Boeing's decision to plead guilty to a criminal fraud conspiracy charge, settling an investigation into two fatal 737 Max crashes, could strain its relationship with customers in the Middle East, according to experts.
The US plane manufacturer will pay a fine of $243.6 million to resolve the US Justice Department’s investigation into the two crashes, according to a court filing on Sunday.
The company has also agreed to spend $455 million over the next three years to improve its compliance and safety programmes and must hire an independent monitor to oversee the improvements.
The proposed plea agreement, which requires judicial approval, would label Boeing as a convicted felon in connection with crashes in Indonesia and Ethiopia over five months in 2018 and 2019 that resulted in the deaths of 346 people.
Confidence in Boeing is at an all-time low for customers – and in particular for Emirates, which is desperate to get its hands on the Boeing 777X, which is nowhere near being certified
Saj Ahmad,
StrategicAero Research
“Boeing's guilty plea for misleading air-safety regulators in the wake of the 737 Max crashes will have implications for its customers in the Middle East,” Linus Bauer, founder at BAA & Partners, said.
“Firstly, trust and confidence in Boeing's products and safety protocols may be undermined, leading airlines to reconsider their existing orders or delay new purchases.”
The development could also lead Middle East regulators and airlines to enforce stricter oversight and seek stronger safety assurances from the company,
“There could also be financial repercussions, including potential compensation claims and increased insurance costs,” he said.
Flydubai, which operates an all-Boeing fleet including 54 737 Max 8s, said it would continue to engage closely with Boeing.
“We are confident that Boeing will take all necessary measures to strengthen its plans to address current issues which will further ensure optimal quality standards,” an airline official told The National on Monday.
Until a judge ratifies the plea deal, there will not be “any material changes for Boeing’s customers in the GCC”, said Saj Ahmad, chief analyst at StrategicAero Research.
“Confidence in Boeing is at an all-time low for customers across the globe – and in particular for Emirates, which is desperate to get its hands on the Boeing 777X, which is nowhere near being certified, despite being launched over a decade ago,” he said.
The 777x, the newer version of Boeing’s 777 wide-body jets, has faced years-long successive delays in its development programme. This has forced Dubai-based Emirates, the world’s largest long-haul airline, to retrofit additional 777s.
Last month, Emirates president Tim Clark said that the manufacturer should pay for the airline’s multibillion-dollar retrofit programme. The airline’s 777x order book currently has a total of 205 jets, making it the biggest buyer of Boeing wide bodies.
An Emirates official declined to comment on Boeing's plea deal.
In May, flydubai’s chief executive also said that the airline was concerned “about the delays and all the negative issues that are in the pipeline or in the media”.
“But we work closely with Boeing, they work very hard to regain the trust of the customers and we are one of their customers,” Ghaith Al Ghaith told reporters at the Arabian Travel Market in Dubai.
Earlier this year, Abu Dhabi-based Etihad Airways' chief executive said jet delivery delays by Boeing had hampered the airline's network growth plans.
The airline, whose fleet includes the Boeing 777, 787 and the 777 freighter jets, took delivery of three new 787-9 Dreamliners in February, eight months later than the scheduled handover date in June last year, which affected its route network plans, Antonoaldo Neves told The National.
Orders to fall
Boeing’s admission of guilt will probably affect new orders from airlines and may also prompt operators to reconsider operating their existing Boeing aircraft, said Mark Martin, chief executive of Martin Consulting.
“Now, there is going to be no trust left in Boeing. This is going to affect the order book.
“They [Boeing] have done this just to get themselves off the hook. Now, the easiest thing to do is just pay off people and pay off compensation and end the case,” he added.
The settlement quickly faced criticism from victims' families, who wanted Boeing to go to trial and face more severe financial penalties.
Attorneys representing some of the families stated that they plan to urge Judge Reed O'Connor, who is overseeing the case, to reject the deal.
“The families are highly disappointed that the DOJ fails to account for the two crashes,” said Robert Clifford, founder and senior partner at Clifford Law Offices.
“Much more evidence has been presented over the last five years that demonstrates that the culture of Boeing putting profits over safety hasn’t changed,” Mr Clifford said.
Earlier this year, Boeing found itself back in hot water after a door plug detached mid-flight on an Alaska Airlines 737 Max aeroplane.
The incident prompted the US Federal Aviation Administration to temporarily ground about 171 737-9 Max planes.
In response to The National’s query about Boeing’s plan to address its Middle East customers' concerns, an official referred to an 11-page summary of its 'Product Safety and Quality Plan,' which was first published in May.
The document outlines the measures being taken by the company such as more frequent inspections and stricter supplier controls.
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Tips for SMEs to cope
- Adapt your business model. Make changes that are future-proof to the new normal
- Make sure you have an online presence
- Open communication with suppliers, especially if they are international. Look for local suppliers to avoid delivery delays
- Open communication with customers to see how they are coping and be flexible about extending terms, etc
Courtesy: Craig Moore, founder and CEO of Beehive, which provides term finance and working capital finance to SMEs. Only SMEs that have been trading for two years are eligible for funding from Beehive.
What is Diwali?
The Hindu festival is at once a celebration of the autumn harvest and the triumph of good over evil, as outlined in the Ramayana.
According to the Sanskrit epic, penned by the sage Valmiki, Diwali marks the time that the exiled king Rama – a mortal with superhuman powers – returned home to the city of Ayodhya with his wife Sita and brother Lakshman, after vanquishing the 10-headed demon Ravana and conquering his kingdom of Lanka. The people of Ayodhya are believed to have lit thousands of earthen lamps to illuminate the city and to guide the royal family home.
In its current iteration, Diwali is celebrated with a puja to welcome the goodness of prosperity Lakshmi (an incarnation of Sita) into the home, which is decorated with diyas (oil lamps) or fairy lights and rangoli designs with coloured powder. Fireworks light up the sky in some parts of the word, and sweetmeats are made (or bought) by most households. It is customary to get new clothes stitched, and visit friends and family to exchange gifts and greetings.
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The biog
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Favourite spice: Cumin
Family: mother, three sisters, three brothers and a two-year-old daughter
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4. Nadia Taryam (UAE) Askaria 3 39.63
5. Miriam Schneider (GER) Fidelius G 47.74
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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RUGBY CHAMPIONSHIP FIXTURES
September 30
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How much do leading UAE’s UK curriculum schools charge for Year 6?
- Nord Anglia International School (Dubai) – Dh85,032
- Kings School Al Barsha (Dubai) – Dh71,905
- Brighton College Abu Dhabi - Dh68,560
- Jumeirah English Speaking School (Dubai) – Dh59,728
- Gems Wellington International School – Dubai Branch – Dh58,488
- The British School Al Khubairat (Abu Dhabi) - Dh54,170
- Dubai English Speaking School – Dh51,269
*Annual tuition fees covering the 2024/2025 academic year
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