Advertisement

U.S. airlines face pressure as Boeing groundings last far longer than expected

FILE PHOTO: FILE PHOTO: A number of grounded Southwest Airlines Boeing 737 MAX 8 aircraft are shown parked at Victorville Airport in Victorville, California, U.S., March 26, 2019.  REUTERS/Mike Blake -/File Photo/File Photo.
FILE PHOTO: FILE PHOTO: A number of grounded Southwest Airlines Boeing 737 MAX 8 aircraft are shown parked at Victorville Airport in Victorville, California, U.S., March 26, 2019. REUTERS/Mike Blake -/File Photo/File Photo. Mike Blake/Reuters

DALLAS  — The grounding of the Boeing 737 Max has lasted far longer and, as Southwest Airlines and American Airlines can attest, been more expensive than airlines ever expected.

The CEOs of both airlines say they are talking to Boeing about compensation for damages running into the hundreds of millions — and counting.

Southwest has had an all-Boeing fleet since it began flying 48 years ago, but that could change. CEO Gary Kelly said the Southwest board has directed him to study whether the airline should start buying planes from other aircraft makers, which would almost certainly be Boeing’s European rival, Airbus.

READ MORE: Air Canada delays return of 737 Max until February 2020

“We put our future in the hands of Boeing and the Max and were grounded,” Kelly said on CNBC.

Story continues below advertisement

That has cost Southwest US$435 million in operating income since March when the Max was taken out of the air by regulators after a second fatal crash. American put its cumulative Max-related loss at $540 million.

American Airlines Chairman and CEO Doug Parker said he is in early talks over compensation.

“We feel highly confident that the losses that American Airlines has incurred won’t be incurred by American shareholders, but will be borne by the Boeing shareholders,” Parker said on a call with analysts and reporters.

Text messages reveal 737 Max problems discovered long before deadly crashes
Text messages reveal 737 Max problems discovered long before deadly crashes

Parker and Kelly both repeated that their airlines maintain their full faith in Boeing’s ability to fix the plane, and they are eager to put them back into service.

Boeing said this week that it still expects approval this year from the Federal Aviation Administration for changes it is making to flight software and computers on the Max. Kelly said “everything has to go pretty perfectly” for Boeing to hit that target. Southwest has taken the Max out of its schedule until early February. American and United, the only other U.S. carrier with Max jets, are aiming for a January return.

Story continues below advertisement

READ MORE: Boeing test pilot expressed concern about 737 MAX flight system, messages show

Airlines are getting a lift from strong travel demand and a decline from year-ago fuel prices.

Dallas-based Southwest earned $659 million in the third quarter, up 7 per cent from a year ago, despite taking a $210 million hit in operating income from the Max grounding. Adjusted earnings were $1.23 per share, easily beating analysts’ average expectations for $1.09, according to a survey by Zacks Investment Research.

Revenue rose one per cent to $5.64 billion despite a 3 per cent reduction in passenger-carrying capacity due to the Max grounding. A closely watched figure, revenue for each seat flown one mile, rose about per cent.

Southwest Airlines Co. shares rose $2.53, or 4.8 per cent, to $55.77 in afternoon trading after beginning the day up nearly 15 per cent this year.

Shares of American Airlines Group Inc. were up 79 cents, or 2.8 per cent, to $29.08 and began the day down 12 per cent this year.

Fort Worth, Texas-based American reported third-quarter profit of $425 million, a 14 per cent increase. American, however, lowered the top end of its forecast for full-year profit.

Ex- Ethiopian Airlines engineer says airline breached Boeing 737 maintenance records
Ex- Ethiopian Airlines engineer says airline breached Boeing 737 maintenance records

American is coming off a dreadful summer for flight delays and cancelations caused not only by the Max but also a caustic fight with unions over stalled contract negotiations. The company sued two unions and convinced a federal judge to agree that some aircraft mechanics conducted an illegal work slowdown this year, idling an unusually high number of planes at times. After a five-month break in negotiations, contract talks resumed last month.

Story continues below advertisement

American’s problems have triggered speculation about a change in management. On Thursday, the normally laid-back Parker gave an unusually forceful promise that next year will be better than this one because American will get its Max jets back and settle the labor dispute.

“Nice to hear the renewed vigor,” J.P. Morgan analyst Jamie Baker told Parker.

“Doug, whatever coffee you had this morning, I’d like some of it,” said Stifel analyst Joseph DeNardi.