737 Max crisis could cost Boeing AED15-billion

Many of the costs are coming from its supply chain and delayed deliveries
Norwegian Air was one of the first to confirm it would be seeking compensation for its grounded fleet of 17 737 Max aircraft
Norwegian Air was one of the first to confirm it would be seeking compensation for its grounded fleet of 17 737 Max aircraft

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The costs of ground the Boeing 737 Max fleet globally could reach AED16-billion if the global ban lasts until the end of the year, according to Diogenis Papiomytis, Frost and Sullivan's global program director for commercial aviation.

Papiomytis estimates the cost to airlines of grounding the jet from March until May alone, when a software upgrade is expected to roll out, could reach US $500-million. This excludes cost of network disruptions.

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Many of those costs are going to be transferred to Boeing from its airline clients.

The cost to Boeing is at least $100 million (Dh367m) a month just from reimbursing carriers and this could increase by $12m each month that 737 Max deliveries are delayed, George Ferguson, senior aerospace analyst at Bloomberg Intelligence told The National.

With more than 350 Boeing 737 Max jets unable to fly following the crash of an Ethiopian Airlines plane, there are not enough used or parked planes in the market to replace them and airlines will look to the US plane maker to recover their costs.

“I expect any airline that is at a loss due to a grounded Max or missed delivery will look to Boeing for compensation,” Ferguson said.

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JP Morgan estimates the monthly cost at about US $115-million while Frost and Sullivan estimates nearly US $170-million.

Then there is the cost to Boeing’s supply chain. The plane maker has halted deliveries of the 737 Max models, it’s best-selling aircraft, and those delays are costing the company around US $400-million per month in cash flow loss in addition to compensation fees, according to Bloomberg Intelligence.

Boeing has “significant” financial resources of US $8.56-billion in cash to absorb these costs, according to Moody's Investor Service, which said in an analysis that it expects the Max Program to overcome the near-term challenges and does not foresee wholesale cancellations of orders.

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