Asia Assesses Costs as Nations Bar Boeing’s 737 Max From Airspace

China, home to 22% of the 737 Max planes in operation so far, was the first nation to ground the plane.

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Airlines and industry in Asia are busy figuring out what the grounding of the 737 Max 8 planes made by The Boeing Co. (BA) means to their order books, flight paths and bottom line.

China was the first nation of 42 globally to order all 737 Max 8 planes to keep their wheels on the ground. It is home to 22% of the 350 aircraft of that model delivered around the world for service to date. Boeing has received 4,661 orders for the planes, according to the brokerage Nomura.

The main Chinese airlines with those planes now suspended from operation are Air China Ltd.  (AIRYY) , China Eastern Airlines Corp. Ltd. (CEA) and China Southern Airlines Co. Ltd.  (ZNH) . Shandong Airlines SH:200152, and the unlisted carriers Shenzhen Airlines and XiamenAir, also fly the plane.

Singapore has barred all Boeing 737 Max flights from its airspace. That effectively grounded all six of that aircraft for SilkAir, the Asia-specialist wholly-owned subsidiary of Singapore Airlines Ltd. Singapore Airlines  (SINGY) itself does not operate any of the planes.

India has likewise grounded any 737 Max planes in service with its carriers. Jet Airways Ltd. BOM:532617 and SpiceJet BOM:500285 are the Indian airlines affected, although India is not allowing any of those models into its airspace.

Australia, Hong Kong, Malaysia, New Zealand and Vietnam have joined 35 other nations, most of them in Europe, in temporarily barring 737 Max 8 flights from their airspace even though their carriers don’t fly the plane.

South Korea has grounded the two planes of that model flown by budget carrier Eastar Jet, and Mongolia has taken the same action with the sole version of that plane flown by MIAT Mongolian Airlines.

The biggest effect of the bans in my part of the world is felt by unlisted Lion Air, which has taken delivery of 14 of the planes. That includes the plane in question on Lion Air Flight 610, which crashed into the Java Sea on October 29, 2018, killing all 189 on board.

Indonesia has ordered the grounding of all 737 Max 8s, covering the 13 remaining Lion Air planes and the single plane of that model in service with national flagship Garuda JK:GIAA, which at one point had such an appalling safety record it was barred from flying to the European Union.

The second flight disaster to feature a Boeing 737 Max 8 is of course Sunday’s crash of Ethiopian Airlines Flight ET302. Ethiopian Airlines has grounded its remaining four 737 Max 8 planes.

The fact the Lion Air flight nosedived into the sea 12 minutes after leaving the Jakarta airport on route for Bangka Island has an eerie counterpart in the crash in Africa, where the jet climbed erratically and then crashed six minutes after departing Addis Ababa for Nairobi.

In both flights, the pilot reported trouble immediately after takeoff. With the Lion Air flight, the nose dipped down dangerously more than two dozen times, and information from the “black box” data recorder shows the pilots were trying to wrestle control of the plane from its system.

Both investigations are now examining maneuvering characteristics augmentation system, or MCAS, installed on the two crashed planes. In the case of the Lion Air flight, the plane’s computer received faulty sensor data that led the computer to believe the plane had stalled. That then caused the MCAS system to push down the nose, to avert the non-existent “stall.”

Cathay Pacific Airways Ltd.  (CPCAY) , Japan Airlines Co., Ltd.  (JAPSY) and All Nippon Airways (ALNPY) do not fly the 737 Max. ANA says it is not, so far, suspending orders for 30 of the planes, pending any findings from the investigation in Ethiopia.

Among Southeast Asian airlines, Vietnam Airlines does not yet fly any of the 737 Max planes, but the carrier has 100 on order. Lion Air has 187 on order, and Garuda another 49.

The Singapore-based aircraft leasing company BOC Aviation HK:2588, the largest of its type in Asia, has five operational 737 Max aircraft that are now grounded, and another 82 on order.

AirAsia (AIABF) and its long-haul subsidiary AirAsia X don’t fly that model of plane, and neither do Thai Airways BKK:THAI, Bangkok Airways BKK:BA or Cebu Pacific CEBUY. Nok Airlines BKK:NOK in Thailand has six 737 Max on order, but isn’t yet flying any.

Nomura notes that AirAsia in particular stands to gain from the temporary grounding of the fleets of Lion Air and SilkAir, since it flies many of the same routes. SilkAir, which had been awaiting delivery of another 32 737 Max 8s, says the grounding of its planes will disrupt its schedules. It continues to fly 17 Boeing 737-800NGs, which it says are not affected.

Nomura also warns of the potential fallout if customer sentiment turns against the Boeing 737 Max. Airlines could attempt to cancel the 4,661 orders for that plane with Boeing, and lack of delivery could lead to short-term scheduling issues. Boeing delivered around 140 of the planes last year.

The Indonesian arm of AirAsia suffered its own disaster in December 2014 when Flight 8501 crashed into the Java Sea, killing all 162 on board, after departing the Javanese port city of Surabaya on route to Singapore. The plane in question was an A320 made by Airbus SE (EADSY) .

Manufacturers are also assessing any impact from the double 737 Max disasters. The Japanese chemicals company Toray Industries, Inc.  (TRYIY) sells carbon fiber as a secondary structural material for use in Boeing 737 Max planes.

Although more of the company’s fiber is used in making Boeing 777 and 787 planes, Toray’s fiber sales related to this plane model are around ¥2 billion to ¥3 billion (US$18 million to US$27 million), Nomura notes. Toray should be able to absorb the hit to sales and operating profits, the brokerage says.

