American Airlines has reached a compensation deal with Boeing over the 737 MAX grounding. The amount of compensation to be paid is undisclosed and will be paid out over several years. The airline has also said it will share USD$30 million of that compensation with its 100,000 plus employees through its profit-sharing program.
Deal addresses financial damage sustained by grounding across 2019
The compensation deal with American Airlines concerns financial damage caused by the 737 MAX grounding throughout 2019. The airline notes talks would be continuing concerning financial reparations for 2020. It follows recent settlements reached with several other airlines adversely impacted by the 737 MAX grounding, including Southwest Airlines, Turkish Airlines and Grupo Aeromexico SA.
American Airlines has 24 Boeing 737 MAXs in its fleet. Before the grounding, it was scheduled to have 40 MAXs by the end of 2019. Previously, American has said the grounding would decrease its earnings by USD$540 million in 2019. Boeing has set aside USD$6.1 billion to compensate customers via a combination of cash, in-kind benefits, and discounts.
There are reports that the manufacturer is considering a range of options to preserve cash, including tapping debt markets, freezing acquisitions, cutting research and development, and deferring capital expenditures.
In a statement provided to Simple Flying, American Airlines said;
“American currently does not expect any material financial impact of the agreement to be realized in its fourth-quarter 2019 earnings. The company anticipates accounting for substantially all of the compensation as a reduction in cost basis of grounded MAX aircraft and certain future MAX aircraft deliveries.”
The Boeing 737 MAX is now in its 10th month. American Airlines has pushed the MAX out of its schedules until at least 7 April 2020. More payments could be on the way to American Airlines because there is no guarantee the 737 MAX will be cleared to fly by then. American’s competitor, United Airlines, has removed the aircraft from service through to June 2020.
It was only two months ago that timelines were been floated that would have seen the MAX back in US skies around about now. But that hasn’t happened.
There have been some recent reports that there is also a wiring issue with the MAX and the FAA is reconsidering its position on additional simulator training for the pilots
Grounding disproportionately impacts smaller airlines
Scores of airlines worldwide have been impacted by the 737 MAX grounding. Arguably the grounding is hitting smaller airlines like Fiji Airways disproportionately harder. American Airlines has nearly 1,000 aircraft. Its MAXs make up just a small percentage of its overall fleet. Fiji Airways has just 13 aircraft of which two are MAXs. Further, smaller airlines like Fiji Airways don’t have the financial and infrastructure resources to draw upon to help weather the storm.
But while the big airlines like American Airlines and Turkish Airlines have the muscle to get in first, hopefully, their compensation deals will smooth the path for the smaller airlines as their negotiators head to Seattle to stake their claims.