SpiceJet has reached a settlement with Boeing over the 32-month grounding of the 737 MAX. Stock filings did not include details about the financial settlement and only mentioned "certain accommodations" made by Boeing. The settlement allows for the 737 MAX to return to service for SpiceJet and comes a day after startup Akasa Air announced an order for 72 737 MAXs.
Agreement made
After three financial years of attempting to claim compensation from Boeing over the grounding of the 737 MAX, SpiceJet has formally reached an agreement with the American manufacturer. In a filing today, the airline revealed that it has settled all outstanding claims over the MAX and can now return the jet to service.
Notably, the filing does not mention the financial compensation received, if any, with a statement saying,
"Boeing has agreed to provide certain accommodations and settle the outstanding claims related to the grounding of 737 MAX aircraft and its return to service."
The settlement makes way for SpiceJet to boost its capacity and finally reach 2019 levels. However, the timing also comes at a difficult time for SpiceJet with a new MAX operator set to take to the skies within the next year.
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Other income now gone
SpiceJet has been relying heavily on 'other incomes' to improve its financial results since the March 2019 grounding of the MAX. This assumed income came from internal calculations and was not confirmed by Boeing, raising questions among auditors on whether the airline should include this in financial results.
We will know more about the financial details of the settlement next month when SpiceJet will stop including other income from Boeing and possibly make adjustments to account for the difference in assumed and actual income from the compensation deal. This will be reflected in the third fiscal quarter of 2021, one which is expected to be strong for the airline as passenger traffic rebounds.
Capacity up
SpiceJet's settlement for Boeing will have far-reaching consequences for the airline. The first result will be that the airline can bring back 13 737 MAXs currently parked across India, instantly boosting capacity. The second will be the resumption of MAX deliveries to the low-cost carrier. With tens of planes produced since 2019, SpiceJet has a substantial backup of deliveries.
The timing of the settlement also tells us about the threat SpiceJet faces from startup Akasa Air. The Rakesh Jhunjhunwala-backed carrier announced an order for 72 737 MAX at the Dubai Air Show, bringing the airline one step closer to launching. For now, the Indian market is set for expansion once again.
What do you think about SpiceJet's settlement will Boeing? Has Akasa Air's order changed the market? Let us know in the comment!