The 737 Max grounding cost Southwest $828 million in 2019 - CNN

The 737 Max was grounded in March following two fatal crashes that killed 346 people, and Boeing announced this week that it doesn't expect approval for the plane to fly again until the middle of 2020.

Southwest owns 34 of the Max jets, more than any other airline, and it had expected to end the year with 75 of the jets by the end of the year before the grounding halted deliveries of new planes. Boeing (BA) and Southwest reached a confidential agreement on compensation late in the year.

"We will continue discussions with Boeing regarding further compensation," said Southwest CEO Gary Kelly. Much of the compensation will come in the form of reduced pricing on future purchases from Boeing, the company said.

Southwest increased profit-sharing payments to employees by $97 million with money it got from Boeing.

Southwest (LUV) said the cut its income by $828 million during the course of 2019. It reported its net income fell $140 million in the fourth quarter and $167 million in the year, mostly because of the loss of the Max jets. The airline has been removing about 330 weekday flights from its schedule due to the grounding. It has canceled flights only through early June, but in light of Boeing's new guidance on when the plane will be approved to fly, Southwest expects further cancellations throughout much if not all of the summer.

American Airlines (AAL), the world's largest airline and another Max customer, also reported results Thursday, but it was able to achieve a $54 million increase in profit in the quarter after excluding one-time items, and a $62 million earnings increase over the course of the year. American does not depend as heavily on the Max or earlier versions of the 737 as does Southwest. It had 24 of the jets at the time of the grounding.

American did not break out the cost of the grounding in its earnings report Thursday, but in October it said it expected the grounding would reduce its full-year pre-tax income by $540 million.

Shares of Southwest were narrowly lower in premarket trading on its earnings report Thursday, while American shares were slightly higher. Airline stocks have been hammered this week out of concern that the coronavirus in China, which has killed 17 people there, could spread and affect people's willingness to travel by air.

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2020-01-23 12:29:00Z
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