Southwest Pilots Are Suing Boeing: Will Others Follow?


Oct. 9 2019, Updated 12:23 p.m. ET

Boeing’s (BA) 737 MAX worries don’t seem to want to subside. On October 8, Southwest Airlines (LUV) Pilot Association, also known as SWAPA, announced that it was suing Boeing for loss of income and breach of trust. The pilot body alleged that Boeing had misrepresented the airworthiness and safety of its troubled 737 MAX aircraft. In addition, SWAPA said that around 10,000 pilots had lost over $100 million in compensation since March due to the 737 MAX grounding. Southwest has canceled over 30,000 flights due to the grounding.

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Southwest Airlines is a loyal Boeing customer with 753 Boeing aircraft in service and another 262 on order. Southwest currently has 34 737 MAX 8 planes in its fleet and has ordered 246 more to replace older 737-700s. With pilots suing Boeing, this business relationship could be into trouble. SWAPA’s legal action against Boeing could also prompt other airline unions to sue.

Southwest pilots: Take your time, Boeing!

In the press release, SWAPA said that Boeing should take time to bring the 737 MAX back to service safely. Southwest doesn’t expect the aircraft to be back in service until the first quarter of the next year.

Although Southwest, which has the largest fleet of 737 MAX 8s in the US, has been the biggest victim of the crisis, other operators have also suffered. Last month, United Airlines (UAL) pushed the comeback of the 737 MAX 8 back to December 19 from November 3. Assuming United’s 737 MAX planes start flying on December 19, the airline could record 9,500 cancellations since the grounding. United Airlines has 14 737 MAX 8s in its fleet.

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American Airlines (AAL), which has 24 737 MAX 8s, also doesn’t expect the plane to be back in service until December. American Airlines reported 7,800 cancellations in the second quarter alone. With the induction of new planes delayed, American Airlines’ number of cancellations in the second half of 2019 will be much higher.

Since airlines will take time to train pilots after the reinduction of the MAX planes, it’s likely these airlines will push the comeback date further back.

The friction between different regulators certifying the planes may also cause further delays in the reinstation of the 737 MAX.

Airlines, investors, and passengers lose

The 737 MAX crisis has led to losses for airlines, pilots, investors, and Boeing. With tens of thousands of cancellations, airlines are the clear losers. Since the March 10 crash of Ethiopian Airlines Flight 302, which killed 157 people, Boeing stock has lost 11.5%. American Airlines stock has lost 17.7% during the same period.

While Southwest and United stocks have gained marginally since March 10, they’ve underperformed the broader market. Despite the trade war worries, the broader S&P 500 has gained 5.5% during the same period.

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As for Boeing, it’s already taken a $5.6 billion hit for penalties in the second quarter. The company is losing billions of dollars per month due to the grounding of its 737 MAX planes. The 737 MAX crisis is also hurting Boeing beyond these penalties. It’s kept its new midmarket airplane project (dubbed 797) on hold until the 737 gets back into the skies.

Passengers are also at a loss due to the groundings. With the MAX planes out of service, the overall availability of planes has reduced, pushing airfares up.

Boeing’s 737 MAX woes: Advantage Delta and Airbus?

Meanwhile, Boeing and other airlines’ losses seem to have benefited Delta Air Lines (DAL). Delta doesn’t have the troubled MAX planes in its fleet, so it’s avoided cancellations. As a result, Delta stock has outperformed its peers as well as the broader market, gaining 7.3% since the Ethiopian Airlines crash.

Airbus has been trying to capitalize on Boeing’s worries. Having lost credibility due to the MAX crisis, Boeing may have to work hard to convince customers why they should choose Boeing over Airbus. India’s SpiceJet, a loyal Boeing customer, recently signaled that it may go with Airbus’s A321XLR if Boeing doesn’t start working on the 797. Delta Air Lines’ CEO has also acknowledged that Airbus is getting aggressive with marketing.

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Airbus has topped Boeing in aircraft deliveries and orders so far in 2019. During the first nine months of the year, Airbus delivered 571 planes against Boeing’s 302. Airbus had net orders (after cancellations) for 127 planes, while Boeing faced 84 more cancellations than new orders in the first nine months of the year.

Trump to the rescue?

Although Airbus could be staring at a big opportunity amid the extended MAX crisis, last week’s 10% tariff on Airbus planes made in Europe means airlines in the US may not have much choice but to go with Boeing or raise their fares.

Several airlines in the US have unfulfilled orders with Airbus. Since aircraft projects often take a long time and deliveries stretch well into the future, airlines may not be able to switch to Boeing easily. Ultimately, we may see passengers suffering.

With no clarity on Boeing’s 797 project and tariffs on Airbus planes in place, airlines may have to extend the lives of the aging 757s and 767s to cater to transatlantic demand. These planes consume more fuel than the new-generation Airbus A321XLR, which is expected to start flying in a couple of years. As a result, US fliers may end up paying more.


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