Alaska Airlines says expects $150 mn hit from 737 MAX grounding

Alaska Airlines says expects $150 mn hit from 737 MAX grounding

A Boeing 737 MAX 9 plane operated by Alaska Airlines made an emergency landing on January 5 after a panel blew out
A Boeing 737 MAX 9 plane operated by Alaska Airlines made an emergency landing on January 5 after a panel blew out. Photo: Patrick T. Fallon / AFP/File
Source: AFP

Alaska Airlines said Thursday it expects a $150 million hit from the Boeing 737 MAX grounding, which will limit its capacity growth in 2024.

The airline, which executed an emergency landing on a MAX on January 5 following the mid-flight blowout of a panel on the jet, disclosed the estimates in a securities filing, saying capacity growth will be "at or below the lower end" of its prior estimate.

The Alaska Airlines financial hit is the latest ripple effect from the episode, which prompted US air regulators to ground 171 MAX 9 planes

Earlier this week, United Airlines, another big MAX 9 user, projected a first-quarter loss due to the grounding.

Southwest Airlines, which doesn't fly the MAX 9, Thursday lowered its forecast for 2024 Boeing MAX deliveries "due to Boeing's continued supply chain challenges," it said in an earnings statement.

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On Wednesday night, the Federal Aviation Administration announced a detailed inspection framework that would allow the grounded MAX 9 planes to return to service.

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Alaska Airlines, which has 65 planes affected by the grounding, expects to bring the jets back into service beginning Friday.

"The first of our 737-9 MAX will resume flying on Friday, Jan. 26, with more planes added every day as inspections are completed and each aircraft is deemed airworthy," the carrier said.

"We expect inspections on all our 737-9 MAX to be completed over the next week."

In Thursday's securities filing, Alaska said it expects a "gradual return" of the fleet through early February.

The incident, the first major in-flight safety episode since fatal MAX crashes in 2018 and 2019, has heaped renewed scrutiny on Boeing, which tumbled again on Wall Street early Thursday.

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Boeing's outlook lowered

Besides clearing the inspection framework, the FAA on Wednesday vowed to suspend any MAX production increases until Boeing improves its performance.

FAA Administrator Mike Whitaker said it won't be "back to business as usual" at Boeing.

"We will not agree to any request from Boeing for an expansion in production or approve additional production lines for the 737 MAX until we are satisfied that the quality control issues uncovered during this process are resolved," Whitaker said.

The new FAA stance threatens Boeing's medium-term financial outlook, which had seen a return to strong free cash flow in the 2025 or 2026 timeframe, according to a note Thursday from Bank of America.

The FAA approach will likely "delay Boeing's 737 ramp by roughly a year," said the Bank of America note, which downgraded the rating on Boeing shares to "neutral."

Southwest Airlines Chief Executive Bob Jordan said Thursday that the company could further adjust its MAX delivery expectations in light of the latest FAA stance.

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"We don't know if there's an impact," Jordan told CNBC, adding that he supported the FAA's actions.

"Anything that helps Boeing improve quality, address the issues is good for Boeing and is good for Southwest Airlines," he said.

In Thursday's earnings release, Southwest said it now expects 79 MAX deliveries in 2024 instead of the 85 it is under contract to receive this year.

Shares of Boeing fell 5.7 percent, while Alaska Airlines parent Alaska Air Group rose 4.2 percent. Southwest climbed 0.9 percent.

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Source: AFP

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