Categories: Travel

The Financial Hit to Airlines to Replace Grounded Boeing Jets – Skift

Airlines around the world are starting to assess the financial impact of this week’s grounding of the Boeing Co. 737 Max jetliner, following the second deadly crash of the plane model in five months.

Securing used aircraft to replace the grounded planes would cost about $250,000 a plane each month, said George Ferguson, an analyst at Bloomberg Intelligence. For Southwest Airlines Co., the biggest buyer of the revamped single-aisle workhorse, that would mean an extra cost of around $8.5 million for its 737 Max fleet of 34 planes.

But the world doesn’t have enough used or parked planes to replace more than 350 grounded Max jets, and airlines are likely to press Boeing for compensation. Ferguson estimates a cost to Boeing of at least $100 million a month just from reimbursing carriers. And that doesn’t include the cost of a software update in the works or any other modifications that may be required.

“The longer it drags on, that number goes up,” Ferguson said.

To be sure, airlines are used to rolling with the punches from bad weather and other disruptions. Flight cancellations from the Max’s grounding “in the near-term will likely pale in comparison to what airlines regularly suffer during significant weather events,” Jose Caiado, an analyst at Credit Suisse Group AG, said in a report.

But the timing in March adds a new hurdle to the airline industry’s first-quarter results, Caiado said.

Southwest Airlines

The carrier’s earnings outlook is at risk because more planes are out of service than previously expected, Kevin Crissey, an analyst at Citigroup Inc., said in a note to clients. Southwest was already struggling with a spate of groundings for maintenance amid tense labor talks with its mechanics.

Southwest is “having a tough quarter operationally,” Crissey said. Because of the Max grounding, the Dallas-based airline “is facing a larger aircraft shortage, with essentially no notice.”

Air Canada

Air Canada suspended its financial forecast for the first quarter and full year because of the grounding.

“Air Canada continues to adapt a contingency plan to address the evolving situation and will provide updates as developments warrant,” the carrier said in a statement Friday. It left financial guidance for 2019-2021 in place, and BMO analyst Fadi Chamoun said he considered the Max grounding to be a short-term issue.

United Continental

United Continental Holdings Inc. said it wasn’t experiencing a significant operational or financial effect from the grounding. But in a regulatory filing Friday, the airline cautioned that the impact was likely to worsen if the Max ban stretched into the busy summer travel season.

Ryanair Holdings

The Irish carrier will be among the most-affected by the grounding because it has among the largest number of Max planes in operation and scheduled for delivery this year, Ferguson said. The airline has “robust expansion plans” that may have to be reduced if the Max ban lasts more than a few months, he said.

Norwegian Air

The grounding affects about 1 percent of Norwegian Air’s overall seat capacity, according to Chief Executive Officer Bjorn Kjos. The carrier has said it will seek reimbursement from Boeing for the costs of the grounding, which a DNB analyst estimates at between NOK5 million and 15 million a day. Norwegian has 18 Max 8 planes.

Air China, China Southern

Chinese carriers shouldn’t see a material impact to profits or growth plans because the Max accounts for 2.7 percent of combined air fleets in the country, said Rahul Kapoor, a Bloomberg Intelligence analyst.

“China Southern and Air China operated 24 and 16 of the models, respectively, too few for a huge blow to their operations and traffic growth,” he said in a March 14 report.

The impact to Chinese carriers’ growth is also likely to be limited, as they have no major outstanding orders. But that could change in the event of a longer-term flight ban.

China Eastern has said it wants to talk to Boeing about losses caused by the Max grounding.

Other Asian Carriers

Planned capacity growth by Indian low-cost carriers Spicejet and Jet Airways, as well as Vietnam’s VietJet, are at risk of being delayed on Boeing’s suspension of Max deliveries, Kapoor said. SpiceJet, VietJet and Indonesia’s Lion Air are among carriers with the largest order books for the 737 Max.

A Lion Air 737 Max 8 crashed into the Java Sea on Oct. 29, killing 189. Less than five months later, an Ethiopian Airlines plane of the same type slammed into the ground minutes after takeoff from Addis Ababa.

–With assistance from Ryan Vlastelica, Michael Bellusci, Anna Molin and Gerald Porter Jr..

©2019 Bloomberg L.P.

This article was written by Mary Schlangenstein from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to

Photo Credit: The interior of the cockpit of the now-grounded Boeing 737 Max jet. Bloomberg

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