Boeing’s ending balance at the end of the third quarter for 737 MAX customer concessions and other considerations liability stood at nearly $6 billion. Though not all of these liabilities are in cash, it is clear that the 737 MAX debacle is costing Boeing a pretty penny.
Nearly $6bn in liabilities
In a stock exchange filing for the third quarter of 2020, Boeing noted it had $5.981 billion in 737 MAX customer concessions and other considerations liability during 2020. Much of this comes from Boeing’s compensation deal with customers over the 737 MAX grounding, which has stretched over 18 months at this point.
The liability total includes $1.6 billion that is expected to be liquidated by lower customer delivery payments. In essence, Boeing’s compensation deal with customers means they have to pay less upon delivery for certain MAX aircraft, which means a lower cash influx from these jets in the future.
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In cash, Boeing expects $800 million to be paid in cash and another $200 million in other concessions. Breaking apart the cash payments, Boeing expects $200 million in payments to customers in 2020 and $400 million in 2021.
The remainder of the $3.4 billion will depend on the outcomes of negotiations with customers. Some airlines may choose to get some cash while others could go for lower predelivery or delivery payments.
Agreements with customers
Since the 737 MAX grounding began, Boeing’s customers have been negatively impacted by the aircraft being out of service. For airlines like American, Southwest, and United, this wreaked havoc on schedules for the busy summer season.
Customers then turned to Boeing looking for some compensation. Some factors that both the airline and Boeing weigh include considerations of reduced schedules, costs for leasing aircraft to make up for the lost capacity, and storage costs, among others.
Some airlines have already agreed to some form of compensation. Others, however, continue to have ongoing negotiations. With the end of the 737 MAX grounding in sight, Boeing is likely getting to the end of its customer negotiations and growing bill. One variable, however, is whatever costs Boeing needs to shoulder to fixing the MAX.
The end of the 737 MAX grounding is in sight
Global regulators, airlines, and Boeing believe the end of the 737 MAX grounding is near. Regulators have recently projected a sign of confidence in the aircraft getting ready to fly customers again.
There is still, however, time until the MAX reenters commercial service. First and foremost, after regulators approve the Boeing 737 MAX to fly, maintenance personnel and Boeing will need time to prepare the aircraft for service. In addition, pilots will need to undergo any requisite training using a relatively limited number of simulators around the world.
Airlines will then need to make their own decisions about how they want to get the MAX back in service. Like American Airlines, some are planning customer tours of the aircraft; some may choose to do pilot test flights before ever flying passengers.
Are you surprised at Boeing’s outstanding 737 MAX liabilities? Let us know in the comments!