737 Max grounding will cost American and Southwest Airlines more than $1 billion
Posted October 24, 2019 8:39 a.m. EDT
CNN — The grounding of the Boeing 737 Max will cost American and Southwest airlines at least $1 billion between them, the airlines reported Thursday. And that price tag is expected to climb.
Southwest said the seven-month grounding cost it $435 million through the end of September. It has 31 of the troubled jets, more than any other Boeing customer. Southwest said the costs will continue to mount in the fourth quarter and into next year.
American, which has 24 of the jets, said it forecasts that the full-year hit to its pre-tax profit will be $540 million. It canceled 9,500 flights due to the grounded jets in the third quarter alone.
The jets were grounded worldwide in March after two fatal crashes killed 346 people.
Southwest said it will continue to negotiate with Boeing about compensation the airline will receive for its lost revenue and profits. Boeing has already set aside $5 billion to compensate airline customers because of the 737 Max grounding.
The $5 billion is meant to cover costs for all airlines, with a combined 387 Max planes in their fleets at the time of the grounding. In addition Boeing had been scheduled to deliver more than 400 737 Max jets through the end of the year. Those deliveries were also halted by the groundings.
With two major airlines reporting more than $1 billion in lost profits between them, a large gap could exist between what airlines are losing due to the crisis and what Boeing has told investors it will have to pay in the way of compensation.
United Airlines, which has 14 of the 737 Max planes in its fleet, has not given an estimated cost of its losses.
Boeing continues to expect approval to fly the jets again by end of this year, although it has consistently fallen behind its own timeline. The Federal Aviation Administration said Friday that there is no timetable for the approval to fly again.
But Southwest said Thursday that even once the plane is approved to fly again, it will take some time before it is able to use them to carry passengers. Once it gets approval to fly the jet, Southwest said it estimates it will take one to two months to comply with FAA directives, including pilot training. That's why Southwest removed the 737 Max from its flight schedule through February 8, 2020. American's flight cancellations at this time only extend through January 15.
In addition to the losses to the airlines, the Southwest pilots union is suing Boeing, hoping to recover more than $100 million in lost wages for its members.
Despite the losses attributed to the missing jets, Southwest reported strong earnings for the third quarter Thursday. Revenue rose 1%, and profits rose 7% compared to year earlier results, topping forecast. American also reported improved earnings, although it fell short of both Wall Street forecasts and its own expectations.