And then there’s $ 744 million in additional costs – so far – mostly from storing hundreds of Max planes built during grounding that Boeing couldn’t deliver. Even with Boeing customers receiving those planes, it will be until 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 for resolving criminal fraud charges late last year. But this was only the beginning of the costs. Boeing has announced two victim compensation funds, one created in 2019 for $ 100 million, another part of a fraud solution for another $ 500 million. And most of the victims’ families have not yet settled their lawsuits against the company. It is estimated that it could face additional legal costs of $ 500 million.
There are also lost sales for the 737 Max. Usually – even during a travel recession – airlines are reluctant to cancel orders for aircraft due to significant taxes and penalties. But the substantiation lasted so long that the penalty clause in the sales contracts was no longer in force. By the time the Covid-19 pandemic caused a plane trip to the ground, almost Boeing was already flooded with order cancellations for Max – nearly 800 planes.
A 737 Max usually sells for about $ 55 million. In the worst case for Boeing, it could lose revenue of up to $ 44 billion from declining sales.
Experts say that Boeing will eventually sell those planes, albeit with a sudden discount, perhaps to the same customers who are now canceling their orders. So, even if Boeing doesn’t lose $ 44 billion in canceled orders, Max’s lower price could cost him tens of billions.
Boeing will not comment on sales prices for any of its aircraft.
And there are the rising costs of borrowing from Boeing – Boeing took on tens of billions in debt during the crisis, most at an interest rate of about 5%. That means interest will probably accrue $ 3 billion or $ 4 billion, said Chris Denicolo, an aerospace credit analyst at Standard & Poor’s.
Beyond these heavy costs, the question remains how the crisis has affected Boeing’s competitive position.
Prior to the crash, the company was working on plans for a new, larger, medium-sized aircraft that could compete with the A321XLR, now being sold by rival Airbus with a target date in 2023 for its debut. Boeing says it has not stopped working on developing its competing offering, popularly called the 797, but is behind its initial plans for the aircraft.
Boeing desperately needed a new offer to compete with the A321XLR, said Richard Aboulafia, an aerospace analyst for the Teal Group. The duopoly enjoyed by Boeing and Airbus makes it unlikely that any of the companies will give up. 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 reach just 25% to 30% of the market,” he said. “It doesn’t mean you’re leaving, but you’re much less profitable, much less relevant.”
A fateful anniversary
The March 10, 2019 accident was the second fatal accident involving the plane, following an October 2018 accident of a Lion Air 737 Max plane that killed 189 people. Although no action was taken after the first crash, the second incident led to a 20-month global grounding of Boeing’s best-selling aircraft, as the aircraft manufacturer tried to find an acceptable solution to the safety system. malfunctioning that caused the accidents.
The US Federal Aviation Administration and aviation regulators for 159 other countries have finally approved the plane to carry passengers again, and airlines are quickly putting it back into service. Southwest Airlines, (LUV) which owns more Max planes than any carrier, will become the 15th airline to carry passengers on them once the 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 about US approval for the plane to fly again. Others have said that the dollar cost of the 737 Max crisis is not starting to measure what they have lost.
“We lost the most beautiful, caring, active, thinking, intelligent person,” said Chris Moore of Toronto, whose 24-year-old daughter Danielle was killed by an Ethiopian plane. “The real cost of this loss is immeasurable, but this cost goes to the Danielle Moore family every minute of every day and night and especially during sleep. These costs are real.”
Families are looking for a new US base for Max, which they are unlikely to get. But 35 regulators around the world have so far refused to allow the plane to do so carry passengers, including China, where more than 20% of aircraft are based.
The longer these connections last, the more problems and costs for Boeing.
