More than four months after the FAA grounded the Boeing 737-Max, it was announced last week that the plane is unlikely to return to the skies before November this year. In fact, whilst Boeing seeks to develop a software fix for the issues with the flight control system, some have suggested that 2020 may be more accurate.
Boeing also confirmed that the grounding would be costing the firm almost $5bn after tax in the second quarter alone. However, what has yet to be costed is the impact on the wider aviation industry.
The most obvious implications are for the airlines. With all 370 aircraft currently in operation grounded, airlines with these jets in their fleet have had to cancel thousands of flights, over what would usually be their busiest period. These ongoing capacity issues are already having implications for the bottom line, with several airlines reporting pre-tax hits to their second quarter figures.
Despite the ongoing issues, orders are still being taken for the 737-Max in preparation for its return (British Airways’ parent company IAG, placed an order for 200 of the aircraft at the Paris Air show, worth $24bn). However, this backlog of orders has also meant that several airlines have had to put their expansion plans on hold until further notice. Most recently, Michael O’Leary, Chief Executive of Ryanair (who have 135 planes on order) has confirmed that some airport bases may even have to shut as a result of the disruption.
It’s not just the airlines however that are being affected. It is being reported that several airlines are holding on to their older fleet in order to mitigate some of the issues, which might be unwelcome news to the aviation parts companies and those that operate in the mid-life market. It is likely to mean fewer assets will be available to purchase and therefore the cost of securing these assets may be higher, so profit margins will be squeezed.
However, in contrast to the above, the leasing market is one area that is likely profit from the grounding. Rates for the 737-800s have risen from a pre-grounding level of approx. $225,000 per month to $290,000 and even in excess of $300,000 for a narrow-bodied aircraft.
In summary, whilst the full impact of the FAA’s grounding of the 737-Max aircraft is as-yet unknown, it is clear it will be significant across the board.
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