Will Boeing Compensate Airlines For 737 MAX Disruption?

With anywhere up to 400 Boeing 737 MAX aircraft grounded worldwide after the Ethiopia crash, the question of compensation for affected airlines is a pertinent one. For the last week of March, analysts put the number of affected flights at 6,458.

Southwest Boeing 737 MAX 8 aircraft
Thousands of flights have been cancelled due to the 737 MAX grounding. Photo: Southwest.

A total of around 400 737 MAX aircraft have been delivered to airlines in total. Airlines which included the 737 MAX in their fleet and routes may have had to adjust schedules, issue cancellations, swap, or even lease new aircraft to compensate.

Cancellations and costs are mounting for airlines

Southwest airlines, for example, have reported canceling 10,000 flights since mid-February. These cancellations are due to the global grounding of the 737 MAX. But, they are also due to weather disruption and a dispute with its mechanics’ union.

In total, 2,800 of the 10,000 cancelled flights were directly due to the grounding. To glean a monetary idea, the total financial impact to Southwest of all the cancellations is an estimated $150 million in the first quarter of 2019. Southwest is cutting back on a number of flights until at least April 20th to account for an ongoing grounding. The airline said in their last financial filings:

As a result of the cancellations, the Company now estimates its first quarter 2019 year-over-year available seat mile (ASM, or capacity) growth to be approximately 1 percent, compared with its previous growth guidance in the 3.5 to 4 percent range.

Norwegian Boeing 737 Max 8 takes off from Edinburgh Airport.
Norwegian Boeing 737 Max 8 takes off from Edinburgh Airport. Image Source: Norwegian Air and Ian Georgeson

Some airlines are already planning to seek compensation

Another affected airline, Norwegian Air, has ceased ticket sales for its 737 MAX operated routes. It has a fleet of eighteen of the aircraft. The airline, according to reports, is rerouting, reallocating, and rebooking to meet shortfalls. Norwegian Air had previously planned to sell six of its 737-800s compensating for the capacity by using 787s.

On March 13, it was revealed that Norwegian Air would ask Boeing for compensation. CEO Bjorn Kjos said of the costs of grounding its 737 MAX fleet:

We will send this bill to those who produce this aircraft.

Kjos added at the time:

We hope and expect that our MAXs will be airborne soon.

India’s SpiceJet followed Norwegian Air in saying it would seek compensation. CNN reported an unnamed senior SpiceJet executive as explaining:

We will seek compensation from Boeing for the grounding of the planes. We will also seek re-compensation for revenue loss and any kind of maintenance or technical overhaul that the aircraft will have to undergo. This is part of the contract, which we signed with Boeing for all the 737 MAX aircraft.

SpiceJet has grounded its 12 737 MAX aircraft affecting 12 international routes. The airline has 193 more on order, and had planned to add 15 of the planes to its operation this year.

Boeing has paid compensation to airlines over groundings before

Analysts estimate that the total revenue lost by affected airlines could be close to $60 million per day and that Boeing could face lawsuits reaching hundreds of millions of dollars, from passenger relatives as well as airlines. Boeing earned over $10 billion profit in 2018, so it’s clear they can afford it. But Boeing isn’t just set to lose money in compensation claims; lost orders and reputation could cost the company more still.

Boeing 737 MAX
The world’s Boeing 737 MAX fleet is currently grounded. Photo: Boeing

Boeing has had to pay compensation to airlines in the past. In 2013 it paid an unrevealed amount to airlines affected by a three-month grounding of the 787 Dreamliner. This was after some of the 787 Dreamliner’s batteries caught fire, which is nothing near as serious as the issue with the 737 MAX Boeing faces today.

It’s very likely that Boeing will need to compensate airlines for the disruption caused by the grounding of the 737 MAX. When and how much that will be remains to be seen.