Financial Reporting

Airlines Continue to Struggle with Boeing 737 Max Groundings

Southwest Airlines and American Airlines are warning of the increasing financial toll due to the groundings as thousands of monthly flights are can...
Airlines Continue to Struggle with Boeing 737 Max Groundings

Southwest Airlines and American Airlines are warning of the increased financial toll of the extended Boeing 737 MAX groundings as they try to operate with smaller fleets.

Southwest said operating income was $175 million lower in the second quarter due to the grounding, while American Airlines Group said it expected a $400 million hit to 2019 pretax earnings, $50 million higher than it previously forecast.

American and Southwest are the largest customers of the Boeing 737 MAX, the aircraft manufacturer’s top-selling aircraft. Boeing grounded flights of the aircraft in March after two crashes killed 346 people.

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Southwest said its flying capacity could fall by as much as 2% this year, down from its previous forecast of 5% growth. American said its capacity would still grow but at a slower rate.

Southwest said it would stop all service from Newark Liberty International Airport, where it had up to 20 daily departures, to focus on New York’s LaGuardia Airport. The airline was expecting a delivery of 44 of the 737 MAX planes this year.

Southwest extended flight cancellations related to the 737 MAX until Jan. 5, 2020, saying it does not expect regulatory approval until the fourth quarter.

“We’re unhappy that it’s taken so long,” Southwest CEO Gary Kelly said in an interview with CNBC.

American Airlines reported second-quarter earnings of $1.82 per share, up more than 11% year-over-year and ahead of analyst estimates.

Southwest reported earnings of $1.37 per diluted share on net income of $741 million for the second quarter.

“Despite challenges caused by the MAX groundings, our network is performing well, and our financial outlook for second half 2019 remains solid,” Southwest said in a statement.

Last week, Boeing announced it was taking a $4.9 billion after-tax accounting charge related to the 737 MAX grounding, prompting both Moody’s Investors Service and Fitch Ratings to lower their outlooks from stable to negative. The ratings agencies affirmed Boeing’s current ratings at A2 and A/F1, respectively.

Southwest stock was up 1.75% in afternoon trading. American Airlines stock was down more than 5%.