The Strategist

Airlines are losing revenue because of Boeing 737 MAX scandal

04/30/2019 - 10:10

Publication of quarterly reports showed that the scandal with the Boeing 737 MAX brought major losses not only to the manufacturer, but also to airlines. American Airlines reported that the aircraft down time would cost it $ 350 million, Southwest Airlines - at least $ 200 million, and Norwegian Air - about $ 60 million. Boeing itself has already stated that it could lose about $ 1 billion. In addition, the company may have to respond to more than 30 lawsuits from relatives of those killed in two air crashes involving 737 MAX and shareholders who have incurred losses.

Sergey Kustov
Sergey Kustov
Many airlines reported on the consequences of down time of Boeing 737 MAX aircraft they purchased. Operation of the model has been stopped around the world since mid-March after two air crashes.

Late last week, American Airlines, which operates 24 737 MAX airliners, reported a sharp increase in costs associated with the growing price of fuel and aircraft down time: “We believe that this (idle 737 MAX) will lead to a decrease in annual revenue by $ 350 million. And given the recent increase in oil prices, we expect fuel costs to be $ 650 million more than we had previously predicted.”

Another large American company, Southwest Airlines, which has 34 737 MAX aircraft in operation, reported that their down time would reduce revenue by $ 200 million. In addition, the company said that the lengthy down time of these aircraft could affect its overall replacement schedule and aircraft updates.

One of the largest European operators of 737 MAX, Norwegian Air Shuttle, which operates 18 liners, said that their downtime would already lead to a decrease in revenue of 500 million Norwegian kroner (about $ 60 million). The company said it was trying to minimize the consequences of down time both for itself and passengers, and also agreed with Boeing to postpone the actual supply of 14 previously ordered 737 MAX aircraft that were supposed to go to the airlines in 2020 and 2021.

The sharp drop in orders for 737 MAX has already resulted in a $ 1 billion loss for Boeing Corporation itself. The company reported this to regulators last week. The company added: “If we fail to timely return these liners to operation, we will have to incur additional costs and reduce production of the entire 737 line.”

Apart from the above-mentioned, Boeing’s losses will also be related to other factors. According to Yahoo! Finance’s report, which the aircraft manufacturer itself has not commented, there are 34 lawsuits from families of those killed in two air crashes involving 737 MAX, as well as one class action lawsuit from Boeing shareholders, who believe that they suffered losses from the situation around 737 MAX. Since the beginning of the scandal, Boeing shares have already lost about 10% in price.