AirAsia Maverick Turns Venture Capitalist to Seed Southeast Asia

Fast cars, fast planes, fast football (of the British kind) — and now, fast money. Tony Fernandes has always had a maverick streak.

Asia’s answer to Richard Branson, the billionaire behind the Virgin empire, Fernandes has taken pride in taking on the big boys in aviation, and winning. Now the co-founder of AirAsia (AIABF) is taking on Silicon Valley.

Like SoftBank Corp.’s (SFTBY) founder Masayoshi Son, Fernandes is a self-made pioneer in Asia, a continent known for its family money more than its entrepreneurs. And like Softbank and Son, he is now setting up a venture-capital fund to invest in startups.

Neither 21st century tycoon exactly shuns the spotlight, either. SoftBank, backed by billions in Saudi funding, has aspirations to take on the world through its Vision Fund.

AirAsia’s aim is more modest, and set squarely on its home market in Southeast Asia, a grounded and sensible start.

AirAsia transferred its digital businesses into a new entity, RedBeat Ventures, in the middle of last year. It announced this week that it will partner with arguably Silicon Valley’s most-successful accelerator, 500 Startups, and set up a venture-capital fund, RedBeat Capital.

AirAsia is Asia’s most-successful budget airline. In a continent where collusion between “rivals” on prices and routes has been commonplace, it has fought for a place for itself by flying out of secondary airports in major cities to keep costs down.

That works, and then some. AirAsia reportedly has the lowest operational costs in the world for an airline, with a unit cost, per available seat kilometer, of 3.5 U.S. cents. That means it breaks even if its flights are only half-full (52% full, to be precise).

RedBeat Capital will be based in San Francisco, and will seek to “develop a travel-technology ecosystem,” according to Fernandes. Its remit is to find startups worthy of investment in travel, lifestyle, logistics and fintech for Southeast Asia.

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The View From Asia: Trump-Xi Deal Is Just a Temporary Truce

The View From Asia: Trump-Xi Deal Is Just a Temporary Truce

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It was over Argentinian steak that Chinese President Xi Jinping and his U.S. counterpart President Donald Trump hashed out a trade truce in Buenos Aires over the weekend. But it is Chinese factory owners who will be most relieved.

Xi and Trump agreed for a ceasefire in their increasingly fraught war, meaning U.S. tariffs will not raise from 10% to 25% on Jan. 1, as planned, with further talks to hash out future trade to come.

Here in Asia, we are well aware that this is only a temporary truce. Hostilities have only been suspended for 90 days. Trump continues to play both roles in the good cop/bad cop routine with Xi, sweet talking Xi in person. That kind of “face” goes down very well in China, where both the government and the people at large are desperate for recognition on the world stage.

No doubt, the agreement has eased immediate fears, which were undoubtedly unsettling investors in Asia. Emerging markets in particular have been paying a heavy price, more so as investors try to reduce risk than because of any direct effects from the trade war.

I’m writing this from Jakarta, and the Indonesian rupiah has been shaken like a palm-oil plant in a typhoon by potential disruptions to economic growth in the region, as well as U.S. interest rates rising. Earlier this year, the rupiah sank to levels last seen during the Asian financial crisis 20 years ago.

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Second Set of Gray-Swan Shocks To Watch in 2018

Second Set of Gray-Swan Shocks To Watch in 2018

In my previous piece, I examined five gray swans that are already in view, but could fly in to roost in the year ahead. That’s the first half of the list of 10 ugly goslings that the Japanese investment bank Nomura sees as potential surprises in 2018.

Black swans are completely unexpected, and therefore can’t be predicted. Gray swans are a little different, neither hidden nor invisible, just largely ignored.

The investment bank has sought to identify situations that are a little out of the ordinary. We know that Donald Trump will be unpredictable — what he does is a known unknown. These birds fall into the camp of the unknown unknowns.

Here’s how cryptocurrencies, Bitcoin, house-price declines, war in the Middle East, oil prices and central banks may shock us in 2018.

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5 Gray Swan Shocks On the Horizon In 2018

5 Gray Swan Shocks On the Horizon In 2018

The Japanese investment bank Nomura (NMR) has 10 “gray swans” to watch out for in 2018. Unlike their cousins the black swans, which simply pop out of nowhere and therefore can’t be predicted, gray swans aren’t hidden or invisible, just largely ignored. At our peril, it seems.

They are topics that aren’t widely discussed, the bank says — not the question of what to do over North Korea, or whether nationalists will triumph in the Italian elections.

I’ll tackle the first five in this story and revisit the gray-swan family by addressing the other five in a second piece.

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Trump Takes on China in Trade, but Is Wrong With His Attack

Trump Takes on China in Trade, but Is Wrong With His Attack

U.S. President Donald Trump stood side by side with Chinese President Xi Jinping on Thursday, despite the fact that Trump continues to depict — wrongly — the China-U.S. trade relationship as toe-to-toe.

That relationship is “one-sided and unfair,” Trump said in a joint address in Beijing. There’s the “shockingly high” trade deficit to consider, he explained. There’s also the $300 billion in the theft of U.S. intellectual property and forced technology transfer that the United States suffers every year, per U.S. government figures.

Trump has, to be fair, delivered on this, the most-important trip of his presidency. He has conveyed more precisely in person his message that the United States is disadvantaged by its trade with China and Japan. He’s wrong, but he’s right to express himself so clearly when he previously fudged the point when meeting the leaders of those countries on home soil.

At least he won applause from the assembled Chinese and U.S. executives in attendance to hear the two leaders speak. It was for a back-handed compliment.

“I don’t blame China,” Trump conceded, pausing when clapping began. “Who can blame a country for being able to take advantage of another country for the benefit of its citizens? I give China great credit.” Cue more applause.

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