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Analysis-China Eastern crash could set back Boeing’s China recovery, return of MAX

© Reuters. FILE PHOTO: A model of Boeing 737 Max airliner is seen displayed at the China International Aviation and Aerospace Exhibition, or Airshow China, in Zhuhai, Guangdong province, China September 28, 2021. REUTERS/Aly Song/File Photo

By Jamie Freed and Eric M. Johnson

(Reuters) -The deadly crash of a China Eastern Airlines 737-800 could set back Boeing (NYSE:BA)’s efforts to regain ground in the world’s biggest aircraft market and deliver more than 140 737 MAX jets already constructed for Chinese customers.

The 737-800 that crashed on Monday does not have the equipment that led to 737 MAX crashes more than three years ago, but that may not make a difference to Chinese passengers and a national regulator known for scrupulous safety requirements.

China Eastern said the cause of the crash was under investigation. Such accidents typically involve multiple factors, and experts warned it was far too early to draw any conclusions on the potential causes, especially in light of the scarce information available.

China was the first country to ground the 737 MAX after fatal crashes in Indonesia and Ethiopia more than three years ago, and it is the only major market where the MAX has not resumed commercial flights.

A 737 MAX built for China Eastern subsidiary Shanghai Airlines took off from Seattle bound for Boeing’s completion plant in Zhoushan last week, industry sources said, in a sign the model’s return to service in China was close.

The plane landed in Guam on March 15 as part of a multi-leg journey and has not moved in the week since, according to flight tracking website FlightRadar24.

The jet remains in Guam due to a “minor technical issue”, according to a Boeing spokesperson who declined to provide further details.

“Our team identified the issue and is working through the logistics to address it appropriately and resume the ferry flight when ready,” the spokesperson added.

Robert Spingarn, a managing director at Melius Research who focuses on the aerospace sector, said the MAX’s return in China could be delayed until authorities there had some answers on the cause of the China Eastern crash. China’s aviation regulator is known for being very thorough on safety issues.

Chinese airlines do not need new MAX planes because demand is down following the country’s biggest COVID-19 outbreaks in two years, industry sources said. But the U.S. manufacturer has more than 140 MAX jets already built for Chinese customers waiting to be delivered once the jet returns to commercial service there, a person familiar with the matter said.

Boeing’s shares closed 3.6% lower on Monday. Boeing declined to comment on whether the crash could delay a business recovery in China, while China’s aviation regulator did not respond immediately to a request for comment.

The 737-800 that crashed is an earlier model with a strong safety record and there are nearly 1,200 in service in China, making it the world’s largest market for the plane, according to aviation consulting firm IBA.

More than 4,200 737-800s are in service globally, data from aviation firm Cirium shows.

China Eastern and two of its subsidiaries on Monday grounded its fleet of 737-800 planes. The group has 225 of the aircraft, data from British aviation consultancy IBA shows.

Other Chinese carriers are continuing to fly the jets, according to data from Chinese aviation data provider Flight Master.

Jefferies analysts said China’s aviation regulator was unlikely to ground the 737-800 fleet unless it specifically suspected a technical failure as the root cause because of the operational consequences of grounding more than 1,000 planes in the world’s second-biggest domestic aviation market.

However, there are concerns the Chinese public could look to avoid flying on 737-800s until the cause of the crash is determined, given the broader reputational issues with the 737 family caused by the MAX, Cowen analyst Cai von Rumohr said in a note.

“Hence, isolating the cause of the crash will be critical,” he added, noting the leading causes of commercial air transport crashes tend to be maintenance issues, pilot error or sabotage, rather than manufacturing or design issues.

Boeing cancelled a meeting of its senior executives scheduled for this week in Miami to focus its attention on assisting the investigation and China Eastern, a second person familiar with the matter told Reuters.

“We have been in close communication with our customer and regulatory authorities since the accident, and have offered the full support of our technical experts to the investigation,” Boeing CEO Dave Calhoun said in a memo to employees, which was seen by Reuters.

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