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Grounding Boeing 737 MAX May Cost Airlines $1B/Month

Aug. 20, 2019
An aviation insider analyzes the sky-high costs of Boeing grounding the 737 MAX.

In March 2019, aviation regulators and airlines around the world grounded the Boeing 737 MAX airliner after two brand new aircraft crashed in five months, killing 346 people aboard. While the decision was reasonable, it was an expensive one.

In its second quarter of 2019 results, Boeing estimated that disruptions, in relation with Boeing 737 MAX grounding will result in a $5.6 billion reduction of revenue and pre-tax earnings in the quarter.  But the manufacturer wasn't the only one in a financial disaster.

Airlines that already had Boeing 737 MAX in operation also experienced not only financial but logistical headaches. In total, there were 393 planes grounded and after that airlines had to continue flying according to schedules making ACMI operators extremely popular this summer. The high demand prompted an increase in ACMI prices and one aircraft could cost $350,000 to $400,000 more.

On top of that, airlines could not just fire their staff and had to pay salaries. One plane requires 12-16 pilots and it's estimated that 12 pilots cost around $200,000 per month. So in total that comes to $78.6 million per month for pilots of all 393 grounded aircraft.

One plane also requires around four people working as engineers and in line maintenance. While at this point they provide no services, they cost around $30,000 per month, per plane. So in total that's around $11.8 million.

And with the shortage of operational airplanes, there comes disruptions. EU Regulation 261/2004 protects passengers in case of delays and cancellations and grants compensations of up to 600 euros per passenger. Calculations show that on average one Boeing 737 MAX would be in the air for 350 flying hours per month, i.e. 116 flights. Around 1% of flights experience delays and that's about 374 passengers. Compensations for them on average would come to around $150,000.

Other additional costs could come up to $300,000 per month. So in total that's around $1 million in losses for a plane per month!

While these numbers might look out of this world some airlines already shared their numbers with the public. According to Flight Global, American Airlines expect to post a negative impact of up to $183 million due to the Boeing 737 MAX grounding as the airline had to cancel 7,800 flights in Q2 of 2019.

The grounding of 18 Boeing 737 MAX aircraft has added an extra $81 million to Norwegian Airline's bottom line by mid-July.

Ryanair, on the other hand, had to re-evaluate their planned rapid growth.  The airline had ordered 50 Boeing 737 MAX 200 aircraft. If the ban is not lifted by the end of November, Ryanair might have to ‘trim’ their summer 2020 schedule.

It has been months since the Boeing 737 MAX model has been grounded all over the world, but it looks like the story is not yet over.  Only time will show how much more the industry will lose until the ban is lifted.

About the Author

Gediminas Ziemelis | Chairman of the Board

Gediminas Ziemelis is an internationally known aviation expert, twice recognized as one of the most talented young leaders in the global aerospace industry under age 40. In 2016, Gediminas Ziemelis was acknowledged for his visionary business management and development skills by the prestigious European Business Award jury comprised of EU leaders in economics, education, business, and politics. Avia Solutions Group, led by Gediminas has become a national public champion in the Entrepreneurship category, earning a spot between the top 110 European businesses.

During his carrier he has lead 3 companies to IPO; supported and consulted Chinese Banks for  a total value of transactions in the CIS region of more than USD 2 billion; led a team of experts in a successful working session of the establishment of a Joint Venture with the Henan Province and China Aviation Agency resulting in a deal worth USD 900 million; established more than 10 successful startups such as: locatory.com, skycop.com, aviationcv.com, etc.

Today, Gediminas manages a private equity fund, which owns assets with a net worth of 300 million euros in the aviation, real estate, IT, and pharmacy industries. He is also a sponsor of various sports, educational, voluntary, and charitable organization projects. Gediminas follows the three simple principles of social responsibility – responsibility towards consumers, employees, and society.

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