And then there’s the $ 744 million in additional costs, so far, mostly derived from the storage of hundreds of Max planes built during the ground connection that Boeing was unable to deliver. Even with Boeing customers getting these planes, it will be well into 2023 before airlines take possession of them.
And that doesn’t even begin to address Boeing’s legal exposure. The company paid a $ 244 million fine to settle criminal fraud charges late last year. But that was just the beginning of the costs. Boeing has announced two compensation funds for victims, one created in 2019 for $ 100 million, another part of a fraud deal for an additional $ 500 million. And most of the families of the victims have yet to resolve their lawsuits against the company. According to some estimates, it could face legal costs of an additional $ 500 million.
There are also lost sales of the 737 Max. Typically, even during an airline recession, airlines are reluctant to cancel aircraft orders due to significant fees and penalties. But the grounding lasted so long the penalty clause in the sales contracts was no longer in force. When the Covid-19 pandemic caused a practical halt to air travel to land, Boeing was already inundated with order cancellations for Max, nearly 800 of the aircraft.
A 737 Max typically sells for about $ 55 million. At worst for Boeing, it could lose up to $ 44 billion in revenue from falling sales.
Experts say Boeing will end up selling these planes, albeit at a hefty discount, perhaps even to the same customers who are now canceling their orders. Thus, even if Boeing does not lose the entire $ 44 billion for canceled orders, the lowest price of the Max could cost it tens of billions.
Boeing will not comment on the selling prices of any of its aircraft.
And, in addition, there is the rising cost of borrowing from Boeing: Boeing assumed billions of debts during the crisis, most with an interest rate of about 5%. That means interest will expand by maybe $ 3,000 or $ 4 billion, said Chris Denicolo, an aerospace credit analyst at Standard & Poor’s.
Beyond these harsh costs, the question remains how the crisis has affected Boeing’s competitive position.
Prior to the crashes, the company was working on plans for a new, longer-sized mid-size aircraft that could compete with the A321XLR that would now sell rival Airbus with a 2023 target date for its debut. Boeing says it has not stopped working to develop its competitive offering, popularly known as the 797, but is far behind its original plans for the aircraft.
Boeing desperately needed a new offer to compete with the A321XLR, said Richard Aboulafia, the Teal Group’s aerospace analyst. The duopoly enjoyed by Boeing and Airbus makes it unlikely that any of the companies will stop working. But not being competitive with Airbus in this key 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 doesn’t mean you’re leaving, but you’re much less profitable and much less relevant.”
A fateful birthday
The March 10, 2019 crash was the second fatal crash to hit the jet, following an October 2018 crash of a Lion Air 737 Max plane that killed 189 people. Although no action was taken after the first crash, the second incident resulted in the 20-month global grounding of Boeing’s best-selling aircraft, as the aircraft manufacturer tried to accept the malfunction of the security system that caused the crashes.
The U.S. Federal Aviation Administration and aviation regulators for another 159 countries have finally approved the plane to carry passengers back, and airlines are quickly returning it to service. Southwest Airlines, (LUV) which owns more Max planes than any carrier, will become the 15th airline to carry passengers once its 737-Max planes return to the air on Thursday.
Several family members of the crash victims met with U.S. Secretary of Transportation Pete Buttigieg on Wednesday to express concern over U.S. approval for the plane to fly again. Others said the dollar cost of the 737 Max crisis is not starting to measure what they lost.
“We lost the most beautiful, affectionate, active, thoughtful and intelligent person,” said Chris Moore of Toronto, whose 24-year-old daughter Danielle died on the Ethiopian jet. “The true cost of this loss is immeasurable, but that cost goes to Danielle Moore’s family every minute of every day and night and especially during sleep. These costs are real.”
Families are looking for a new base in the US for Max, which they are unlikely to get. But so far 35 regulators around the world have refused to allow the plane transport passengers, including China, where there are more than 20% of aircraft.
The longer these ground connections last, the more problems and costs Boeing will have.
