User avatar
Dutchy
Topic Author
Posts: 9486
Joined: Sat Nov 03, 2007 1:25 am

Financial effect of the 737MAX grounding

Fri May 24, 2019 11:19 am

I thought it was worth discussing it in a separate thread to keep it more organized if not, the mods are welcome to merge it with another 737MAX thread.

Ryanair secures compensation deal from Boeing

So Ryanair is set to get hundreds of millions of Euros in compensation for the grounding of the MAX. It is said that Boeing loses 1bn USD per month as long as the grounding stays in effect. It looks like the grounding will last till September at least, so that is 5bn in loses for Boeing. That is quite a lot of money to recoup in this project, about 8,5million per plane if they deliver 6.000 of them and they will actually fly again in September.

Are there any other deals struck already? What are your thoughts about this?
Many happy landings, greetings from The Netherlands!
 
FluidFlow
Posts: 223
Joined: Wed Apr 10, 2019 6:39 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 11:36 am

You might be interested in this article as well:

https://www.insurancejournal.com/news/international/2019/05/17/526722.htm

It gives a look from the insurance side. They claims are right now at an estimate of 450 million for European insurance and around 1'000 million for settling passenger claims.

Now all the insurance coverage are capped of course and with claims that high, if the claim is not 100% justified there will be a legal battle as well about possible recoveries. On top of that, insurance companies will subsequently increase premiums for Boeing and probably MAX customers.
 
MIflyer12
Posts: 5389
Joined: Mon Feb 18, 2013 11:58 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 11:37 am

Dutchy wrote:
It is said...


Said by whom, please?
 
StTim
Posts: 3401
Joined: Thu Aug 08, 2013 7:39 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 11:46 am

I am not sure if Boeing loses $1bn or if in fact the bulk of this is the revenue shift from not being able to delver MAX's - most of which will come in later when the grounding is lifted.

There is however no doubt that this is hurting Boeing - and the longer it goes on the worse that impact becomes.
 
User avatar
Dutchy
Topic Author
Posts: 9486
Joined: Sat Nov 03, 2007 1:25 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 11:50 am

MIflyer12 wrote:
Dutchy wrote:
It is said...


Said by whom, please?


Don't recall whom said it, sorry.

But this might give you an indication that this figure of 1bn / month isn't far fetched.

https://www.cbsnews.com/news/boeing-ear ... -max-woes/

Compensations needs to be paid, delivery is suspended thus capital is invested in planes already build and are being built at the moment, because of this the delivery of other planes will be put back as well, 10 a/c a month aren't build at the moment and need to be recouped somehow etc. etc. etc. etc. In essence, Boeing isn't performing like it has been contracted to do, so as with anything in aviation, everything is very expensive and if you get it wrong, it really gets out of hand quite quickly.
Many happy landings, greetings from The Netherlands!
 
BlatantEcho
Posts: 2098
Joined: Wed Sep 27, 2000 10:11 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 12:36 pm

a) I believe Southwest is planning to have Max's flying in July. So, not sure where September comes from.

b) this is what happens sometimes. When our company fails our customers, we make up for it with some form of compensation.
Sure, the numbers are 'large' to you and most people, but, I fail to see why people get so excited about it.
Boeing had another plane grounded a few years back - this has happened before.
 
User avatar
Dutchy
Topic Author
Posts: 9486
Joined: Sat Nov 03, 2007 1:25 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 1:36 pm

Yes, it has happened before, but the impact of the 787 was smaller than the impact of the 737MAX, you must agree on this. It will not ruin Boeing, but it clearly hurts Boeing a lot. All the engineers working on it to fix it as soon as possible could have been working on new projects or on projects to make the MAX even more efficient. All the compensation money needs to come from somewhere, and that money could have been spent on something else, lowering the cost for the MAX in order to have a greater market share or more profits which could have invested elsewhere.

We'll see if Southwest will be able to fly in July, it sounds like the regulatory agencies aren't all on board and I doubt that the FAA will grant approval for restarting operations before they are sure it will be followed worldwide given the sh!t storm they have found themselves in.
Many happy landings, greetings from The Netherlands!
 
