United Airlines Inc. (NASDAQ: UAL) has pulled the embattled Boeing 737 MAX from its flight schedule until June 4, nearly two months later than the expected return to service announced last week by rivals Southwest Airlines (NYSE: LUV) and American Airlines (NASDAQ: AAL).
Earlier on Dec. 20, Spirit AeroSystems (NYSE: SPR) of Wichita, Kansas, announced it will stop building fuselages for the 737 MAX on Jan. 1, as the effects of the aircraft’s grounding following two deadly crashes extend down the supply chain and begin to impact the broader economy.
The moves come after Boeing Co. (NYSE: BA) said Dec. 16 it would shut down the 737 MAX production line in January in response to the longer-than-expected review being conducted by the Federal Aviation Administration to recertify the plane for commercial service. Boeing has developed a software fix for its automated flight control system implicated in the crashes and new procedures for training pilots how to interact with it, but FAA officials say nearly a dozen milestones must still be completed before they can give the green light to fly again.
“By moving the return to service date back more than just a month — as we have done previously throughout 2019 — it allows us to have more certainty by providing our customers and our operation a firmer and more definitive timeline,” United said in a statement. “With this new date now further in the future, we will better help our customers by reducing the number of our passengers we need to reassign to a new aircraft or rebook on a different flight. This also helps our network team better plan for the year.”
United, which had 14 Boeing MAXes in operation when aviation regulators issued their no-fly order in March, said the decision will result in 13,820 flight cancellations between December and early June.
Airlines have tried to minimize the impact of the grounding on customers by using spare aircraft, swapping in larger aircraft and rebooking passengers, but the effort has been costly. Older planes are less fuel efficient than the MAX, idle planes have to undergo extra maintenance checks before returning to service and airlines looking to expand have had to forego revenue from new flights to be operated by the 737 MAX.
Executives said during the company’s third-quarter earnings call that United planned to substitute larger planes, including the MAX, on many domestic routes in 2020 to help drive down operating costs and improve efficiency. United is scheduled to receive 28 more 737 MAXes next year.
Boeing has set aside $5 billion to help compensate airline customers for damages. Southwest Airlines recently said it agreed on a partial settlement with Boeing for an undisclosed amount and will share $125 million of the payment with employees.
Boeing Co. is the largest U.S. exporter of manufactured goods and supports thousands of jobs internally and among its far-flung supply base. Some economists have predicted the production halt could slice 0.5% off the nation’s GDP next year, depending on how long it lasts.
More than 50% of Spirit AeroSystems’ annual revenue comes from 737 components produced for Boeing. The company warned that the work suspension “will have an adverse impact” on its finances, operations and cash flow.
“Spirit is evaluating all potential actions to align its cost base with lower production levels expected in 2020. Decisions will be guided by a focus on what is best for the long-term interests of Spirit’s stockholders and other stakeholders, including employees,” it said.
General Electric Co., which supplies the LEAP 1-B engine for the MAX, is also suffering because of the production delay. The manufacturer has not received full payments for engines it delivered since the grounding and estimates that it lowered cash flow by $1.4 billion this year. Moody’s Investor Service projects GE will receive less than 50% of that amount in 2020, and may have to wait longer to collect, depending on when Boeing finally makes deliveries to customers.
Boeing has been producing 42 737 MAX planes per month, down from 52 at the beginning of the year, and has almost 400 units sitting on tarmacs for delivery to customers once the flight ban is lifted.
The head of the European Union Aviation Safety Agency told the Financial Times he expects to approve the 737 Max’s return to service in Europe by the end of February. Reuters has reported the FAA does not expect to allow the plane to fly until February at the earliest.