American expects hit of up to $US350m from 737 MAX saga

27 April, 2019

6 min read

By joining our newsletter, you agree to our Privacy Policy

Share this story

Steve Creedy

Steve Creedy

27 April, 2019

American Airlines expects the grounding of its Boeing 737 MAX fleet to slash pre-tax earnings by up to $US350m as the cost to airlines of the ongoing saga continues to climb. American, which has 24 Boeing 737 MAX 8s  with an additional 76 on order, said it canceled 1200 flights as a result of the grounding in the first quarter. It has removed all 737 MAX flying — about 115 flights a day — from its schedule through to August 19. “These flights represent approximately 2 percent of American’s total capacity each day this summer,” the company said in first-quarter results which saw it return a pre-tax profit of $US245m. “ Although these aircraft represent a small portion of the company’s total fleet, its financial impact is disproportionate as most of the revenue from the cancellations is lost while the vast majority of the costs remain in place. “In total, the company presently expects the 737 MAX cancellations, which are assumed to extend through Aug. 19, to impact its 2019 pre-tax earnings by approximately $US350 million.” READ our 737 MAX coverage Airlines say they do not know at this stage when the troubled plane will be returned to service with software fixes designed to prevent a repeat of two accidents that killed 346 people. The crashes involving Indonesia's Lion Air and Ethiopian Airways led to the grounding of the global fleet because of concerns about flight control software. The US Federal Aviation Administration revealed this week it had called a meeting of international regulators on May 23 discuss how it plans to safely return the 737 MAX to service. It said it will provide participants with the safety analysis that will inform its decision to return the Max fleet to service. FAA experts will also be available to help regulators make their decisions on giving the plane approval in their jurisdictions. The news came as Southwest noted the Boeing 737 MAX grounding contributed to the cancelation of more than 10,000 flights in the first quarter. Union troubles and severe winter weather also contributed to the high number of cancelations. The cancelations, combined with the US government shutdown and softness in leisure travel,   shaved $US150m off first-quarter net income to deliver a result of $387m, down from $463m in the equivalent quarter of 2018. The airline is expecting to take a further hit from the MAX grounding in its second quarter and says it will reduce unit revenues by about a percentage point. Southwest has taken its fleet of MAX aircraft out of its schedules until August 5. "Currently, the timeline is uncertain for the MAX aircraft return to service,’’ chief executive Gary Kelly said. “In the meantime, we have proactively adjusted our published flight schedules for the next several months and removed all MAX flights through August 5. “Our goal is to stabilize and protect the integrity of our flight schedule while providing dependability and reliability for Customers booking their summer travel. “The MAX aircraft represents less than 5 percent of all daily flights, and the vast majority of our Customers' itineraries have been unaffected by the MAX groundings. “Following a rescission of the Federal Aviation Administration (FAA) order to ground the MAX, we will return the aircraft to service once we are confident that we are in compliance with all necessary FAA directives and all necessary pilot training has been completed. “Safety is our top priority, and that commitment will never be compromised.” United Airlines chief executive Oscar Munoz also weighed into the MAX debate during the unveiling of the airline’s new livery in Chicago this week. Munoz said the airline did not know when the MAX would fly again. “I think it’s important when we return this aircraft to flight that we do it unison and lock-step around not just the US but the world,’’ he said in an interview on CNBC. “I think that is an important part of it so we need to monitor and engage that.” With regards to customers, Munoz said safety was by far the most important issue “We are not letting our customers and our employees on an aircraft that we don’t find safe and so we will have to reassure them. And if people do have concerns, we will always take care of our customers in some way.’’ United is sticking with its full-year financial guidance but Munoz conceded the grounding would have more impact the longer it went. “I hope that we return this aircraft to flight safely and in the right time frame,’’ he said. Feeling the pain on the other side of the Atlantic is Norwegian, which has a fleet of 18 MAX aircraft and ran at a loss in its first quarter. The airline said it expects to the “negative effects” of the 737 MAX grounding to be 500m Norwegian Kroner ($US57.6m) and that the problems threatened its plans to return to profitability. The airline has agreed with Boeing and Airbus to reschedule aircraft deliveries to cut capital spending and has implemented an extensive cost-cutting program. Like the US carriers, the company combined flights and booked customers on other services within its network to reduce the impact of the groundings. “Our dedicated colleagues at Norwegian have been working day and night to find solutions for our customers. They will continue to do their utmost to ensure that all flights continue to depart as planned, regardless of how long the MAX stays out of service,” chief executive Bjorn Kjos said. Meanwhile, Garuda Indonesia president Ari Ashkara told the Nikkei Asian Review Wednesday that the airline had done a deal with Boeing to replace its order of Boeing 737 MAX 8 aircraft with other Boeing planes. He said the MAX 8s would be replaced by &37 MAX 10s and 787s of roughly the same value, adding that the airline “believes in Boeing aircraft and its technological capabilities”.  

Get the latest news and updates straight to your inbox

No spam, no hassle, no fuss, just airline news direct to you.

By joining our newsletter, you agree to our Privacy Policy

Find us on social media

Comments

No comments yet, be the first to write one.