Brazilian airline GOL will receive $412 million compensation from Boeing for the grounding of its 737 MAX aircraft, the airline announced today. As one of the largest customers for the aircraft, the grounding has hit GOL hard, but it remains committed to the 737.
Agreeing its compensation
Reuters reported on May 13th that GOL Linhas Aéreas (GOL), the Brazilian carrier, has agreed on compensation from Boeing over the grounding of its 737 MAX aircraft since March 2019. Boeing will pay GOL 2.4 billion reais, or $412 million.
The aircraft was grounded worldwide following two crashes, in 2018 and 2019. By this time, GOL had taken delivery of seven 737 MAX 8 aircraft, out of an order for 135. This was not the largest order for the 737 MAX (fellow all-737 operator Southwest Airlines is the largest customer with 280 orders), but with an existing fleet size of 127 ( all Boeing 737 NG aircraft), the grounding and subsequent halt in production and delivery had a significant impact on GOL’s operations.
Payment is a relief for GOL
There is no denying that the payment agreement has come at a much needed time. Like all airlines, GOL is suffering during the current coronavirus pandemic and the cash will help its survival.
Compared to many other airlines however, GOL is in a relatively strong financial position already. Flights were down 94% in April 2020, compared to a year earlier. But occupancy rates for those aircraft flying was at 80%, compared to 81% for the previous April.
This is an impressive performance. Many other airlines have been reported very low passenger numbers in April. The only other airline in the region to report figures is Aeromexico. According to Reuters, its aircraft were 48% occupied in April, compared to 82% in the previous year.
Simple Flying reported on GOL’s financial position earlier in May. Despite a loss for Q1 2020, the airline was positive about its liquidity and position for the rest of the year.
GOL still wants the 737 MAX
Although the grounding affected plans and operations, Gol still reported a very successful 2019, with passenger growth of nine percent over 2018. Part of this success, according to Ricard Lark, GOL’s CFO, was down to its 737 fleet. He explained that the airline had been flexible enough to continue its service with high utilization of existing aircraft.
GOL previously stated that it believes the 737 is the perfect aircraft for the Brazilian market. It said,
“We believe that the Boeing 737 is the best aircraft for the Brazilian market due to its ability to achieve over 13 hours of aircraft utilization in high density markets. This supports our highly flexible capacity management model, as well as providing high liquidity and market value consistency in our fleet.”
In February 2020, it announced a sale and leaseback agreement for 11 of its 737 NG aircraft. This would allow them to be replaced with MAX aircraft as they return to production, maintaining their strategy to replace the fleet with MAX aircraft gradually. GOL has since though reduced its orders for the 737 MAX to 95.
It is likely the coronavirus pandemic will affect its future plans, but whatever these are, they will still involve the 737. Despite the grounding and subsequent compensation, it has not fallen out of favor.
What do you think of the compensation agreement between GOL and Boeing? What do you think this means for other 737 MAX operators?