Analysis: China Eastern faces more losses and regulatory scrutiny after plane crash

China Eastern Airlines logos are pictured at check-in kiosks at Beijing Capital International Airport in Beijing, China March 21, 2022. REUTERS/Tingshu Wang

SHANGHAI, March 22 (Reuters) – China Eastern Airlines (600115.SS) faces mounting losses and greater regulatory scrutiny following the crash of a Boeing 737-800 (BA.N) on Monday with 132 people on board .

Rescuers scoured the heavily forested slopes on Tuesday for survivors and data loggers of flight MU5735, which crashed a day earlier in the mountains of the southern region of Guangxi. Read more

The plane crash, China’s first in 12 years, comes as its airline industry struggles to find its footing amid the coronavirus pandemic, with air passenger traffic well below 2019 levels due to repeated outbreaks and a sharp drop in international travel due to China’s strict quarantine rules.

China Eastern was one of the biggest victims: the common carrier forecast a loss of 11 to 13.5 billion yuan (1.7 to 2.1 billion dollars) in January 2021, after a loss of 11, 8 billion yuan in 2020.

Its losses are expected to worsen after the group, including two subsidiaries, grounded its fleet of 737-800s following Monday’s crash. The group has 225 aircraft, according to data from British aviation consultancy IBA.

The airline canceled about 89% of its flights on Tuesday, according to Chinese aviation data provider Flight Master.

“I suspect in the short term this will cause problems for China Eastern as their maintenance records are reviewed, and there will likely be a short-term pushback from Chinese consumers,” said Ben Cavender, managing director of China Market. Research. Group in Shanghai.

Cheng Wang, associate equity analyst at Morningstar, said one of the big risks for China Eastern is whether the investigation involves maintenance or other process gaps.

“We believe the bulk of the impact will be felt in the short term. The severance alone will not have a material impact on our fair value estimates. additional security requirements or even the grounding of aircraft, could make a bigger difference.”

“This crash could also have medium to long-term implications for China Eastern, as the airline could find itself at a disadvantage when requesting routes and slots over the next few years if found to be in trouble. mistake.”

China Eastern, which said Monday it was cooperating with the crash investigation, did not immediately respond to requests for comment.

Its land-listed shares fell more than 6.5% on Tuesday, while those traded in Hong Kong fell nearly 6%.

FEAR OF FLYING

The tragedy has shocked a country that has one of the best aviation safety records in the world and whose aviation industry was for the last decade, before COVID, one of the world’s fastest growing markets in terms of passenger traffic.

Several social media users shared how it stoked their fears of flying and some wrote about changing their travel plans, especially after photos of the wreckage of the plane and videos apparently showing its descent been widely shared online.

Weibo user PLILY-L said she planned to travel on a later flight on the same route taken by flight MU5735 from Kunming, capital of southwestern Yunnan province, to the port city of Guangzhou before hearing about the incident.

“I was really scared, I immediately canceled my plane ticket and opted for the high-speed train,” she wrote.

Local media reported long queues at China Eastern’s counter at Guangzhou Baiyun Airport, saying some travelers were asking for ticket refunds after the incident.

Industry-wide, about 78.4% of all flights scheduled for Tuesday were canceled, according to Flight Master, who attributed this to COVID-19, as China faces its biggest outbreak in two. years.

Some of the fears expressed online about the flight were directed at Boeing, whose brand had already been hit in China by two fatal crashes of its 737 MAX plane more than three years ago. Read more

Boeing declined to comment and referred Reuters to the statement it issued on Monday, when it said it was ready to help China Eastern and was in touch with U.S. transportation safety regulators in subject of the accident.

Elaine Shen, a Shanghai-based insurance professional who describes herself as a big fan of China Eastern, said she would stay with the airline but now only fly planes made by Boeing rival Airbus ( AIR.PA).

“I’m going to Chengdu next month and made sure it’s an Airbus 320.”

($1 = 6.3609 Chinese yuan renminbi)

Reporting by Brenda Goh and Stella Qiu Additional reporting by Shanghai newsroom Editing by Miyoung Kim and Mark Potter

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