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Turkish Airlines says reaches compensation deal over Boeing 737 MAX

12/31/2019 | 08:59pm EST
An aerial photo shows a worker climbing up to a Turkish Airlines Boeing 737 MAX airplane grounded at Boeing Field in Seattl

Turkish Airlines has agreed a compensation deal with planemaker Boeing Co over the grounding of the Boeing 737 MAX following two fatal crashes, the carrier said on Tuesday.

It did not specify the size of the payment but Turkey's Hurriyet newspaper reported that it was worth $225 million including $150 million in compensation and $75 million covering things such as spare parts and training.

The 737 MAX has been grounded since March after a Lion Air crash in Indonesia and an Ethiopian Airlines crash killed 346 people within five months, costing the plane manufacturer more than $9 billion so far.

Analysts say the full extent of the damage suffered by Boeing's airline customers would depend on the timing of the 737 MAX's return to service, making a settlement between the planemaker and Turkish Airlines noteworthy while the jet remains grounded.

"Either they (Turkish Airlines) have a pretty good feeling for when this will end, or the carrier has somehow lined up alternative capacity to mitigate the damage at this point," Richard Aboulafia, vice president of analysis at aviation consulting firm Teal Group said.

With a third of the compensation in the form of future services, the deal also spreads Boeing's cost over the coming years, according to Aboulafia. "I expect them to take this approach to future settlements," he added.

Turkish Airlines had taken delivery of 12 737 MAX planes before the grounding out of 75 it has ordered. It was supposed to have received 12 more since.

In December, a media report had said Turkish Airlines was preparing to open a court case against Boeing in relation to its losses.

Turkish is one of a number of airlines that have been seeking compensation from Boeing for the financial impact of the grounding.

Southwest Airlines Co, the world's largest 737 MAX operator, said earlier in December that it had reached a confidential agreement with Boeing for a portion of a projected $830 million hit to operating income in 2019.

European charter airline TUI said on Tuesday that it was still in talks with Boeing.

"We're at the negotiating table," said spokesman Martin Riecken, adding that TUI hoped to reach a settlement with Boeing but was still considering legal action. TUI was operating 15 of the planes before they were grounded and has another eight on order.

TUI said the grounding cost it 293 million euros ($328.69 million) in its last financial year and the bill could be as high as 400 million euros in the current year depending on when the 737 MAX returns to service.

Last week, Boeing fired CEO Dennis Muilenburg after the company repeatedly failed to contain fallout from the grounding of the 737 MAX, its best-selling jetliner.

Boeing has acknowledged it will not be able to reach its 2019 targets and has announced it would halt 737 MAX production in January.

($1 = 0.8914 euros)

(Reporting by Ceyda Caglayan in Istanbul and Douglas Busvine in Berlin; Additional reporting by Ankit Ajmera in Bengaluru; Writing by Daren Butler and Keith Weir; Editing by Gerry Doyle, Jason Neely and Shounak Dasgupta)

© Reuters 2019
Stocks mentioned in the article
ChangeLast1st jan.
AT HOME GROUP INC. 0.73% 24.93 Delayed Quote.61.25%
BEST INC. -6.58% 2.27 Delayed Quote.11.27%
JASON CO., LTD. -2.08% 658 End-of-day quote.-1.50%
MAX CO., LTD. -0.76% 1441 End-of-day quote.0.14%
SOUTHWEST AIRLINES -0.80% 47.39 Delayed Quote.1.67%
THE BOEING COMPANY -0.76% 205.84 Delayed Quote.-3.11%
TUI AG -17.19% 3.965 Delayed Quote.25.36%
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