Coronavirus Counteracts Boeing 737 MAX Capacity Shortage

Just a few months ago, airlines were scrambling to cover routes and schedules as they were hit by the grounding of Boeing’s 737 MAX aircraft. With airlines now cutting as much as 90% of their capacity, or entirely suspending service, contending for replacement jets seems like a preferable agony. 

Coronavirus Counteracts Boeing 737 MAX Capacity Shortage
The coronavirus crisis has made scrambling for replacement jets for the grounded 737 MAX a problem of the past. Photo: Boeing

No more premium short-term leases

The Boeing 737 MAX has been grounded worldwide since mid-March last year after two crashes within six months that killed 346 people. Airlines were losing revenue and having to pay a premium for short-term leases from charter aviation firms to make up for the capacity void the grounding of the aircraft created.

With over 500 Boeing 737 MAXs parked globally, this was a scramble as there are only so many spare commercial passenger aircraft in the world. Passengers were also feeling the effects of the capacity shortage with canceled flights in the thousands, and more frequent bumping. 

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AMerican Airlines 767
American Airlines is parking 300 out of its 900 strong fleet. Photo: Getty Images

How does the corona-crisis affect shortage?

The grounding of the aircraft cut global airline seats over the second, third and fourth quarter of 2019 in the tens of millions. The airlines most affected have been Air Canada, Southwest Airlines, China Southern, Norwegian Air, TUI fly, Air China, and American Airlines. 

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American Airlines canceled 9,475 flights in the third quarter last year because of the grounding order with calculations for over 14,000 over the holiday season and early January. In comparison, in a press release issued on Saturday, the airline said it is now reducing its international capacity by 75% from the 16th of March to the 6th of May.

Domestic capacity is also being reduced by 20% in April, and 30% in May. This means that it will park 300 of its approximately 900 aircraft. The airline owns 24 Boeing 737 MAX. 

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Norwegian Air, who also owns just over 20 MAXs, has canceled 85% of flights. China Southern and Air China are among those hit the hardest due to the corona-crisis with over half a million flights to, from and within China canceled from the beginning of the year. They may also feel that the grounding of the 737 MAX is no longer their biggest headache. 

Boeing 737 MAX
Due to coronavirus capacity cuts, thousands of aircraft are now parked, in addition to the 500 737 MAXs. Photo: Getty Images

Early retirement but reduced settlements

Airlines were also keeping older aircraft in service while waiting for the 737 MAX grounding to be lifted. The recent dramatic reductions to capacity now allows them to retire these old planes immediately. 

Most likely, the settlements that the airlines were seeking from Boeing due to loss of revenue as a result of the grounding of the aircraft will now be significantly less as they can no longer argue that the inability to use the planes are leading to substantial financial damage.

In comparison, a report put the overall full-year airline loss of revenue due to the grounding at about $4,1billion. IATA now estimates the impact of coronavirus to lead to up to $113billion in losses.

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mohave

Because of the union contracts, pilots with the most seniority who usually fly long haul will be the last furloughed. Early retirement (for pilots) in a recession has problems. They will have to retrain for 737 and 320 types. What a mess.

TonytTDK

The notional debt which Boeing currently holds to it’s MAX customers, will bereduced by this situation, but that is barely a crumb of comfort for the manufacturer. They’re something of the order of $50 BILLION in debt. The annual turnover of Boeing Commercial is substantially less than that figure. The… Read more »

Vince

Embraer buying out boeing is unlikely, but boeing selling its commercial aircraft division to comac or some Chinese investment company is a possibility. US gov will not allow the entire boeing company to be bought out by a foreign company but it does not mean that they will not allow… Read more »

Vince

Also it is not necessarily a relief for the airlines. Many off them scrambled and paid a premium to lease an older 737ng to cover the capacity loss during the max groundings. Now these planes are sitting in the hangar but its lease is still being paid. It is likely… Read more »