Boeing Max grounding leads American Airlines to lower 1Q earnings outlook
American Airlines is lowering its earnings projections for the first three months of 2019, as the aviation industry struggles with the prolonged grounding of Boeing’s 737 Max fleet.
The Chicago-based manufacturer continues to work on a software update to fix the issues that led to two recent crashes involving the latest version of its most popular plane.
But a delayed timeline is forcing top U.S. carriers to extend the potential for flight disruptions through the start of the lucrative summer travel season. American on Sunday, for example, said it would prolong until June 5 the cancellation of roughly 90 daily flights due to the grounding of the Max fleet.
"The financial costs of this disruption in future periods cannot be forecasted at this time and will be dependent upon a number of factors, including the period of time the aircraft are unavailable and the circumstances of any reintroduction of the aircraft to service," the Fort Worth, Texas-based carrier said in a federal filing on Tuesday.
American said revenue for the first quarter would increase as much as 1 percent, less than the prior estimate of 2 percent growth. On top of the Boeing crisis, the airline also cited the record 35-day government shutdown and unplanned removal of 14 of Boeing's 737-800 planes for service.
Not every domestic carrier is impacted by the halt in operations. Delta Air Lines, which operates no Max jets, recently increased its earnings outlook for the first quarter. The Atlanta-based company now expects profits to be as high as 95 cents per share.
Meanwhile, Raymond James analyst Savanthi Syth on Monday downgraded Southwest’s near-term stock performance due to the “earnings risk related to the grounding of the Max fleet.”
The Dallas-based company – which operates 34 Max jets out of a fleet of over 750 planes -- is extending potential cancellations due to the grounding until at least June 4, elongating what has been a difficult few months for the nation’s largest domestic carrier.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| BA | THE BOEING CO. | 170.48 | +0.66 | +0.39% |
| AAL | AMERICAN AIRLINES GROUP INC. | 14.54 | +0.43 | +3.05% |
| LUV | SOUTHWEST AIRLINES CO. | 29.73 | +0.35 | +1.19% |
| DAL | DELTA AIR LINES INC. | 49.02 | +1.45 | +3.05% |
| UAL | UNITED AIRLINES HOLDINGS INC. | 53.94 | +2.56 | +4.98% |
Southwest canceled roughly 9,400 flights over the past three months due to inclement weather and the removal of the Max aircraft, as well as a dispute with its mechanics that led to an increase in out-of-service planes – costing it millions of dollars in lost earnings.
The company has a pending order for 41 more Max jets in 2019, as well as 221 more in the coming years. A spokesman declined to comment on the future order schedule.
Southwest has a number of levers at its disposal to mitigate any long-term loss of the Boeing Max fleet, including delaying the retirement of older 737s, Syth wrote.
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At Boeing, a slower production schedule will result in a “sizable, albeit still hard to quantify, financial penalty to 2019 results,” Cowen analysts wrote in a recent note, adding that it could lower quarterly earnings by billions of dollars. Orders will drop this year from an expected 630 planes to roughly 500, they wrote.
The outlook dragged down the company’s stock 4.4 percent on Monday.