Icelandair Cuts Boeing 737 MAX Order Amid Settlement

Icelandair announced on Tuesday that it had reached a final settlement with Boeing over the grounding of its 737 MAX aircraft. As part of the agreement, the airline has reduced its order commitment for the MAX by four and revised the delivery schedule for the remaining six planes.

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Icelandair has reached a final settlement with Boeing over the grounded 737 MAX. Photo: Getty Images

Boeing agrees to compensation and reduced MAX order

In a press release, the Icelandair Group said that, as part of a final settlement with Boeing, it would be cutting four 737 MAX planes from its purchase commitment. Boeing has also agreed to a revised delivery timeline for the other six aircraft on order.

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Originally, Icelandair had ordered 16 of the ill-fated 737 MAX aircraft. Six had already been delivered before the plane was grounded in March 2019. With four planes cut from the order, the remaining six will be added to the airline’s fleet from quarter two of 2021 to quarter one of 2022.

Most details of the final settlement remain confidential. However, the statement says that Boeing will provide additional compensation to Icelandair to cover “a substantial portion of the damages” that resulted from the carrier’s existing 737 MAX aircraft being grounded. The agreed compensation will be mostly realized by quarter two of 2021. In January, the airline leased three 737-800s to make up some of the shortfall in its fleet.

Icelandair Group said,

“This agreement strengthens Icelandair Group’s liquidity position and allows for more flexible fleet planning in the upcoming years. The MAX aircraft continues to be an important element of the Company’s plan to strengthen its business and increase flexibility and capability for growth.”

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Five 737 MAX were delivered to Icelandair before the type was grounded. Photo: Getty Images

Icelandair reaches agreement with stakeholders

As well as settling with Boeing, Icelandair has also reached conditional agreements with all major stakeholders. Talks with the airline’s creditors have been based on restructuring cash outgoings to match anticipated cash income.

The agreements are dependent on the company completing its planned share offering and entering an agreement for a government-backed credit facility. Negotiations on the terms of the credit facility are said to be in the last stages. The facility will be provided by Islandsbanki and Landsbankinn and is also dependent on the completion of the share issue.

The airline says,

“As all agreements with key stakeholders have been completed, the Company intends to publish an information memorandum and a timeline for potential investors in the upcoming share offering in the next few days.”

Icelandair has already completed long-term collective bargaining agreements with unions acting for pilots, cabin crew and aircraft maintenance staff. These agreements will enable the airline to be more flexible and competitive as it moves forward.

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Icelandair should emerge stronger with the stakeholder agreements. Photo: Getty Images

Icelandair emerges as a leaner airline

Along with all the world’s airlines, Icelandair has had its toughest year. In April, with most of its fleet grounded, the Icelandic flag carrier reluctantly had to lay off over 2,000 employees. Last month, the airline threatened to fire all of its cabin crew, before later reaching an agreement with the union.

Hopefully, with the latest stakeholder agreements and the settlement with Boeing, Icelandair can look to future security as a leaner airline.

Do you think Icelandair will be stronger as a result of these agreements? Let us know in the comments.