Gulliver | Taking its toll

Airlines may be underestimating the cost of the 737 MAX groundings

Many are cancelling flights this summer due to a lack of aircraft

By M.R.

IN MARCH REGULATORS around the world grounded all Boeing 737 MAX jets after two of the type crashed within five months of each other, killing 346 people. Soon afterwards Ryanair, the carrier in Europe that has placed the most orders for the new jet, insisted that the move would have little impact on its network. That was either wishful thinking or misinformation. Just three weeks later, the number of flights it had scheduled from London to Edinburgh, Britain’s busiest domestic route, fell 85%. Frequencies from London to Belfast plummeted 91%. If flights had to be axed, those ones made the most sense. Margins are tight on these routes due to high domestic aviation taxes in Britain and stiff competition from other airlines and rail firms. But the move highlights the growing toll that the MAX’s grounding is having on airlines around the world.

Across the Atlantic, 275 flights per day are now being cancelled by American and Southwest, the two airlines that operate the most MAXs in America. Both carriers hope to resume normal service in August, by which time Boeing hopes to have fixed the software bug that is suspected to have caused the two crashes. But the timeline is mere guesswork.

Even if accurate, it could take Boeing much longer to get the fix approved by regulators in other countries. In previous years, the quality of the regulatory processes at the Federal Aviation Administration, America’s aviation regulator, was so respected that other countries deferred to its judgement in reciprocal arrangements. But now officials in Europe and Canada want to conduct their own tests before letting the MAX back in their skies. They were dismayed and alarmed by the reluctance of the FAA to ground the jet after the second crash in Ethiopia. Some suspect that Boeing’s cosy relationship with its regulator may have skewed its judgement.

Despite these difficulties, Boeing’s share price is up just under a fifth since the start of the year. Investors think airlines will stand by their MAX orders given that Airbus, Boeing’s European competitor, has no spare capacity to produce more of its rival A320neo jet. But Boeing has already slowed the rate at which it assembles MAXs, down from 52 to 42 aircraft per month.

In any case, its 5,000-strong orderbook for MAX jets looks vulnerable. Garuda, an Indonesian carrier, is cancelling its 49 orders. Lion Air and Ethiopian Airlines—the two carriers that have lost MAX aircraft—are unlikely to honour their 212 orders. Other big operators might use the grounding as an excuse for trimming commitments. Even airlines loyal to the manufacturer will hit Boeing with hefty compensation bills for the extra costs that they have incurred since the planes were grounded. And the relatives of the 346 dead are likely to sue the aircraft manufacturer in great numbers as well. Boeing will not be ruined by this crisis. But nor will it emerge unscathed.

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