American Airlines reaches deal with Boeing over 737 Max grounding, will share $30 million with employees
Posted On: Jan 06, 2020
American Airlines said Monday that it reached an agreement with Boeing to reimburse the airline for financial damages incurred last year from the grounding of the 737 Max, which is now in its 10th month.
Airlines have lost more than $1 billion in revenue because of the grounding after two fatal crashes. Boeing and Southwest Airlinesâ� — the largest U.S. operator of the 737 Max â� — disclosed they had reached an agreement last month.
American didn’t disclose the terms of the agreement, but as CNBC reported last week, it plans to share a portion of the compensation with employees. American said the compensation would add $30 million to an employee profit-sharing program, payable in March. Southwest had taken a similar step, saying it would share $125 million with its workers.
American’s pilots deserve more compensation, their labor union, the Allied Pilots Association said. Dennis Tajer, a Boeing 737 captain and spokesman for the union, called the profit sharing increase a “good start” but not enough because pilots lost out on income, not just profit sharing. He added that the airlines some 4,000 Boeing 737 pilots can’t simply start flying an Airbus plane.
American flies older 737s but has had to curb its growth for the year because of the Max grounding. American in October forecast the Max grounding would cost it $540 million in pretax income in 2019. The full financial toll on airlines isn’t yet known because it’s not clear when the planes will fly again. American and Southwest removed the planes from their schedules until April, while United pulled them until early June.
Boeing took a nearly $5 billion after-tax charge in the second quarter of last year to compensate airlines for the grounding of the 737 Max but costs continue to grow as federal regulators have repeatedly said they have no firm timeline to allow the jetliners to fly again. Several other 737 Max customers, including Icelandair, Turkish Airlines and Southwest Airlines, have recently reached agreements with the manufacturer, but other carriers are still in discussions with Boeing.
There were close to 400 of the planes in operation at the time of the grounding last March, and airlines haven’t received the additional planes they were expecting, causing the financial impact to snowball. American, for example, had 24 planes at the time of the grounding but expected to have 40 by the end of 2019.
Regulators worldwide grounded the jets after an Ethiopian Airlines 737 Max crashed less than five months after a nearly new 737 Max in Indonesia went down, killing all 346 people on the two flights.
Boeing had cut production of the planes by 20% after the crashes but continued producing them at the slower pace. The company, however, plans to suspend production this month as the grounding, which cost former CEO Dennis Muilenburg his job just before Christmas, wears on longer than the company had signaled.
On Monday, Boeing told employees that it would need to temporarily reassign some 737 Max workers to other aircraft or storage facilities for the planes as it prepares to shut down production this month.
Meanwhile, Spirit Aerosystems, which makes fuselages for the planes, said Monday that it’s considering voluntary layoffs for some employees to cut costs, as the grounding continues.
“We do not know how long the pause in production will last, or what the production rate will be when it does resume,” Spirit said in a statement.