User avatar
par13del
Posts: 8653
Joined: Sun Dec 18, 2005 9:14 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 1:41 pm

So how many engineers do you think are required for the software fix?
A hardware fix requires a new rudder and elevator, so unless the FAA mandates that, it will not happen.
 
SEU
Posts: 146
Joined: Wed Mar 13, 2019 7:21 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 1:53 pm

BlatantEcho wrote:
a) I believe Southwest is planning to have Max's flying in July. So, not sure where September comes from.

b) this is what happens sometimes. When our company fails our customers, we make up for it with some form of compensation.
Sure, the numbers are 'large' to you and most people, but, I fail to see why people get so excited about it.
Boeing had another plane grounded a few years back - this has happened before.


Doubt itll be in the air that quick
 
User avatar
gatibosgru
Posts: 1513
Joined: Thu Oct 18, 2007 2:48 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 1:54 pm

BlatantEcho wrote:
a) I believe Southwest is planning to have Max's flying in July. So, not sure where September comes from.


No MAXs flying in July for WN
https://www.google.com/amp/s/www.cnbc.c ... ugust.html
@DadCelo
 
weezydrvr
Posts: 5
Joined: Thu May 10, 2018 5:43 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 1:57 pm

gatibosgru wrote:
BlatantEcho wrote:
a) I believe Southwest is planning to have Max's flying in July. So, not sure where September comes from.


No MAXs flying in July for WN
https://www.google.com/amp/s/www.cnbc.c ... ugust.html


That’s just the planes removed from the schedule ... If (and that’s a big if) the Max is flying again by July, Southwest has stated that they will be used solely as spares and not integrated back into the schedule until after that early August timeframe.
 
User avatar
lightsaber
Moderator
Posts: 17670
Joined: Wed Jan 19, 2005 10:55 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 2:33 pm

What is amazing is this doesn't put Boeing into a loss.

Dispute the huge amount of absolutism we see in these threads, people will forget.

BlatantEcho wrote:
a) I believe Southwest is planning to have Max's flying in July. So, not sure where September comes from.

b) this is what happens sometimes. When our company fails our customers, we make up for it with some form of compensation.
Sure, the numbers are 'large' to you and most people, but, I fail to see why people get so excited about it.
Boeing had another plane grounded a few years back - this has happened before.

I don't see the excitement either. All I hear is July.

To others:. Engineering a solution takes time. The systems labs are testing. Flight testing will be in June. Deployment in July. Perhaps we see a month slip, perhaps not.

As a side note, a Billion per month is about right. Cest la vie.

If the flight test starts on time, software engineers go back to 797 code and we have a launch, possibly at Paris.

Lightsaber
IM messages to mods on warnings and bans will be ignored and nasty ones will result in a ban.
 
zoom321
Posts: 38
Joined: Sat Mar 09, 2019 3:05 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 2:40 pm

In the end, Boeing should feel very lucky if they can make more than 1 cent of profit on Max, even with disneyland accounting.
 
BREECH
Posts: 615
Joined: Tue Jun 30, 2009 3:20 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 2:51 pm

Correct me if I'm wrong but out of five passenger aircraft models the Boeing currently produces:

- One is grounded under a huge scandal and is investigated for cutting the safety corners
- One is suspected to be produced under subpar production standards in a place that was chosen only for its lack of unions
- One is being rejected by the US Air Force because ladders were found in the electronic bay, and the investigation of a cargo variant crash threatens to reopen a 20-year-old scandal with an Egyptian airline
- One is produced at the rate of 0.5 per month, and
- One might not be allowed to grandfather the older version certification

In other news, Boeing may lose its the largest market in a trade war; the European, Canadian and Chinese authorities may not be satisfied with the "fix" Boeing is proposing and may even require full recertification that may take a very long time. Oh, and a class-action lawsuit from shareholders is ongoing.

I don't think the "financial effect" is limited to the MAX alone. From where I'm sitting Boeing sure looks like the 1990 PanAm.
No friendship, love or respect unite people as much as shared hatred.
Sergey Dovlatov
 
User avatar
lightsaber
Moderator
Posts: 17670
Joined: Wed Jan 19, 2005 10:55 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 3:07 pm

Correction, fly late June:

https://www.bing.com/amp/s/mobile.reute ... SKCN1ST1T1

Late edit:
To be clear, that is the return to service date of Late June.

