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BOEING COMPANY (THE)

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Boeing : Summer Travel Season to Take Hit From 737 MAX Grounding -- Update

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04/14/2019 | 12:30pm EDT

By Alison Sider, Andy Pasztor and Doug Cameron

Airlines are extending into August flight cancellations due to the grounding of Boeing Co.'s 737 MAX, as efforts to fix the jetliners are beset with delays.

American Airlines Group Inc. said Sunday that it would extend cancellations for the MAX through Aug. 19. Southwest Airlines Co., which has the biggest fleet of MAX jets, has pulled the plane from its schedules until Aug. 5. Together, the two airlines will be cutting an average of 275 flights per day.

While some airlines initially expected to see nearly 400 grounded jetliners back in service by later this month or early May, some are anticipating it to be out of service for most or all of the summer. Boeing has proposed a software fix for problems detected during the crashes that it expects to be completed in the coming weeks, but regulatory approval would come later.

Analysts including at Credit Suisse expect the cancellations could extend beyond August. At other firms, analysts have also suggested the grounding may give airlines more power to raise ticket prices, at least until the MAX returns.

Percentage wise, the figures are relatively small. Southwest, for example, said the grounding has so far affected just 4% of its passengers, and American said the summer cancellations affect 1.5% of daily flying.

Still, the grounding is now set to disrupt the peak summer season, leading carriers around the world to tear up flight schedules, keep aging, less fuel-efficient jets in service and fill a widening gap between available planes and rising passenger numbers.

"We are highly confident that the MAX will be recertified prior to this time," American Chief Executive Doug Parker and President Robert Isom wrote in a letter to employees, referring to the August 19 date. "But by extending our cancellations through the summer, we can plan more reliably for the peak travel season and provide confidence to our customers and team members when it comes to their travel plans."

The scheduling uncertainty has already created chaos for some passengers. Angie Morrison bought tickets for her family's trip from Chicago to the Pacific Northwest last October. She said Southwest emailed her on March 25 -- after they had already arrived -- alerting her that their flight five days later had been canceled.

The family ended up having to head home two days early, skipping a Seattle Mariners game and a tour of the Museum of Flight. A nonstop, four-hour return flight was replaced by a layover and a long delay. Ms. Morrison said she was offered a $150 travel voucher, but said that is a fraction of what she lost. She remains frustrated that the airline didn't have a better plan in place to insulate customers from the effects of the grounding.

"What should have been a once-in-a-lifetime awesome opportunity for us became a disaster," she said.

Airlines are hoping that setting summer schedules without the MAX should help avoid situations where flights being booked now are canceled on short notice.

Southwest is allowing travelers whose schedules are changed to book a new flight without any increase in fare, and is setting up a dedicated phone line for them to call.

The 737 MAX fleet was grounded globally after an Ethiopian Airlines crash last month, which followed the crash of Lion Air 737 MAX jet last year. All 346 people on the two flights were killed, and investigators are focusing on the misfiring of 737 MAX flight-control system known as MCAS. The system was apparently activated by false readings from sensors that measure the angle of the plane's nose, known as the angle of attack, according to investigators.

About two weeks ago, government and industry officials close to the deliberations estimated a software fix and related training revisions needed to get the planes back in the air -- at least across North and South America -- likely would be approved by regulators and implemented by carriers in late May or early June.

But now, that timeline appears to have shifted closer to the end of summer partly because of additional software problems discovered in the wake of revisions to the stall prevention system.

The delays have prompted industry officials to focus on marketing and public-relations efforts to shore up passenger confidence in the aircraft.

The Federal Aviation Administration, which held a meeting Friday between U.S. MAX operators, their pilot unions and Dan Elwell, acting chief of the FAA, released a brief video stressing the importance of the agency's "give and take with operators, pilots (and) mechanics" about relevant safety questions.

Capt. Dennis Tajer, spokesman for the union that represents pilots at American Airlines Group Inc., said it was emphasized during the meeting that the MAX won't be rushed back into service.

"Our watches are off and our calendars are in the drawers," he said. "The clock is not of interest to us. Our interest is in getting it done right."

