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Lion Air planes are sitting on the tarmac at Soekarno-Hatta International Airport in Cengkareng, Jakarta, Indonesia on Monday. A Boeing 737 Max aircraft, operated by the Indonesian Air Lion, crashed into the Java Sea with 189 people on board. This is the first model accident and potentially the worst commercial aviation disaster in three years. (Rony Zakaria / Bloomberg)
Aaron Gregg
Reporter covering defense companies and businesses in the Washington area
The Boeing Aerospace giant's stock price fell nearly 7% on Monday after one of its newest aircraft entered the Java Sea off the coast of Japan. Indonesian coast, with 189 people on board.
The new Boeing 737 MAX8 was operated by Lion Air, the low-cost Indonesian airline that became a major international customer at a time when the Chicago-based company was hoping to increase sales in Southeast Asia.
Lion Air had been allowed to fly only recently to the European Union. As one of the largest low-cost airlines in Southeast Asia, it is considered a key player in a fast growing market of commercial air transport.
After an investigation into the cause of the accident at the beginning, it was not determined whether this accident was due to mechanical problems, human error or any other reason. According to reports in the press, Lion Air Group's General Manager, Edward Sirait, said Monday that the plane had a technical problem on a previous flight, but that it had been resolved "in accordance with the procedure".
In a statement posted online Monday, Boeing said it was providing technical assistance to Indonesian government authorities investigating the plane crash. The company forwarded the questions to the local authorities.
"We express our sincere condolences to the families and loved ones of those on board," said the company. "Boeing provides technical assistance at the request and under the direction of government authorities investigating the accident."
The Boeing 737 MAX8 is a new version of a commercial jet model that has been in use for decades. The aircraft involved in the accident was delivered just a few months ago.
The 737 MAX series has been a driving force for Boeing and a key driver of the company's commercial airline business in recent years. Boeing has led the biggest rally in the stock markets for much of the past two years, largely driven by new business sectors in emerging international markets such as Indonesia. With nearly 4,700 orders from more than 100 international customers, the 737 MAX is the best-selling aircraft in Boeing's history.
According to aerospace analysts, the aircraft was a new version of a proven model.
The 737s have been transporting passengers around the world since the 1960s, and the new models are thoroughly tested before delivery, they said. While the 737 MAX8 is presented as a new airliner, it is closely matched to previous versions of the Boeing 737. The 787 MAX 8, 9 and 10 models are differentiated mainly by the size of the fuselage and the number of seats.
"This design has had more than half a century of tremendous success," said Richard Aboulafia, Teal Group's aerospace analyst, "and there is so much testing and experience gained with this particular model."
Nevertheless, investors reacted strongly to the news. Boeing's stock price was down 7% on Monday midday, as major stock indexes posted gains. Airbus, the European manufacturer that also sells commercial jetliners in Indonesia, also saw a slight decline.
The crash of Monday could become a problem for both companies.
Lion Air is growing rapidly: Boyd Group International Aerospace Council reports that Lion has opened 205 Boeing 737 orders, although this pipeline contains only one MAX8 model that has not yet been delivered. Earlier this year, Lion announced the purchase of 50 new MAX-10 models.
Lion Air "is a very important customer for Boeing," said Mike Boyd, founder of Boyd Group, a market research firm in the aerospace industry.
He said he was surprised by the sharp fall in Boeing's share price, which he described as an "exaggerated" reaction by investors.
He also noted that Indonesia's monitoring of its airline industry has been a source of concern in the past. It was not until last June that the European Union declared that Lion Air was safe to travel.
"The EU's problem was that they thought the Indonesian government was not monitoring and monitoring its airlines," Boyd said. "This caused a lack of confidence in Indonesian airlines."
In 2012, two of his pilots were tested positive for the use of methamphetamine and were then stopped hours before takeoff. In 2004, a Lion Air plane skidded and crashed after trying to take off by very heavy rain, killing 31 people. Other Indonesian companies have had their own problems, such as an accident in 1997 by Garuda Airlines, which killed 234 people.
Even before the facts of the crash were established, there were some international reactions against the airline. The Australian government recently asked government officials and contractors not to fly Lion Air after the crash, Reuters reported on Monday.
"None of this creates confidence in the minds of consumers or travelers about Lion Air or the Indonesian aviation market," said Henry Harteveldt, co-founder of the aviation consulting group Atmosphere Group. "It's a serious problem, and we have to find the cause of the problem, but new planes do not usually fall from the sky."
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