Lightsaber
IM messages to mods on warnings and bans will be ignored and nasty ones will result in a ban.
 
frmrCapCadet
Posts: 2987
Joined: Thu May 29, 2008 8:24 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 3:21 pm

Aren't there 'fine print' sections of contracts between Boeing and airlines which delineate and to a degree limit liability in cases like this?

And it may be likely Boeing, Lion, and ET will appoint a referee/arbitrator who will allocate generous settlements to survivors of those who died in the two accidents. This could as I see it approach $2 billion. Boeing will pay most of it.
Buffet: the airline business...has eaten up capital...like..no other (business)
 
User avatar
aemoreira1981
Posts: 2770
Joined: Mon Jan 09, 2017 12:17 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 3:24 pm

There are two airlines in particular who would be hit hard as they have the MAX but no NG: Air Canada and Icelandair. Has either filed for compensation?
 
User avatar
Dutchy
Topic Author
Posts: 9486
Joined: Sat Nov 03, 2007 1:25 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 3:28 pm

aemoreira1981 wrote:
There are two airlines in particular who would be hit hard as they have the MAX but no NG: Air Canada and Icelandair. Has either filed for compensation?


Probably, but we will never know.
Many happy landings, greetings from The Netherlands!
 
User avatar
sassiciai
Posts: 1077
Joined: Mon Jan 07, 2013 8:26 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 3:28 pm

Just the mathematics of $1B does not stack up for me, until we discuss and I understand the logic better

Production continues (at a slightly reduced rate) but deliveries have stopped. Boeing is not being paid for non-delivery, but lets assume that full payments are made after resumption, and count this as "zero"

Damages for death of 365 people - maybe covered by insurance. Count this as "zero"

Damages for any other court decisions - no news on this front, could be enormous, could be zero. Assume zero now!

Loss of revenue due to lost orders: no idea on this, assume zero!

Claims from airlines for lack of use:
April - 350 frames
May - 350 + 50 = 400 frames
June - 450 frames
July - 500 frames
August - 550 frames

Let's stop there, and add up the above. From April to August, that 's 2250 months of missing revenue to the airlines. In those 5 months, is $5,000,000,000 enough to compensate the airlines? That's $2.2M per plane and per month. Is that enough, too little, too much?

However you look at this, it is not very pretty, and it might just get worse if the grounding, er, grounds on!
 
User avatar
Dutchy
Topic Author
Posts: 9486
Joined: Sat Nov 03, 2007 1:25 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 3:33 pm

BREECH wrote:
Correct me if I'm wrong but out of five passenger aircraft models the Boeing currently produces:

- One is grounded under a huge scandal and is investigated for cutting the safety corners
- One is suspected to be produced under subpar production standards in a place that was chosen only for its lack of unions
- One is being rejected by the US Air Force because ladders were found in the electronic bay, and the investigation of a cargo variant crash threatens to reopen a 20-year-old scandal with an Egyptian airline
- One is produced at the rate of 0.5 per month, and
- One might not be allowed to grandfather the older version certification

In other news, Boeing may lose its the largest market in a trade war; the European, Canadian and Chinese authorities may not be satisfied with the "fix" Boeing is proposing and may even require full recertification that may take a very long time. Oh, and a class-action lawsuit from shareholders is ongoing.

I don't think the "financial effect" is limited to the MAX alone. From where I'm sitting Boeing sure looks like the 1990 PanAm.


:checkmark:

Although Boeing will survive, that is everybody's interest, not the least in Airbus interest.
Many happy landings, greetings from The Netherlands!
 
kalvado
Posts: 1802
Joined: Wed Mar 01, 2006 4:29 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 3:40 pm

Dutchy wrote:
BREECH wrote:
Correct me if I'm wrong but out of five passenger aircraft models the Boeing currently produces:

- One is grounded under a huge scandal and is investigated for cutting the safety corners
- One is suspected to be produced under subpar production standards in a place that was chosen only for its lack of unions
- One is being rejected by the US Air Force because ladders were found in the electronic bay, and the investigation of a cargo variant crash threatens to reopen a 20-year-old scandal with an Egyptian airline
- One is produced at the rate of 0.5 per month, and
- One might not be allowed to grandfather the older version certification

In other news, Boeing may lose its the largest market in a trade war; the European, Canadian and Chinese authorities may not be satisfied with the "fix" Boeing is proposing and may even require full recertification that may take a very long time. Oh, and a class-action lawsuit from shareholders is ongoing.

