(Bloomberg Opinion) – Boeing Co.’s 737 Max may be on its way to finally returning to commercial service later this year, but the plane’s biggest customer isn’t eager for new deliveries.
Southwest Airlines Co. does not expect to take on new Max aircraft this year, Chief Executive Gary Kelly said in an interview with Bloomberg News. The airline had previously said it would not add more than 48 of the planes to its fleet until the end of 2021, and reiterated that plan in a presentation Thursday. But the bottom-line weighting of these deliveries puts significant pressure on a post-pandemic travel recovery that has been volatile and remains highly uncertain in the absence of a widely available vaccine.
While leisure travel bookings improved in May and June, the rising demand recovery stalled in July amid a resurgence of coronavirus outbreaks across the United States, Southwest said Thursday when it reported a second-quarter net loss of $ 915 million. As a result, the company now feels it is offering too many flights in August and September relative to demand. “We will adjust our flight schedules aggressively and frequently in response to this volatile demand environment,” Kelly said in a statement. And that will probably mean flying some Max planes for now.
The negative outlook provides a dose of reality for the Boeing rally looking for signs of progress for the Max jet. The Federal Aviation Administration said this week that it is preparing to issue formal legal directives for the plane’s repair, indicating that the agency is finally comfortable with the proposed solutions some 16 months after the second of two fatal accidents led regulators around the world to ban the plane. commercial flight The public has 45 days to comment on the FAA’s action and there are additional final steps left in the grounding process, likely pushing the plane’s return to October. That will curb Boeing’s plans to resume deliveries in the third quarter, but such a delay hardly matters much at a time when airlines are making further cuts in capacity. The new planes aside, Southwest now doesn’t even expect to bring any of the 34 Max jets it already owns to its active fleet until at least December, given the time it takes to re-train the pilots.
On the positive side for Boeing, American Airlines Group Inc. chief financial officer Derek Kerr said Thursday that the airline planned to receive 17 Max planes this year that are already built or under construction, pending regulatory approval. The carrier reportedly warned Boeing that it would cancel orders for about a dozen Max aircraft if financing negotiations were unsuccessful. In a presentation Thursday, American said it now had financial commitments for all deliveries scheduled for 2020, with the exception of three Boeing Max planes, and Kerr said the ongoing discussions had been “good.”
But Americans, like other airlines, cannot receive deliveries of the Max until regulators authorize it to fly again. The carrier had withdrawn the Max from its schedule until September 9, but will likely have to make further adjustments given the current planned timeline for regulatory approval. Delivery of the 17 Max aircraft may arrive early next year, Kerr acknowledged, expelling a possible source of cash for Boeing.
American is also cutting its capacity plans after a summer boost that was more aggressive than its peers. About 40% of the airline’s post-Labor Day traffic is linked to business travel, and you’re currently only seeing a “symbolic” amount of demand on that front, Vasu Raja, director of revenue for American, said in a call to discuss second trimester. results. Net reserves are currently declining 75% to 80%, a marked difference from May and June, which were boosted by economic reopens across the Sun Belt, Raja said. Therefore, American now expects third-quarter capacity to be 60% lower than the previous year, according to its July flight schedule.
No matter when Max returns to the skies, Boeing cannot begin to rebuild its cash flow without a significant recovery from the airlines. And that seems to have been put on ice for now.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Brooke Sutherland is a Bloomberg Opinion columnist covering industrial deals and companies. She previously wrote a M&A column for Bloomberg News.
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