcy. Boeing may face three years of probation, independent safety audits and $487.3 million in penalty.This has put its new aircraft manufacturing off schedule causing delivery of far fewer planes to airlines of India. As a result it would hamper the growth of the industry here and limit capability to offer seats to fliers and effect in severe seat shortage and spiralling of fares.

The US justice department might charge Boeing with fraud if it does not plead guilty for two deadly Max crashes in 2018 and 2019, killing 346 people.The case stems from the department’s determination that Boeing violated an agreement that was intended to resolve a 2021 charge of conspiracy to defraud the US government. The Boeing is charged with misleading regulators who approved the 737 Max and set pilot-training requirements to fly the plane. The company blamed two relatively low-level employees for the fraud.

The Boeing reached a $2.5 billion settlement for the 2018 and 2019 Ethiopian crashes with the Justice Department in January 2021 to avoid prosecution on a single charge of fraud — misleading federal regulators who approved the plane.

In March 2019, an Ethiopian Airlines 737 MAX crashed, killing all 157 on board, after which regulators around the world grounded MAX aircraft. The crashes were blamed on a flaw with a newly inducted system for pushing the aircraft nose down to prevent the plane from stalling.

This week the justice department’s criminal fraud section told a federal courtthat Boeing violated terms of the settlement by failing to make promised changes to detect and prevent violations of federal anti-fraud laws. The determination means that Boeing could be prosecuted “for any federal criminal violation,” including the charge of fraud that the company hoped to avoid with the settlement, the Justice Department said.

The company handed over 27 planes in January, its lowest tally since September, compared with 67 deliveries in December. It sold three Boeing 737 Max planes, but also logged three cancellations.

As it was grappling with the situation on January 5, 2024, a door plug blew out on an Alaska Airlines flight at 16,000 feet shortly after take-off from Portland, Oregon. None was injured but it ripped off headrests and exposed passengers to a gaping hole in the 26th row. Bolts holding a door panel were also found missing, the US National Transportation Safety Board reported.This led Federal Aviation Administration (FAA) to halt Boeing’s planned production increases till it is satisfied with the quality control issues.

The Max planes which Air India wants to buy, Boeing says, would have to rework about 50 of the undelivered planes because of incorrectly drilled holes in 22 fuselages or the larger outer shell that encompasses the main aircraft body. It is a new production glitch that could slow deliveries further as various FAA safety inspections would periodically stop the production line. The FAA says that it would allow the variant of the 737 Max 9 with the door plug to fly again – after demanding checks to the bolts on every plane.

The family of two MAX victims want Boeing to face a criminal trial and pay fine of $24.8 billion. They are against plea bargaining saying this was just a reworking of “letting Boeing off the hook”.

In such situation, hope of Air India Express and Akasa getting their deliveries do not look bright. Questions arise how the two airlines agreed to the deal of MAX, which still have not cleared safety issues. Reportedly, China has cancelled some of its bookings.

In this background in June 2022, Tata Sons signed agreement during the Paris Air Show for 20 Boeing Dreamliners, 10 Boeing 777X widebody aircraft, and 190 Boeing 737 MAX narrow body aircraft along with 250 Euro Airbus for $ 70 billion, according to Tata Sons and Air India Chairman N Chandrasekaran.

In June 2023, IndiGo made the world’s largest aircraft order by signing a deal for 500 A320 neo family planes from Airbus. The airline is expecting some Airbus 320 deliveries. But that would not suffice the needs of the growing number of passengers. Indigo is set to ground many aircraft. So would Spice Jet, which met with a number of security issues.

The delays, which are said to be unavoidable, would create shortage of aircraft almost with all major airlines, Indigo, Spice Jet, Akasa and Air India. The Jet Airways and Go First have gone bankrupt adding to the shortage.

Thus, the Boeing crisis could hit India hard with Air India and Akasa having fewer aircraft and an overall shortage of seats for domestic and international routes spiralling fares. Airlines in India carried record 152 million passengers in 2023, 30 per cent increase from 2022 and 5 percent rise over 2019. According to the Director General of Civil Aviation, the domestic air traffic from January to May rose 4 percent during the period to 13.8 million.

The aviation industry fears that the reduced aircraft delivery is set to impact the aviation market severely more so as number of passengers rise more owing to a fallacious dynamic Indian Railways fare structure. It hikes train fares to the level of air fares making people prefer to travel by air. This is impacting the railways and the airlines alike.

Fares in certain destinations like Kochi-Delhi or Kolkata-Delhi or Mumbai-Delhi or Guwahati-Delhi could skyrocket and match some of the international routes as the country does not have integrated transportation approach. If the rail fares are cut and reservation system rationalised, it could take off a significant load from the airlines. Unimaginative system predicts scramble for airline tickets by end-December winter vacation.---INFA

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