Boeing Chief Executive Dennis Muilenburg earlier this month said that "when the MAX returns to the skies with the software changes to the MCAS function, it will be among the safest airplanes ever to fly."

Delays to return the MAX to the air could stretch longer overseas, particularly in Europe and China, according to industry officials. In addition to extra time needed to conduct their own technical reviews, foreign governments sometimes face domestic political pressure to hold off swiftly following the U.S. lead.

The problems for airlines and passengers will likely multiply as the grounding persists.

American Airlines said it canceled some 1,200 flights in the first quarter and said it will have to cancel an average of 115 flights per day through August 19. The airline said last week that it couldn't yet predict the financial impact in the future but trimmed its first-quarter unit revenue expectations, partly due to the grounding. American has been trying to spread the effects throughout its system, pulling aircraft from routes with multiple flights a day to service flights normally operated by a MAX.

The airline said Sunday that it expects to be able to use some of its 24 MAX planes as spares over the summer once they are cleared to fly.

Carriers like United Continental Holdings Inc. have been trying to avoid cancellations by substituting larger planes on routes that would ordinarily be flown on one of its 14 MAX planes.

"That costs us money in the short term, since we obviously can't sell all of those extra last-minute seats, but it was the right thing to do to take care of our customers," United President Scott Kirby wrote in a letter to employees last week, explaining why the airline hadn't met some of its operational performance targets. "Of course, we can't keep this up forever."

Other airlines that don't have many spare planes to use in a pinch are feeling the impact. At WestJet Airlines Ltd., a Canadian carrier and Delta Air Lines Inc. partner, the rest of the fleet has to fly more with less downtime, said John Kelly, vice president of technical operations.

"We're flying the airplanes hard," he said. "That puts a lot of strain on the organization."

A WestJet spokeswoman said the airline is working to minimize disruptions -- it extended an aircraft lease and has been using other planes to cover routes the MAX would have flown.

India's SpiceJet Ltd., a big low-cost carrier in the fastest-growing aviation market, said it had asked regulators to fast-track approval of its plan to rent 16 more Boeing 737-800 jets. They would part-fill the gap from grounding its 13 MAX planes and the 21 more due to arrive this year. It expects the replacements to arrive by the end of next week.

Boeing has delivered 57 MAX jets this year, taking the global fleet to around 370, and analysts had expected almost 500 more to be handed over by year-end. Southwest alone had 41 scheduled to arrive, while Ryanair Holdings PLC, Europe's biggest low-cost carrier was due to receive its first 33.

An additional 650 planes were slated to be delivered in 2020, lifting the share of the MAX in the global jetliner fleet above 5% from less than 2%.

Escalating costs and nagging schedule disruptions for U.S. carriers, as well as financial pain for Boeing stemming from potentially compensating airlines and other charges, are expected to become more apparent later this month, when the companies report first-quarter results.

--Robert Wall contributed to this article.

Write to Alison Sider at alison.sider@wsj.com, Andy Pasztor at andy.pasztor@wsj.com and Doug Cameron at doug.cameron@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
BOEING COMPANY (THE) 0.00% 330 Delayed Quote.3.18%
BOEING COMPANY (THE) 1.16% 378.17 Delayed Quote.15.98%
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Financials ($)
Sales 2019 104 B
EBIT 2019 12 236 M
Net income 2019 10 735 M
Debt 2019 5 029 M
Yield 2019 2,16%
P/E ratio 2019 20,23
P/E ratio 2020 15,17
EV / Sales 2019 2,08x
EV / Sales 2020 1,81x
Capitalization 211 B
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Number of Analysts 25
Average target price 427 $
Spread / Average Target 14%
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NameTitle
Dennis A. Muilenburg Chairman, President & Chief Executive Officer
Jenette E. Ramos Senior Vice President-Supply Chain & Operations
Gregory D. Smith CFO, EVP-Corporate Development & Strategy
Theodore Colbert Chief Information Officer & SVP-Data Analytics
Gregory L. Hyslop CTO, Senior VP-Engineering, Test & Technology
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