United Airlines Extends Boeing MAX Grounding until June

On December 20, United Airlines (UAL) announced that it removed all of the Boeing (BA) 737 MAX aircraft from its flying schedule through June 4.

Anirudha Bhagat - Author

Dec. 23 2019, Published 10:47 a.m. ET

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On December 20, United Airlines (UAL) announced that it removed all of the Boeing (BA) 737 MAX aircraft from its flying schedule through June 4. The latest announcement marks the eighth time in the last eight months that United Airlines has extended the MAX cancellation period. In November, the company extended the Boeing MAX grounding period until March 4.

United Airlines expects to face 56 daily flight cancellations in January and February 2020 due to the MAX grounding, according to a Reuters report on December 20. The company’s regular flight cancellations would rise to 80 in March and April and to 108 in May.

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Currently, United Airlines owns 14 Boeing 737 MAX airplanes. The grounding is causing thousands of flight cancellations every month, which is weighing on the company’s financial results. Although United Airlines hasn’t disclosed its financial impact, the revenue growth has slowed in the last three quarters. The company’s top-line growth rate has slowed to the mid-single-digit range from the high-single-digit increase it recorded throughout 2018.

The company filled most of the vacant MAX routes with its larger and older planes to minimize flight cancellations. Using less fuel-efficient aircraft increased the operating expenses. In the last quarter, United Airlines’ ex-fuel operating costs increased by 5% year-over-year.

Why United extended the Boeing MAX grounding

Rising uncertainties about Boeing gaining safety approval for its 737 MAX jet prompted airlines to extend their cancellation periods. Some recent events have squashed Boeing’s hopes for the MAX’s return in 2019.

On December 11, the FAA administrator, Steve Dickson, said that Boeing needs to resolve several issues for MAX’s certification. He clearly stated that Boeing won’t get regulatory approval for its troubled jet this year. Boeing also confirmed the delay after a meeting between CEO Dennis Muilenburg and Dickson.

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Boeing’s announcement on December 16 about the 737 MAX’s future production plans also raised concerns about its return. Boeing said that it will suspend MAX production starting in January 2020. Considering the latest events, industry experts don’t expect the company to receive certification for the aircraft before February.

MAX grounding hurts peers

With the latest announcement, United Airlines has become the first US carrier to extend the MAX grounding period until June. Earlier this month, American Airlines (AAL) and Southwest Airlines (LUV) extended the grounding of Boeing 737 MAX aircraft to April.

American Airlines, which owns 24 MAX planes, has extended the grounding until April 6. The company expects that the grounding will cause 140 daily flight cancellations during the grounding period. Southwest Airlines, which has 34 MAX aircraft, has removed the planes from its flying schedule until April 13. According to the company, it will suffer 140 daily flight cancellations during the grounding period.

The ongoing MAX crisis has already cost these two companies millions of dollars. Together, American Airlines and Southwest Airlines lost about $700 million in revenues during the previous two quarters. The two companies expect the prolonged MAX grounding to reduce their total revenues by nearly $1 billion in 2019.


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