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March 2, 2024

Alaska Airlines Takes $150 Million Hit From Grounded Boeing 737 MAX Planes

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Jan 25, 2024

Alaska Airlines revealed Thursday that the prolonged grounding of its Boeing 737 MAX planes will cost the company around $150 million in losses. The airline has been unable to utilize 13 MAX planes in its fleet due to safety issues, leading to canceled flights and disrupted operations.

Background on the Boeing 737 MAX Crisis

The Boeing 737 MAX has been grounded worldwide since March 2019 following two deadly crashes that killed 346 people. Investigations found that faulty sensors providing inaccurate data to a flight control system called MCAS led to the crashes. Boeing has since been working to redesign the system and implement other safety upgrades.

In late 2023, the U.S. Federal Aviation Administration cleared the 737 MAX to fly again after determining the fixes were adequate. However, Alaska Airlines chose not to immediately return the MAX to service amid additional uncertainty.

Alaska Extends Cancellations, Cites New Issue

Earlier this month, Alaska extended its cancellations of 737 MAX flights through January 28th. The airline said it discovered issues with the insulation of wiring bundles during maintenance checks required by the FAA before the planes can fly.

While Alaska stated that the matter did not pose an immediate safety risk, it chose to continue cancellations to allow time for Boeing engineers to develop and test repairs.

On January 25th, Alaska Airlines Chief Financial Officer Shane Tackett revealed the full financial toll of the prolonged MAX grounding:

“Due to the grounding, there will be about $150 million impact on our 2022 and 2023 results,” Tackett said.

Disruptions and Schedule Uncertainty Take Toll

With 13 MAX planes sitting idle representing almost 10% of its mainline fleet, Alaska has struggled to maintain its flight schedule. The airline has canceled about 175 flights per month due to the unavailable aircraft.

This has inconvenienced customers, forced re-bookings, and led to losses in efficiency and revenue. It has also created uncertainty around Alaska’s ability to operate its full schedule.

Tackett admitted Alaska faces a “challenging” start to 2024 even after the FAA approved the MAX’s return last week. Repair work on the wiring bundles will take time, and crews need training to return planes into service after years on the ground.

Financial Impact Detailed, Boeing Accountability Sought

In addition to the $150 million hit already absorbed from lost flights, Alaska could take an additional $100 million accounting charge later this year depending on negotiations with Boeing over compensation.

Alaska Airlines CEO Ben Minicucci said the company continues holding Boeing accountable and intends to recover the full extent of damages:

“Alaska expects, now that the MAX has been ungrounded, that we will be made whole for our losses that resulted from the MAX grounding and the related delivery delays,” Minicucci stated.

Type of Loss Estimated Cost
Lost flights from idle aircraft $150 million
Future accounting charge Up to $100 million
Total Possible Losses $250 million

With MAX planes comprising about 10% of its mainline fleet, the crisis has significantly hampered Alaska’s growth plans and profitability. It remains unclear precisely when the airline will have its full fleet back in service.

Analysts: Alaska Positioned to Recover

Aviation analysts say Alaska Airlines remains well-positioned to rebound strongly despite short-term troubles. The airline has over $4 billion in liquidity to endure financial impacts. Analysts also note Alaska’s reliable operational metrics and consistent profitability in recent decades.

“Alaska Airlines has weathered worse crises before and emerged stronger on the other side,” said aviation industry reporter David Koenig. “With its dominant West Coast network and loyal customer base, Alaska is still one of the best-run U.S. airlines.”

As compensation talks with Boeing advance and engineers work through solutions for the wiring issue, Alaska hopes to finally leave behind the MAX crisis and focus on future success. But until its full fleet is operational, the airline must continue managing losses and disrupted service for customers.

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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