Air Canada, UAL say 737 MAX grounding to hurt business
16 Mar 2019
An Air Canada 737 MAX 8 lands at Toronto Pearson International Airport. Reuters
Air Canada and United Airlines on Friday became the first major carriers in North America to warn of negative impacts on business due to the grounding of Boeing Co›s 737 MAX planes.
Air Canada suspended its 2019 financial forecasts, saying it continued to adapt a contingency plan to address the current uncertainty surrounding the new jets.
United Airlines, the No. 3 US carrier, said it would see an adverse effect on its operations if the jets remained grounded heading into the peak summer travel season.
Countries around the world, including the United States and Canada, banned Boeing›s fast-selling 737 MAX this week after a fatal Ethiopian Airlines plane crash on Sunday, the second deadly disaster for the aircraft in five months.
Shares of Air Canada fell as much as 3 per cent in early trading in Toronto, but recovered later to close down 0.7 per cent. Shares of United Continental Holdings Inc, the parent of United Airlines, were unchanged at $81.69 in US after-hours trade.
Airlines bought the 737 MAX for its longer range and fuel efficiency, and some carriers› business plans are facing disruption because of the grounding, which US lawmakers have said could last for weeks at a minimum.
The causes of Sunday›s crash are still unknown.
Boeing suspended deliveries of its 737 MAX aircraft on Thursday but continues to produce its single-aisle jets at full speed.
Montreal-based Air Canada has said it operated seventy-five 737 MAX flights daily out of a total schedule of approximately 1,600 flights system-wide. Chicago, Illinois-based United Continental operates 14 737 MAX 9 aircraft that accounted for about 40 flights a day.
Air Canada, the country›s largest carrier, has been renewing its narrowbody fleet with MAX aircraft to replace its existing Airbus A320 narrowbodies. It had expected to expand its fleet of 24 MAX jets to 36 by the end of 2019.
The Canadian carrier would face the costs of re-booking passengers after the planes were grounded, and other costs from not having scheduled access to the more efficient MAX, said AltaCorp analyst Chris Murray.
The airline estimated that savings on fuel and maintenance costs would make the MAX 8 aircraft 11 per cent cheaper to operate per available seat mile (CASM) than its existing Airbus A320s. CASM is a closely watched industry metric.
Murray said he expected Air Canada to find a way to «mitigate» the impact of higher costs, and noted the company›s forecast for annual profit margin remained in place for 2020 and 2021, suggesting this would be «a short term disruption.» The grounding of planes has left US and Canadian carriers wrestling with customer calls and flight cancellations. [ Southwest Airlines, the world›s largest MAX operator with 34 jets, and American Airlines with 24 MAX in its fleet, both declined to comment on Friday. Canada›s WestJet Airlines, which operates 13 of the jets, could not be immediately reached for comment.
Meanwhile, Boeing said on Friday its software upgrade for the grounded 737 MAX jetliner will be rolled out in the coming weeks, and that its timeline for deploying the upgrade has not changed.
Boeing has been working on a software upgrade for an anti-stall system and pilot displays on its fastest-selling jetliner in the wake of the deadly Lion Air crash in Indonesia in October. Similarities between the flight path in the Lion Air incident and Sunday›s Ethiopian Airlines crash have raised fresh questions about the system.
Boeing said on Monday it has been working closely with the US Federal Aviation Administration on development, planning and certification of the software upgrade, and it will be deployed across the 737 MAX fleet in the coming weeks.
The FAA expects to approve these design changes no later than April 2019, it has said.
Boeing shares rose as much as 1.5 per cent in midday trading, reversing course from losses of about 1.5 per cent earlier in the session.
The grounding of boeing›s 737 MAX jets after the crash in Ethiopia has had no immediate financial impact on airlines using the planes, but it will get painful for the industry the longer they do not fly, companies and analysts said on Friday.
Investigators in France on Friday examined the black boxes of the jet that crashed in Ethiopia as the global airline industry waited to see if the cause was similar to a disaster in Indonesia months before.
Regulators have grounded the 737 MAX around the world, and the US planemaker has halted deliveries of the several thousand planes on order for a model intended to be the future industry workhorse.
US bank Citi said it expected the grounding to eat into the profits of Southwest Airlines, which operates the world›s biggest 737 MAX fleet, leaving the carrier facing a plane shortage and likely passenger compensation costs.
For airlines that over-ordered the 737 MAX, the grounding could provide an excuse to delay or cancel purchases, analysts said, though others are scrambling to adjust business plans that bet heavily on the fuel-efficient, longer-range jets.