How Bad is the Halting of 737 Max Production for Airlines?

Archan Sarkar

Boeing’s BA troubles began last March after its best-selling 737 Max jets were grounded post two crashes that claimed 346 lives. The consequences have been crippling for the aircraft manufacturing giant and airliners which operated the jet.

In December 2019, Boeing decided to temporarily suspend the production of its 737 Max jetliners, starting January 2020. This came as another big blow for some of the U.S.-based airline companies that operate the 737 Max in huge numbers. Big airliners in the country, namely, Southwest Airlines LUV, United Airlines UAL and American Airlines Group AAL eventually decided to postpone the return of 737 Max till at least early June.

A Slowdown for Airlines

The grounding affected revenues of Southwest Airlines, the biggest operator of 737 Max in the United States, by around $435 million during the first nine months of 2019, per a CNBC report published in October 2019.

Last October, American Airlines, one of Boeing's biggest customers in the United States, estimated the Max grounding to hurt pre-tax income by $540 million in 2019.

Meanwhile, per a report released by The Wall Street Journal in November 2019, United Airlines witnessed a double-digit increase in operating costs on certain routes due to the seven-month-long grounding of the 737 Max aircraft.

Revenues to Slip Further

Per a report by U.K.-based flight data information firm OAG, the prolonged 737 Max grounding is estimated to have hurt global airline industry revenues by $4.1 billion in 2019. Now, let’s take a look at why revenues might be affected more than what is being estimated.

Recently, Southwest Airlines delayed the scheduled return of the 737 Max aircraft to June 6. Per Reuters, the extension will roughly remove 330 weekday flights from its total peak-day schedule of more than 4,000 daily flights.

American Airlines also recently extended the cancellations of 737 Max flights through Jun 3, per a report by Reuters. Last December, the airline company revealed that it was canceling about 140 flights a day through April 6. Meanwhile, United Airliners extended cancellations of Boeing 737 Max flights from early March until June 2020.

Evidently, as the extension is likely to be prolonged, revenue losses will continue to soar, until the Federal Aviation Administration “FAA’’ lifts the ban on 737 Max production.

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Southwest Airlines Co. (LUV) : Free Stock Analysis Report
 
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