United Airlines is set to receive compensation from Boeing for the financial damages caused by the grounding of 737 MAX 9 aircraft during the first quarter of 2024. This compensation comes after U.S. regulators grounded some Boeing 737 MAX 9 aircraft for about three weeks to conduct safety checks following a cabin panel blowout on an Alaska Airlines-operated MAX 9 jet in January.
The incident had a significant impact on United Airlines, a key Boeing customer, forcing the airline to suspend service on all 79 of its 737 MAX 9 aircraft. This suspension resulted in a $200 million loss for the airline in the first quarter.
Details of the Agreement
United Airlines announced in a recent filing that it has reached a confidential agreement with Boeing to cover the losses incurred from the grounding and the rescheduling of aircraft deliveries. The agreement involves providing United with “credit memos” for future purchases. A credit memo is an official document that acknowledges that money is owed back to a customer, which United can use to offset future Boeing purchases.
By February 5, 78 of United’s 79 grounded 737 MAX 9 aircraft had returned to service after the Federal Aviation Administration (FAA) gave its approval. The airline expects Boeing’s compensation to help cover the disruptions caused by the grounding.
Impact on Boeing and Industry Reaction
The cabin panel blowout incident had a negative impact on Boeing’s reputation, leading to a shakeup in its management and tighter scrutiny from U.S. regulators. The company’s production and deliveries were also affected, with deliveries falling by half in March. The grounding incident further dented Boeing’s image, leading to operational delays for airlines using the 737 MAX 9 model.
In response to inquiries, Boeing referred to its Chief Financial Officer, Brian West, who mentioned in March that “customer consideration is going to manifest itself in the quarter (after the grounding), in the P&L and we’ve got to take care of that.” This statement indicates Boeing’s acknowledgment of the financial repercussions caused by the grounding incident.
Alaska Airlines and Boeing’s Compensation
Alaska Airlines, which also experienced losses due to the grounding of its 737 MAX 9 fleet, reported that Boeing paid about $160 million to compensate for the grounding-related financial hit during the first quarter. This payment reflects the damages caused by the grounding and helps to offset the costs incurred by the airline.
United Airlines and Alaska Airlines are receiving compensation from Boeing for the losses caused by the 737 MAX 9 grounding. The confidential agreement between United and Boeing is expected to alleviate some of the financial burden and allow the airline to move forward with its operational plans.
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