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The breaking news out of Jakarta is that Garuda Indonesia has canceled their order for 49 Boeing 737 MAX. This comes after two disastrous 737 MAX crashes and a worldwide grounding of the aircraft for safety reasons.

Garuda’s Order

Garuda operates over 70 737 family aircraft. As such, the 737 MAX was a natural addition to the fleet and part of the 737NG replacement plan. At face value, Garuda’s order was worth $4.9 billion.

At the point of ordering, Garuda commented:

“The 737 MAX 8 represents a bright, efficient future for Garuda Indonesia.” -Emirsyah Satar, CEO of Garuda Indonesia at time of order

While the 737 MAX 8 is more efficient than its predecessor, it seems like it wasn’t bright enough to keep Garuda a customer for the aircraft.

The Cancellation

Garuda Indonesia’s President Director, Gusti Ngurah Askhara Danadiputra, announced the cancellation on Thursday, March 21st. In his comments, he specifically stated that the 737 MAX 8 had suffered from bad publicity which spooked passengers allocated the aircraft. Specifically, Garuda Indonesia believes there is a lack of passenger confidence in the aircraft, so they are cancelling their order.

This isn’t a major issue for Garuda Indonesia since they only have one 737 MAX 8. Depending on how long the groundings of MAX aircraft last, Garuda could find a new buyer or lessor for that specific aircraft. They could also, potentially, sell it back to Boeing.

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The real question now is, what is Garuda going to order?

A320neo?

Garuda Indonesia is already an Airbus customer. They operate both the A330-200 and -300 widebodies. In addition, Garuda Indonesia has 14 A330-900s on order.

Cancelling the 737 MAX leaves Garuda with few options for sourcing a narrowbody replacement for their 737-800s. Russia is working on an alternative, however Garuda will most likely be looking for an established plane with a degree of passenger confidence. They will probably go for a fuel efficient plane that carry a similar number of passengers as the 737 MAX.

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This makes the A320neo the most likely option for Garuda Indonesia. If they were to order 50 aircraft, the airline would probably attract some discounts from Airbus. This would make the delayed entry, any cancellation fees with Boeing, and increased maintenance and training costs worth it, if it means passengers will still fly with them.

The A320neo, however, would not be completely new to Garuda. Their low-cost arm, Citilink, flies over 50 A320/A320neo family aircraft already.

Overall

In the grand scheme of things, Garuda Indonesia is not a major 737 MAX customer. Norwegian, SpiceJet, Ryanair, Jet Airways, Lion Air, Flydubai, and Southwest all have over 100 737 MAX aircraft each on order. However, if Garuda Indonesia is expressing concern about the 737 MAX, it is likely that other airlines are also concerned about their 737 MAX fleet and orders.

We will keep a close watch on what other carriers do with their 737 MAX orders.

Is Garuda making the right decision? Will Garuda transition to an all-Airbus fleet? Let us know in the comments.