Boeing lay aside USD 5.6 bln provision for MAX compensations
Ethiopian could drag Boeing to court
The US air framer, Boeing, on Thursday announced a 5.6 billion dollars compensation plan for Boeing B737 MAX jetliner customers.
In a statement, Boeing said that it has made a material announcement that we will recognize a USD 5.6 billion pre-tax earnings charge in connection with an estimate of potential concessions and other considerations to customers for disruptions related to the 737 MAX grounding and associated delivery delays. The company announced that it will record an additional USD 1.7 billion pre-tax charge due to projected higher costs associated with a longer than expected reduction in our 737 production rate.
“These earnings charges are based on some fundamental assumptions, including that regulatory approval of 737 MAX return to service in the US and other jurisdictions begins early in the fourth quarter of 2019. This assumption reflects our best estimate at this time, but actual timing of return to service could differ from this estimate,” Boeing said.
“Our second-quarter financial results will further assume a gradual increase in the 737 production rate from 42 per month to 57 per month in 2020, and that the 737 MAX airplanes produced during the grounding will be delivered over several quarters following return to service. Any changes to these assumptions could result in additional financial impact. We continue to work with the regulators to ensure the MAX’s safe return to service, and these authorities will determine the timing of return to service,” it added.
Ethiopian Airlines declined to comment.
Sources told The Reporter that Ethiopian Airlines, which is the direct victim of the B737-8 MAX plane crash, could sue Boeing if it is not properly compensated for the loss it incurred as result of the March 10, 2019 plane crash in which 157 people perished.
Sources said Ethiopian will file its compensation claim once the B737 MAX plane returns to service. Ethiopian had placed firm orders for 30 B737-8 MAX aircraft. It took delivery of five and after losing one in the tragic accident it grounded the remaining four MAX aircraft the same day the accident occurred.
The national flag carrier has 25 more MAX airplanes on its order book. “People lost their loved ones. The airline has been losing revenue as it grounded its MAX fleet. More MAX planes have arrived by now generating revenue. The airline took loans from commercial banks that it is servicing. So, it has to be properly compensated. Otherwise there could be court litigations,” sources said.
In the statement, Boeing indicated that it has been in constant contact with its customers to support them during this difficult time. “Our decades-long relationships are very important to us,” Boeing said. “While we do not comment on our arrangements with particular customers, we will continue to work closely with them to reach a fair and reasonable outcome. Potential concessions and other considerations for customers could come in many forms, not necessarily cash payments (delivery timing, features, services, etc.), and will likely be spread over time. Timing, amount and form of potential concessions and other considerations will be unique for each customer.”
In an email response to The Reporter Boeing’s communication team commented: “We understand and deeply regret the impact that the 737 MAX situation has had on our customers. We are working very closely with Ethiopian Airlines and other MAX operators to provide support and ensure complete confidence in the 737 MAX and a safe return to commercial flight. While we do not comment on our discussions with particular customers, we will continue to work closely with them to reach a fair and reasonable outcome.”
Ethiopian Airlines has been a dedicated customer of Boeing Commercial Planes for more than six decades.