I don't think the "financial effect" is limited to the MAX alone. From where I'm sitting Boeing sure looks like the 1990 PanAm.


:checkmark:

Although Boeing will survive, that is everybody's interest, not the least in Airbus interest.

As a worst case scenario I can see them going IBM style, spinning off healthy business to get immediate cash. IBM survived, but what is left out of it?
 
DenverTed
Posts: 242
Joined: Wed Mar 27, 2019 11:12 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 3:42 pm

Would they pay airlines compensation much more than the going lease rates? More than say half million a month? Plus there is the cost of storage and training, but a billion a month seems high.
 
FluidFlow
Posts: 223
Joined: Wed Apr 10, 2019 6:39 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 3:45 pm

The class action lawsuit might be the most expensive of them all but this one will go on for a while and a lot of lawyers will make a lot of money in the process.
 
User avatar
Dutchy
Topic Author
Posts: 9486
Joined: Sat Nov 03, 2007 1:25 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 3:48 pm

DenverTed wrote:
Would they pay airlines compensation much more than the going lease rates? More than say half million a month? Plus there is the cost of storage and training, but a billion a month seems high.


Well, Boeing said they have lost 1bn in Q1 because of this, so we will see if the 1bn / month is right or not.
Many happy landings, greetings from The Netherlands!
 
User avatar
sassiciai
Posts: 1077
Joined: Mon Jan 07, 2013 8:26 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 3:49 pm

DenverTed wrote:
Would they pay airlines compensation much more than the going lease rates? More than say half million a month? Plus there is the cost of storage and training, but a billion a month seems high.

500k is the leasing COST to the airline. What does the airline expect to earn by flying the thing during the month? That must be multiples of the leasing cost, IMHO

Edited to add: I don't know the answer, my posts are just trying to get a grip on the likely costs per month of grounding
Last edited by sassiciai on Fri May 24, 2019 3:52 pm, edited 1 time in total.
 
DenverTed
Posts: 242
Joined: Wed Mar 27, 2019 11:12 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 3:52 pm

sassiciai wrote:
DenverTed wrote:
Would they pay airlines compensation much more than the going lease rates? More than say half million a month? Plus there is the cost of storage and training, but a billion a month seems high.

500k is the leasing COST to the airline. What does the airline expect to earn by flying the thing during the month? That must be multiples of the leasing cost, IMHO

Leasing and missing profit maybe 700K? I'd be surprised if Boeing has to pay for fuel, crew, or landing fees that the airline isn't paying for by not flying.
Last edited by DenverTed on Fri May 24, 2019 4:07 pm, edited 1 time in total.
 
User avatar
sassiciai
Posts: 1077
Joined: Mon Jan 07, 2013 8:26 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 4:07 pm

Dutchy wrote:
DenverTed wrote:
Would they pay airlines compensation much more than the going lease rates? More than say half million a month? Plus there is the cost of storage and training, but a billion a month seems high.


Well, Boeing said they have lost 1bn in Q1 because of this, so we will see if the 1bn / month is right or not.


Maybe they still have unresolved claims for Q1 in progress that were not booked in Q1

When did the grounding start - wasn't it at end March? $1B in Q1 is a lot in that short time.

What is unquantifiable currently is how many potential MAX orders have been lost, and even how many booked orders will be cancelled!
 
User avatar
Dutchy
Topic Author
Posts: 9486
Joined: Sat Nov 03, 2007 1:25 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 4:11 pm

sassiciai wrote:
Dutchy wrote:
DenverTed wrote:
Would they pay airlines compensation much more than the going lease rates? More than say half million a month? Plus there is the cost of storage and training, but a billion a month seems high.


