I'm curious about how this is being absorbed by the overall airline industry.
- What are carriers doing now that they are "missing" some number of planes? Do they just cut back routes and flights and fly what they have with new schedules? Do they lease planes from others, perhaps bringing retired planes back in service?
- Where are all the MAX planes sitting? Is there that much free storage space at airports? Have they all been flown back to Boeing? Or are they in the desert airplane graveyard, waiting at the door?
- Who is absorbing the cost of these grounded planes? There are lease payments that I'm sure are still due, yet no revenue from the planes. That's a huge cash burn for the airlines. Do you suppose they have business interruption insurance?
- How many of the airlines have sued Boeing for loss of business? I expect every one of them, unless there was some prohibition on that in the plane purchase agreement.
- Does Boeing built to order, or build to stock? I expect it's build to order, so production will only be as fast as orders. And I'm sure airlines will not accept delivery of any new planes until this issue is resolved, hence the current halt in production.
- How many orders have been delayed or cancelled by the airlines? I'm sure more are to come. But I also expect lead time to order and receive a plane is quite long, so hard for airlines to jump ship and order something else.
And the $64,000 question.... will this end up killing production of the MAX?
More of the dollar impact will be known when numbers are released in January. However, the impact on Boeing is in the hundreds of billions of dollars and on Southwest and American past the hundreds of millions of dollars into the billions. Routes have been eliminated. Pilots and other workers have lost work and now are receiving some compensation as Boeing compensates the airline. The only one in the industry to really benefit has been Delta as they'd added routes and pilots since they never had any 737 Max's.
Even if the planes were cleared and returned to operation you're talking a huge cost in returning to service and in pilot training. That's on top of the logistic nightmare of handling customer requests as to what plane and avoiding the 737 Max.
737 Max planes are sitting everywhere. There is a tremendous amount of storage available. Ever drive past Opalocka airport and see what looks like a huge plane parking lot or more like a junk yard?
Airlines haven't yet had to take Boeing to court as Boeing has shown a willingness to pay along the way. Pilots sued the airlines, but the airlines started compensating them so the suits are not currently being pursued further.
Boeing builds to order and had huge orders from Southwest and American. The status of those orders is to be determined as it's not yet been relevant and since production is now halted isn't at the moment except for the huge quantity of those planes already built and waiting as Boeing does build ahead to be able to supply to fill the orders.
Not receiving new planes in the short term actually saves the airlines and helps offset the other costs, but you take away a year of shipments of new planes and it will start to impact their available fleet and their costs. One reason for new planes is to lower operating costs. Older fleets do the opposite. You skip hundreds of planes in a year and it will impact you later. There is no way to recover. You can't just order 200 planes for next month.
The dates have continued to move and the latest are no resumption prior to May or June depending on the airline. As those dates are a bit like you're given on flight delays (get told 30 minutes late, then another hour, then another hour just in pieces), there is no reason to think now that April, May or June is accurate.
Other airplane manufacturers have not really benefited as you might think. First, the big Boeing airlines haven't given them any additional orders. Second, they've been scrambling and doing extra to see if they have any issues. Third, the build process is long and slow and they can't really change production significantly in the short run.
Boeing suppliers have been impacted perhaps the hardest. GE, Safran, and Spirit have lost billions and seen their stock values drop many more billions. Shareholder suits have already been filed by Boeing shareholders and likely will be by supplier shareholders as well.
Total insurance payouts are likely to be the largest ever and insurance rates in the industry have already risen more than 10%.
Settlements to date have remained confidential, although the totals will show up in annual reports but Southwest was initially asking for over $400 million for just the period through September and apparently got something in that range as they're giving their employees around $125 million. Southwest had 34 Max's but had over 250 on order.
Now, the numbers tossed around become hard to pin down as the airlines prefer to talk in terms of lost revenues. Clearly they've reduced expenses too but the loss in profits is very difficult to ascertain. Fortunately for them it's hit in a period of tremendous airline profitability where nothing can take away their success. Had it hit at another time in their cycle it would have been blamed for putting them into bankruptcy.
Practical realities require Boeing to settle with all airlines as without the airlines they have no business. They need the airlines as badly as the airlines need them. They must maintain the relationships. They desperately need Southwest and American but both of those airlines need them as badly. You can't replace hundreds of planes on order, that have been on order for years, but just turning elsewhere. No one can make up the lost planes. Boeing stands the best chance of doing it over time.
