Boeing’s woes from half way across the world will limit the fleet growth of Malaysian carriers, said Maybank Investment Bank Berhad (Maybank IB) in a note today (Feb 20).
Consequently, Maybank IB believes it is unlikely that the Malaysian aviation industry will experience overcapacity this year. This will help airlines maintain a floor on fares but preclude MAHB’s Malaysia’s passenger traffic from recovering to pre-covid levels.
Maybank IB likes non-Boeing operators such as CapitalA and AAX. Notwithstanding the above, Maybank IB still likes MAHB for its potentially positive new operating agreement.
Boeing 737 max brand under increased scrutiny
Some 5 years after the fatal crashes of Lion Air Flight 610 on 29 oct 2018 and Ethiopian Airlines flight 302 on 10 mar 2019 that claimed 189 and 157 lives respectively, the Boeing 737 max is under the spotlight again when a door plug on Alaska Airlines flight 1282 literally blew out at c.16,000 feet in e air.
The cause of the Lion Air and Ethiopian airlines crashes were unrelated to the cause of the Alaska Airlines incident but the damage to the Boeing 737 max brand was all the same.
Moreover, the US Federal Aviation Administration (FAA) on 8 feb 2024 ordered Boeing 737 max operators in the United States to inspect their aircraft for loose bolts in the rudder after an operator found one.
Delays in deliveries of boeing 737 maxs likely
The Boeing 737 max, especially the Boeing 737 max 8 variant, was gaining popularity in Malaysia. Batik Air Malaysia (not listed) operates 16 Boeing 737 max 8s and expects to take delivery of 1 more next month.
Malaysia Airlines (not listed) operates 3 boeing 737 max 8s out of a planned 25 with an option to lease another 25. Following the Alaskan air incident, the FAA ordered Boeing to limit monthly production of Boeing 737 maxs to 38. Yet, industry observers estimate that Boeing is producing only c.20 Boeing 737 Maxs a month due to increased oversight.
With Boeing’s orderbook of 4,759 Boeing 737 Maxs as at 31 Jan 2024, the delivery of Boeing 737 max 8s to Malaysia Airlines and Batik Air Malaysia will likely be delayed.
Maybank favours CapitalA, AAX but not so much MAHB
In summary, Maybank IB believes it is unlikely that the Malaysian aviation industry will experience overcapacity this year à la 2019. Then, Malaysian carriers operated 274 aircraft as at end-2019. Today, they operate a more measured 260 aircraft which is similar to the figure as at end-2017.
This will help airlines like CapitalA and AAX maintain a floor on fares. Yet, this precludes MAHB’s Malaysia passenger traffic from recovering to 100% of 2019 levels due to the lack of aircraft (MIBG 2024 forecast: 93% of 2019 levels).
Maybank IB maintain their estimates, TPs and buy calls on CapitalA, AAX and MAHB. MAHB remains a buy for potential upside from a new operating agreement with the government of Malaysia.