Well, Boeing said they have lost 1bn in Q1 because of this, so we will see if the 1bn / month is right or not.


Maybe they still have unresolved claims for Q1 in progress that were not booked in Q1

When did the grounding start - wasn't it at end March? $1B in Q1 is a lot in that short time.

What is unquantifiable currently is how many potential MAX orders have been lost, and even how many booked orders will be cancelled!


I do not subscribe to contributing the MAX orders lost to this grounding. If airlines need planes, they need planes. If they wanted to go to Airbus, they will not get it in the timeframe the MAX's would come online. So either they will come back or they didn't want the aircraft in the first place and used the crisis to cancel. My two cents on this.
Many happy landings, greetings from The Netherlands!
 
DenverTed
Posts: 242
Joined: Wed Mar 27, 2019 11:12 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 4:14 pm

Cash flow might be tight. 60 aircraft a month at 50M is 3B per month missing cash flow, not that it won't come back when they do get delivered. That's another 100M to 200M in finance costs to replace that cash flow.
1B to the crash victims, 1B to the airlines, 1B for new software, training and finance costs. I would estimate 3B to 5B total cost for the MCAS design oversight.
 
kalvado
Posts: 1802
Joined: Wed Mar 01, 2006 4:29 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 4:18 pm

DenverTed wrote:
Cash flow might be tight. 60 aircraft a month at 50M is 3B per month missing cash flow, not that it won't come back when they do get delivered. That's another 100M to 200M in finance costs to replace that cash flow.
1B to the crash victims, 1B to the airlines, 1B for new software, training and finance costs. I would estimate 3B to 5B total cost for the MCAS design oversight.

With clean sheet design being in 5-10B range, that may have interesting implications for next launch
 
BREECH
Posts: 615
Joined: Tue Jun 30, 2009 3:20 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 4:22 pm

kalvado wrote:
As a worst case scenario I can see them going IBM style, spinning off healthy business to get immediate cash. IBM survived, but what is left out of it?

That is actually the BEST case scenario for today's Boeing. The worst case (for them) is if they go the Lockheed's (and and many others') route and leave the passenger market. They have huge space and defense business, and while those are far from easy, it's a lot easier than passenger planes. Nobody has ever grounded a satellite.
No friendship, love or respect unite people as much as shared hatred.
Sergey Dovlatov
 
BREECH
Posts: 615
Joined: Tue Jun 30, 2009 3:20 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 4:25 pm

Dutchy wrote:
Although Boeing will survive, that is everybody's interest, not the least in Airbus interest.

In an ideal world of honest competition, yes, that is in Airbus' best interests. But in reality... Just think about it, this is the first time in history that one aircraft manufacturer faces a very real prospect of having the entire market ALL to themselves.
No friendship, love or respect unite people as much as shared hatred.
Sergey Dovlatov
 
User avatar
sassiciai
Posts: 1077
Joined: Mon Jan 07, 2013 8:26 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 4:36 pm

Dutchy wrote:
sassiciai wrote:
Dutchy wrote:

Well, Boeing said they have lost 1bn in Q1 because of this, so we will see if the 1bn / month is right or not.


Maybe they still have unresolved claims for Q1 in progress that were not booked in Q1

When did the grounding start - wasn't it at end March? $1B in Q1 is a lot in that short time.

What is unquantifiable currently is how many potential MAX orders have been lost, and even how many booked orders will be cancelled!


I do not subscribe to contributing the MAX orders lost to this grounding. If airlines need planes, they need planes. If they wanted to go to Airbus, they will not get it in the timeframe the MAX's would come online. So either they will come back or they didn't want the aircraft in the first place and used the crisis to cancel. My two cents on this.

Not so sure that I agree

If there is a general market "rejection" of the MAX by a (minority> of) travelers, that will automatically dilute interest by airlines in the plane. I already read on this forum of sites that offer the potential booker to avoid MAX-operated flights. That's why the CEO of United has stated he will be on the first UA MAX flight, he is trying to head off the possible exodus of pax from his flights! (Just look at social media on this)

Yes, there is an impossible backlog at Airbus for the A32x, but there is an on-going churn in that backlog, and urgent deliveries can be planned in the interests of everyone - that includes airlines that want to postpone deliveries, or even cancel them, or airlines that go bust! Boeing can still build the NG, it is still certified and good to go! Better than nothing for the next 5 or more years, in the worst case!

