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American Airlines plans to share part of Boeing 737 Max compensation with employees

January 3, 2020 10:34 am
American Airlines’ Boeing 737 Max planes sit parked outside of a maintenance hangar at Tulsa International Airport (TUL) in Tulsa, Oklahoma, May 14, 2019.

American Airlines is planning to share with employees a portion of the compensation it expects to receive from Boeing for the nearly 10-month grounding of the 737 Max.

A disruption that carriers have said cost them more than $1 billion in revenue.

American’s talks with Boeing are still ongoing, a spokesman said. Several other 737 Max customers, including Icelandair, Turkish Airlines and Southwest Airlines, have recently reached agreements with the manufacturer, but the final amounts, whether in cash compensation or discounts on aircraft, isn’t yet clear because the grounding is ongoing.

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The grounding of the 737 Max after two crashes — one in Indonesia in October 2018 and another in Ethiopia the following March — has roiled Boeing, prompting the manufacturer to suspend production of the bestselling plane and costing former CEO Dennis Muilenburg his job. It has also forced airlines to cancel thousands of flights and curb growth plans. That has meant less overtime for employees, they argue.

The Federal Aviation Administration has repeatedly said it doesn’t have a set timeline for clearing the planes to fly again and that it would individually review each 737 Max before they can fly.

That uncertainty has forced airlines to repeatedly remove the jetliners from their schedule, a trend that becomes even more disruptive because airlines expected to have even more 737 Max planes delivered since the grounding. American had 24 of the 737 Max planes in its fleet at the time of the grounding and had expected that size to double this year.

“As we’ve said before, we expect American will be compensated for the lost earnings that the Max grounding has caused,” American Airlines spokesman Ross Feinstein said. “We anticipate that part of any compensation American receives will be eligible for profit sharing for our team.”

A Boeing spokesman said the company doesn’t comment on “our private discussions with customers.” The company took a $4.9 billion after-tax charge in the second quarter to compensate airlines for the grounding.

American in October forecast the Max grounding would cost it $540 million in pretax income in 2019. The full financial toll on airlines isn’t yet known because it’s not clear when the planes will fly again. American and Southwest removed the planes from their schedules until April, while United pulled them until early June.

“We feel highly confident that the losses that American Airlines have incurred won’t be incurred by American shareholders, but will be borne by the Boeing shareholders,” American CEO Doug Parker said on an earnings call in October.

Southwest, which said the grounding cost it $435 million in operating income during the first nine months of the year, didn’t disclose the terms of its compensation but said last month that it would share $125 million with its employees. Southwest’s pilot union sued Boeing in October, alleging the grounding cost its pilots more than $100 million in income.

American Airlines pilots’ union, the Allied Pilots Association, said it has not ruled out following suit.

“All actions remain on the table,” said union spokesman Capt. Dennis Tajer. “Further action depends on the success of this path in repairing the financial harm to our pilots.”

American is expected to report full-year and fourth-quarter earnings in the second half of the month.

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