Boeing Max flight cancellations to continue for US travelers

By IndustrialsFOXBusiness

Boeing takes to the skies to test out new technology; gas prices are rising

Morning Business Outlook: Pilots from airlines flying Boeing 737 Max planes are testing out software changes from the aerospace company; gas prices have started to climb as we head into the spring and toward Memorial Day.

U.S. travelers will see continued flight cancellations from the grounding of Boeing’s Max jets as top domestic carriers work to adjust their flight schedules to accommodate the disruption.

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At American Airlines, interruptions will continue through April 24 as a result of the halt in service. The largest U.S. carrier is cancelling roughly 90 flights per day.

United Air Lines says it has not experienced daily flight cancellations and “will continue to use alternate aircraft to avoid cancellations moving forward.” Meanwhile, Southwest – whose fleet includes 34 Max aircraft -- says it is experiencing an average of 130 daily cancellations.

“We are currently making cancellations five days out to give customers as much notice as possible. When we re-optimize the schedule daily, we’re looking to make the least amount of impact to our customers and our network,” a spokeswoman said in an emailed statement.

Air Canada – which operates 24 Max jets and has suspended delivery of the remaining 37 ordered – said it has adjusted the schedule through April 30 and is removing the Max fleet from operations until at least July 1.

"There is a domino effect from removing the 737s from our fleet that impacts the schedule and ultimately will impact some customers. We have been working very hard to minimize that impact," COO Lucie Guillemette said.

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Apart from the impact to customers, the nearly worldwide grounding of the recent update to the Chicago-based manufacturer’s most popular plane is expected to weigh on first quarter earnings for Southwest, American and others – carriers that already faced headwinds due to a tumultuous three months that included a record 35-day government shutdown that impacted the Federal Aviation Administration.

“We still see a tough Q1, marred by government shutdown, weather, and MAX grounding; and Q2 will be affected thru at least April, probably longer,” Cowen analysts wrote in a Monday note. “The longer the grounding, the less impactful as airlines replace the capacity with other aircraft.”

Any effect, however, is likely to be “short-lived, covering weeks and months as opposed to quarters and years,” according to Morgan Stanley analyst Rajeev Lalwani.

The grounding could also be used as leverage in the ongoing China trade talks as a potential “quid pro quo” over the U.S.’s decision to pursue criminal charges against Huawei and restrict the ability of government agencies to use products from the telecommunications giant, according to Cowen.

“Nothing is black-and-white in Beijing or Washington these days as both countries are playing out their own industrial policies and national champion’s policy,” the analysts wrote. “A straight quid pro quo would never be discussed as such, but the 737 grounding has the potential to give China a Boeing quid to match our Huawei quo.”

TickerSecurityLastChange%Chg
LUVSOUTHWEST AIRLINES CO.49.79+1.58+3.28%
AALAMERICAN AIRLINES GROUP INC.25.79+0.38+1.50%
UALUNITED AIRLINES HLDG.82.94+1.32+1.62%
ACASSOCIATED CAPITAL GROUP INC.36.32+0.70+1.97%

A Boeing Max jet operated by Ethiopian Airlines crashed earlier this month, killing 157 people. Five months earlier, a Lion Air crash involving the aircraft killed 189 people.

While U.S. regulators have not drawn a direct connection between the two incidents, scrutiny has intensified over the so-called “point of attack” sensor, which tracks lift at take-off to prevent stalling.

Ethiopian Airlines CEO Tewolde Gebremariam told the Wall Street Journal on Monday that the stall-prevention system was activated before the fatal crash, but did not provide information on how he came to that conclusion.

Boeing is working on a software update that is expected to be submitted for FAA approval shortly. Cowen analysts estimate it will take 6-12 weeks to implement the upgrade across the fleet.

U.S. operations could resume quickly, but foreign operations "will take longer given China, Europe, and Canada have indicated they plan their own reviews and won’t depend on the FAA, which in the past has been the final word regarding aviation safety."

In the aftermath of the two crashes, the federal certification process for the update to the Chicago-based manufacturer’s most popular jet is under scrutiny, including both a review by the Department of Transportation and a reported criminal probe by the Justice Department. Among the items under investigation is whether Boeing provided incomplete or misleading information about the Max jets to the regulators, according to the Journal.

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The Senate is poised this week to hold its first hearing on the issue, which is slated to include the acting head of the FAA. Last week, the White House nominated former Delta executive and current Amtrak CEO Stephen Dickson to be the agency’s permanent chief.