Sunday, March 17, 2019

How much will it cost Boeing to compensate for all grounded B737 MAX planes?

The airlines of 50 nations that are incurring a heavy loss from the grounding of their Boeing 737 MAX family aircraft could hit the US maker of the plane with a hefty bill, aviation sources indicate. Airlines across the world have grounded B737 MAX aircraft on the orders of respective national civil aviation authorities following the accident of an Ethiopian Airlines plane, the second similar accident involving a new B737 MAX in five months after Indonesian Lion Air crash on October 29.

While national civil aviation authorities were taking their time to decide on the course of action individual airlines started grounding the MAX planes on their fleet announcing their decisions. On March 13, US President Donald Trump in an unconventional move beat the US Federal Aviation Administration (FAA) to announce a ban on the flying of B737 MAX planes. "It's a terrible, terrible thing," Trump said on Wednesday, announcing that the planes would be grounded in the US, lamenting that modern aircraft are becoming too complicated to fly.

The grounding of a large number of aircraft popular with airlines worldwide has resulted in chaos at airports across the world. While the compensation that the Boeing company might be liable to pay would depend on the contracts that the company has signed with individual airlines, aviation experts say the company might have to foot a heavy bill. The severe shortage of aircraft of the same capacity as MAX planes will complicate the issue for most airlines as there are not enough free aircraft available anywhere.

Some industry observers draw a parallel to the current fiasco with the temporary grounding of Boeing 787 Dreamliner in 2013. Boeing then paid an undisclosed amount to airlines after the grounding of the aircraft following complaints of onboard batteries catching fire. The crisis lasted only two weeks and only 50 aircraft were involved, according to a report in Newsweek. A CNN report then quoted Boeing company as claiming that the financial cost of the crisis to the company then was minimal. Japan's All Nippon Air said after the 2013 incident that it lost about $15 million from grounding its 17 Dreamliners, though it did not reveal the amount of compensation. However, there were nearly 350 B737 MAX in operation and there is no end in sight for the crisis. Boeing has not given a timeframe for releasing the fix for the technical issue that the aircraft might be facing.

According to George Ferguson, an analyst at Bloomberg Intelligence, Southwest Airlines Co, the airline with the largest fleet of 34 MAX planes, the airline would incur an extra cost of around $8.5 million for replacing all the grounded aircraft. Ferguson estimates a cost to Boeing of at least $100 million a month just from reimbursing carriers. And that doesn't include the cost of a software update in the works or any other modifications that may be required. "The longer it drags on, that number goes up," Ferguson told Bloomberg. Finding used aircraft to replace the grounded planes would cost about $250,000 a plane each month, Ferguson said.
17/03/19 Prathapan Bhaskaran/IBTimes