Airbus has a relatively new alternative, built on a separate production line. There, A can ramp up as fast as it can, if it wants to! Even Emrbraear could probably do likewise. Maybe not MAX8 , 9, or 10 capabilities, but available to move people in a certified aircraft!
 
davidjohnson6
Posts: 316
Joined: Mon Jun 20, 2016 10:10 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 4:36 pm

Boeing derive far too much revenue from passenger aircraft to just give up on the market right now. It will neex to get seriously bad before it gets to that stage

If it takes a year then it takes a year. Even if the Max product line needs to be abandoned and revert back to 737 NG, they can focus energies on a completely new aircraft design - they have the financial resources to do this
 
User avatar
Dutchy
Topic Author
Posts: 9486
Joined: Sat Nov 03, 2007 1:25 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 4:52 pm

sassiciai wrote:
Boeing can still build the NG, it is still certified and good to go! Better than nothing for the next 5 or more years, in the worst case!


If the worst scenario were to become real, that would be extremely costly for Boeing, write off the 5bn which will not be recouped from the B737MAX development, the buyback of hundereds of MAX's that have been delivered and write of the ones which have been built and continue to be built. The compensation which Boeing will have to pay for the 5.000 planes on order and the huge discounts needs to be given to the B737NG to compensate for the larger fuel consumption. And that is before we count the 10 - 12bn that it will cost to design a new narrow-body aircraft.
That would be really the worst case scenario for Boeing.

I think they will work with all the authorities in order to divert from such a scenario, almost at all cost.
Many happy landings, greetings from The Netherlands!
 
XaraB
Posts: 119
Joined: Fri Aug 17, 2007 9:23 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 5:07 pm

frmrCapCadet wrote:
Aren't there 'fine print' sections of contracts between Boeing and airlines which delineate and to a degree limit liability in cases like this?



Yes, but those limits are void in cases of gross negligence or wilful misconduct. Then the sky's the limit, basically leaving it to the courts.
An open mind is not an empty one
 
ltbewr
Posts: 14168
Joined: Thu Jan 29, 2004 1:24 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 5:12 pm

There are also long-term costs to Boeing from the 737MAX. Likely higher premiums on insurance/reinsurance due to the huge payouts the insurers will be making. They will want to price the premiums in the future to adjust to higher risks and to recover from some of their losses. There will be the loss of sales, forced to give money losing deals to get sales, the costs of deductibles before insurance kicks in as to lawsuit payouts. I suspect the problems with the military side won't help either, maybe losing future contracts.
 
YYZYYT
Posts: 1024
Joined: Tue Apr 05, 2005 12:41 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 5:16 pm

sassiciai wrote:
DenverTed wrote:
Would they pay airlines compensation much more than the going lease rates? More than say half million a month? Plus there is the cost of storage and training, but a billion a month seems high.

500k is the leasing COST to the airline. What does the airline expect to earn by flying the thing during the month? That must be multiples of the leasing cost, IMHO

Edited to add: I don't know the answer, my posts are just trying to get a grip on the likely costs per month of grounding


You're looking at it wrong. Legally, damages are intended to put the innocent party in the same position as if there had been no breach of contract. So, when you lease a replacement plane, you resume revenue and profitability. In Canada, this is called "mitigating the loss", which (i) is a legal requirement for the innocent party and (ii) is deducted from the damages you get to collect, which is fair since you have avoided part of the loss. I would be very surprised in the US state / federal law was any different..

So, leasing cost + transaction cost (training, special support for the "oddball aircraft") and fuel cost differential would be covered, and things like that.

And that is assuming that the contracts don't have language limiting the loss. And assuming that there is no insurance for this type of loss, it may well exist, (you'd be surprised how creative insurance companies can get - eg there was such insurance for sub-prime mortgage loans, as I recall).


More generally, I think some people need to take a huge breath and tone down the craziness.

