And there is still the $ 744 million in additional costs – so far – mainly from storing hundreds of Max jets built during the grounding that Boeing was unable to deliver. Even with Boeing customers now receiving these planes, it won’t be until 2023 that airlines will 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 last year. But that was just the start of the costs. Boeing announced two victim compensation funds, one created in 2019 for $ 100 million and the other part of a fraud deal for an additional $ 500 million. And most of the victims’ families still have to settle their lawsuits against the company. According to some estimates, she could face an additional $ 500 million in court fees.
There are also lost sales for the 737 Max. Usually – even during a slowdown in air travel – airlines are reluctant to cancel jet orders due to significant fees and fines. But the stoppage dragged on so far that the penalty clause in sales contracts was no longer in effect. When the Covid-19 pandemic nearly paralyzed air travel to the ground, Boeing was already inundated with Max order cancellations – almost 800 of the planes.
A 737 Max usually sells for around $ 55 million. In the worst case scenario for Boeing, it could lose up to $ 44 billion in revenue from falling sales.
Experts say Boeing will eventually sell these planes, albeit at a huge discount, perhaps even to the same customers who are canceling their orders. So even if Boeing doesn’t lose all of the $ 44 billion in canceled orders, Max’s lowest price could cost tens of billions.
Boeing does not comment on the sale prices of any of its planes.
And then there’s the rising cost of borrowing from Boeing – Boeing took on debts of tens of billions during the crisis, most of them at an interest rate of about 5%. This means that interest will accrue at perhaps $ 3 billion or $ 4 billion, said Chris Denicolo, aerospace credit analyst at Standard & Poor’s.
In addition to these heavy costs, the question remains how the crisis affected Boeing’s competitive position.
Before the accidents, the company was working on plans for a new, longer-range midsize aircraft that could compete with the A321XLR, now sold by rival Airbus, with a 2023 release date. Boeing says it has not stopped working on developing its competing offer, popularly known as the 797, but it falls far short of its original plans for the plane.
Boeing desperately needed a new offer to compete with the A321XLR, said Richard Aboulafia, aerospace analyst at Teal Group. The duopoly enjoyed by Boeing and Airbus makes it unlikely that any of the companies will leave the market. But not being competitive with Airbus in this important part of the market is a serious long-term threat for 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 a lot less profitable, a lot less relevant.”
A fateful birthday
The March 10, 2019 crash was the second fatal accident involving the jet, following the crash of a Lion Air 737 Max plane in October 2018, which killed 189 people. Although no action was taken after the first accident, the second incident led to the 20-month global stranding of Boeing’s best-selling plane, as the aircraft manufacturer tried to come up with an acceptable solution to the defective safety system that caused the accidents .
The United States Federal Aviation Administration and aviation regulators in 159 other countries have finally approved the plane to transport passengers again, and airlines are quickly returning to operate it. Southwest Airlines, (LUV) which has more Max jets than any other airline, will become the 15th airline to carry passengers as soon as its 737-Max jets return to air on Thursday.
Several relatives of the crash victims met with United States Secretary of Transportation Pete Buttigieg on Wednesday to express concerns about the United States’ approval for the plane to fly again. Others said that the dollar cost of the 737 Max crisis does not measure what they have lost.
“We lost the most beautiful, caring, active, caring and intelligent person,” said Chris Moore of Toronto, whose 24-year-old daughter Danielle was killed in the Ethiopian jet. “The true cost of this loss is immeasurable, but that cost accrues 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 United States for Max, which they are unlikely to succeed. But 35 regulators worldwide have so far refused to allow the plane transport passengers, including China, where more than 20% of the planes are based.
The longer these strandings last, the more problems and costs for Boeing.
