Southwest Reaches Compensation Deal With Boeing Over 737 MAX -- 3rd Update
December 12 2019 - 5:23PM
Dow Jones News
By Alison Sider
Southwest Airlines Co. and Boeing Co. said they struck a deal to
compensate the airline for some of the damage from the nine-month
grounding of the 737 MAX jetliner.
The carrier said Thursday it would share $125 million of the
proceeds with its employees. Southwest didn't disclose the full
terms of the compensation, which it said covered a portion of its
projected financial damages. It said it is continuing to negotiate
with Boeing.
"We're pleased we were able to reach a settlement -- nobody can
be happy about the situation we're in," Gary Kelly, Southwest's
chief executive, said in an interview.
The 737 MAX has been grounded around the world since March
following two fatal plane crashes within five months. The grounding
has been costly and disruptive for airlines, forcing them to cancel
thousands of flights and go without planes they had built into
their schedules.
Southwest had 34 MAX jets in its fleet when the aircraft was
grounded and was due to receive dozens more over the course of the
year. The settlement announced Thursday addressed Southwest's
losses in 2019. Mr. Kelly said the grounding has resulted in an
$830 million reduction in operating income. The two companies are
continuing to discuss how to compensate the airline for losses next
year.
Boeing took a $5.6 billion charge against its second-quarter
earnings to cover payments to customers. Those payments are
expected to be a mix of cash and discounts on aircraft features,
services and deliveries over a number of years. The company has
said insurance policies would cover $500 million in customer
compensation, as well as any damages paid to the families of the
346 victims of the two crashes.
Icelandair Group Hf in September said it reached a deal with
Boeing to cover a fraction of what the airline said amounted to
$140 million in costs up to that time for grounding its six MAX
jets and delays to the delivery of another 10.
Other U.S. carriers have said they are negotiating with Boeing
but want to see how high their costs climb before reaching a
settlement.
Southwest currently has scheduled MAX flights to resume in
March. Mr. Kelly said the company is evaluating whether to extend
cancellations amid signs of further regulatory delays. American
Airlines Group Inc. said Thursday that it is striking the MAX from
its schedules until April 7, about a month longer than previously
planned. American has said it expects the grounding to decrease its
2019 earnings by $540 million.
"This was their failure, not ours," American Chief Executive
Doug Parker said at a conference last month. "Boeing is saying all
the right things about their commitment to their customers and the
damage they have done to us."
Southwest employees have said they have lost income because the
airline is flying fewer flights without its MAX planes. The union
that represents the airline's nearly 10,000 pilots sued Boeing
earlier this year and said it plans to continue to pursue its legal
action.
"This agreement doesn't get anywhere close to compensating the
very real and significant losses SWAPA pilots and other employees
have experienced, " the Southwest Airlines Pilots Association said
Thursday.
Southwest said it would provide profit-sharing details early
next year, including how much each employee would receive.
Dave Sebastian contributed to this article.
Write to Alison Sider at alison.sider@wsj.com
(END) Dow Jones Newswires
December 12, 2019 18:08 ET (23:08 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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