Do you have any idea how huge Boeing is? It's publicly traded, so its financials are available (I found this in less than 30 seconds on google):

https://www.marketwatch.com/investing/s ... ance-sheet

2018 sales $101.13B.
2018 net profit $10.45B.
Cash and cash equivalent on hand: $8.5B.
"Provision for risk and charges" is $19.1B.
And yes, that is "B" for "Billion".

As lightsaber said, a $5B one-time charge doesn't even put Boeing in the red for the this fiscal year.

Don't get me wrong, I'm not a fan of Boeing management for a number of reasons (including what it tried to do to the CSeries), and I think that the Max showed some poor engineering and management choices which is going to cost them. But at the end of the day, they make great airplanes which are the backbone of shorthaul and longhaul ops in airlines all over the world, and have more financial resources than all of us experts at a.net. Sso they aren't going anywhere, anytime soon because of the grounding.
Last edited by YYZYYT on Fri May 24, 2019 5:31 pm, edited 2 times in total.
 
MrBretz
Posts: 349
Joined: Tue Jun 14, 2016 9:13 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 5:19 pm

Just a thought: airlines who will be compensated could get lost potential profit, not lost revenue. I saw someone up thread estimating potential losses to Boeing and using lost airline revenue. In any case, these numbers will be negotiated among crafty lawyers.
 
planecane
Posts: 991
Joined: Thu Feb 09, 2017 4:58 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 5:44 pm

MrBretz wrote:
Just a thought: airlines who will be compensated could get lost potential profit, not lost revenue. I saw someone up thread estimating potential losses to Boeing and using lost airline revenue. In any case, these numbers will be negotiated among crafty lawyers.


It's probably not so black and white if the airline has MAX related expenses that are ongoing during the grounding, they will be compensated for that. However, the compensation will be for financial damages, it certainly isn't based on revenue.

It's similar to if you break a lease early for non-payment or whatever. If the landlord leases the space to somebody else, they can not sue you for the total rent you would have paid. It is the difference between what you would have paid and what they are able to collect for the remainder of the term. In many states in the USA (possibly all), the landlord is required to make best efforts to find a replacement tenant.
 
User avatar
SRQKEF
Posts: 1847
Joined: Fri Jun 17, 2011 7:10 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 5:52 pm

aemoreira1981 wrote:
There are two airlines in particular who would be hit hard as they have the MAX but no NG: Air Canada and Icelandair. Has either filed for compensation?


I can’t answer for AC but in the case of FI discussions are ongoing according to the management of the airline.
Nothing compares to taking off in an empty 757 with full thrust!
 
User avatar
ACCS300
Posts: 460
Joined: Thu Jun 16, 2016 4:05 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 6:28 pm

I'd be VERY surprised if AC is seeking major compensation, they are, by % of narrowbody fleet, likely the most affected airline. Their 24 MAXs accounted for almost 1/4 of their narrowbodies. Since the MAX groundings, AC has had to employ the services of Qatar Airways YUL-BCN and some YUL-CDG and Omni Air for YVR- Hawaii as well as suspend some TATL routes like YHZ-LHR and other maritimes-Europe routes during the peak summer period.

Major impact IMO, hope AC is playing hardball with Boeing.
 
User avatar
ACCS300
Posts: 460
Joined: Thu Jun 16, 2016 4:05 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 6:31 pm

SRQKEF wrote:
aemoreira1981 wrote:
There are two airlines in particular who would be hit hard as they have the MAX but no NG: Air Canada and Icelandair. Has either filed for compensation?


I can’t answer for AC but in the case of FI discussions are ongoing according to the management of the airline.


Also heard FI seems to be evaluating Airbus narrowbodies for future orders, no doubt influenced by the MAX groundings.
 
User avatar
Dutchy
Topic Author
Posts: 9486
Joined: Sat Nov 03, 2007 1:25 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 6:50 pm

ACCS300 wrote:
I'd be VERY surprised if AC is seeking major compensation, they are, by % of narrowbody fleet, likely the most affected airline. Their 24 MAXs accounted for almost 1/4 of their narrowbodies. Since the MAX groundings, AC has had to employ the services of Qatar Airways YUL-BCN and some YUL-CDG and Omni Air for YVR- Hawaii as well as suspend some TATL routes like YHZ-LHR and other maritimes-Europe routes during the peak summer period.

