And then there’s the extra cost of $ 744 million – so far – mostly due to the storage of hundreds of Max rays built during the grounding that Boeing could not deliver. Even with the Boeing customers now getting the planes, it will only be in 2023 before airlines take possession of them.
And it’s not even starting to address Boeing’s legal exposure. The company paid a $ 244 million fine at the end of last year to settle criminal fraud charges. But that was just the beginning of the cost. Boeing has announced two victims for compensation for victims. And most families of victims have yet to settle their lawsuits against the company. It is estimated that it could face an additional $ 500 million in legal costs.
There are also lost sales for the 737 Max. Usually airlines, even during a slump in air travel, are reluctant to cancel orders for aircraft due to substantial fees and penalties. But the foundation persisted for so long that the penalty clause in the sales contracts was no longer in force. By the time the Covid-19 pandemic brought the air travel to a near halt, Boeing was already flooded with order cancellations for the Max – almost 800 of the planes.
A 737 Max usually sells for about $ 55 million. The worst case scenario for Boeing is that it could lose as much as $ 44 billion in revenue due to the drop in sales.
Experts believe that Boeing will eventually sell these aircraft, albeit at a strong discount, perhaps even to the same customers who are now canceling their orders. So even if Boeing does not lose the full $ 44 billion of canceled orders, the lower price of the Max could cost it ten billion.
Boeing will not comment on the sale prices for any aircraft.
And then there’s the increased borrowing costs of Boeing – Boeing incurred tens of billions of debt during the crisis, mostly at an interest rate of 5%. This means that interest rates may increase by $ 3 billion or $ 4 billion, said Chris Denicolo, aviation credit analyst at Standard & Poor’s.
In addition to the heavy costs, there is still the question of how the crisis has affected Boeing’s competitive position.
Prior to the crashes, the company was working on plans for a new mid-range long-haul aircraft that could compete with the A321XLR now being sold by rival Airbus with a target date for 2023 for its debut. Boeing says it has not stopped developing its competitive offering, popularly known as the 797, but it is far behind its original plans for the aircraft.
Boeing needs a new offer to compete with the A321XLR, said Richard Aboulafia, Teal Group’s aviation analyst. The duopoly enjoyed by Boeing and Airbus makes it unlikely that any of the companies will go out of business. But not competing with Airbus in this important part of the market is a serious long-term threat to Boeing, he said.
“It could end up with only 25% to 30% of the market,” he said. “It does not mean you are leaving, but you are much less profitable, much less relevant.”
A fatal anniversary
The accident on March 10, 2019 was the second fatal accident in which the aircraft was involved, after an accident of a Lion Air 737 Max aircraft in October 2018 in which 189 people died. While no action was taken after the first crash, the second incident led to a 20-month worldwide launch of Boeing’s best-selling aircraft, as the aircraft manufacturer tried to find an acceptable solution to the malfunctioning safety system causing the crashes. has.
The U.S. Federal Aviation Administration and aviation regulators for 159 other countries have finally approved the plane to carry passengers again, and airlines are quickly re-employing it. Southwest Airlines, (LUV) which owns more Max aircraft than any airline, will be the 15th airline to carry passengers on them as soon as its 737 Max aircraft return on Thursday.
Several relatives of the accident victims met with U.S. Transportation Secretary Pete Buttigieg on Wednesday to reconsider their concerns about U.S. approval of the plane. Others said the dollar cost of the 737 Max crisis did not measure what they had lost.
“We have lost the most beautiful, caring, active, considerate, intelligent person,” said Chris Moore of Toronto, whose 24-year-old daughter, Danielle, died on the Ethiopian jet. “The real cost of this loss is immeasurable, but this cost comes to Danielle Moore’s family every minute of every day and night and especially during sleep. This cost is real.”
The families are looking for a new American foundation for the Max, which they probably won’t get. But so far, 35 regulators around the world have refused to allow the plane transport passengers, including China, where more than 20% of the aircraft are based.
The longer the groundings last, the more problems and costs for Boeing.