Major impact IMO, hope AC is playing hardball with Boeing.



I guess you are saying you would be VERY surprised if AC isn't seeking major compensation, am I right to assert this?
Many happy landings, greetings from The Netherlands!
 
User avatar
Dutchy
Topic Author
Posts: 9486
Joined: Sat Nov 03, 2007 1:25 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 7:03 pm

More potential problems for Boeing on the horizon:

Boeing Faces SEC Probe Into Disclosures About 737 Max Troubles

- SEC investigating whether company shared enough with investors
- Inquiry in early stages and might not lead to enforcement case

The U.S. Securities and Exchange Commission is investigating whether Boeing Co. properly disclosed issues tied to the grounded 737 Max jetliner, according to people familiar with the matter, as regulators intensify their scrutiny of the company following two deadly crashes.
Many happy landings, greetings from The Netherlands!
 
BravoOne
Posts: 3417
Joined: Fri Apr 12, 2013 2:27 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 7:04 pm

Some internal unauthorized talking heads are putting this at 15 Billion. BTW, Boeing is pretty much a self insured model.
 
User avatar
Dutchy
Topic Author
Posts: 9486
Joined: Sat Nov 03, 2007 1:25 am

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 7:05 pm

BravoOne wrote:
Some internal unauthorized talking heads are putting this at 15 Billion. BTW, Boeing is pretty much a self insured model.


15 bn?! Hopefully not......

That would be the most extreme case, but even then.
Many happy landings, greetings from The Netherlands!
 
Canuck600
Posts: 172
Joined: Tue Aug 01, 2017 5:24 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 7:06 pm

Although it's probably pretty minor in the scheme of things, I wonder how much Boeing is paying in overtime to all the engineers involved in getting this all sorted out, not to mention contractors & consultants they may have brought in.
 
User avatar
par13del
Posts: 8653
Joined: Sun Dec 18, 2005 9:14 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 7:24 pm

aemoreira1981 wrote:
There are two airlines in particular who would be hit hard as they have the MAX but no NG: Air Canada and Icelandair. Has either filed for compensation?

They don't need to file for compensation......Boeing will contact them on a settlement amount which will then be negotiated.
 
afgeneral
Posts: 86
Joined: Sat Jul 02, 2016 2:43 pm

Re: Financial effect of the 737MAX grounding

Fri May 24, 2019 7:51 pm

Dutchy wrote:
BravoOne wrote:
Some internal unauthorized talking heads are putting this at 15 Billion. BTW, Boeing is pretty much a self insured model.


15 bn?! Hopefully not......

That would be the most extreme case, but even then.


That's not the most extreme case, maybe a slightly pessimistic case assuming the MAX resumes flying later this year.

The most extreme case would be they have to scrap undelivered aircraft, buy back all MAXs already delivered and scrap them as well, cancel the order book and be left with the NG to compete with the NEO for 5-8 years so they can design a new narrowbody.

Popular Searches On Airliners.net

Top Photos of Last:   24 Hours  •  48 Hours  •  7 Days  •  30 Days  •  180 Days  •  365 Days  •  All Time

Military Aircraft Every type from fighters to helicopters from air forces around the globe

Classic Airliners Props and jets from the good old days

Flight Decks Views from inside the cockpit

Aircraft Cabins Passenger cabin shots showing seat arrangements as well as cargo aircraft interior

Cargo Aircraft Pictures of great freighter aircraft

Government Aircraft Aircraft flying government officials

Helicopters Our large helicopter section. Both military and civil versions

Blimps / Airships Everything from the Goodyear blimp to the Zeppelin

Night Photos Beautiful shots taken while the sun is below the horizon

Accidents Accident, incident and crash related photos

Air to Air Photos taken by airborne photographers of airborne aircraft

Special Paint Schemes Aircraft painted in beautiful and original liveries

Airport Overviews Airport overviews from the air or ground

Tails and Winglets Tail and Winglet closeups with beautiful airline logos