Relationships between aircraft manufacturers and airlines are about to be even more strained, and this is the perfect example of why.
In this post:
The 737 MAX may be flying again soon
The Boeing 737 MAX has been grounded globally since March 2019, following two crashes just months apart.
When the 737 MAX was grounded in early 2019, deliveries to airlines stopped, since the plane was no longer certified. At first airlines were upset about the groundings, since this got in the way of expansion plans. However, with the current pandemic, airlines are happy to have fewer planes they’re liable for.
Boeing has been working on getting the 737 MAX recertified. Last week Boeing and the FAA completed certification test flights, and it looks like the plane could once again be back in service within the next few months (though of course there’s always the potential for further delays).
Presumably at this point airlines aren’t too thrilled about that, since they’ll have to take delivery of these planes in line with contracts — not only does that add a lot of unnecessary capacity, but these planes are also expensive to buy, and it’s not like they’re entirely paid for in advance.
This brings us to the situation that American Airlines is facing.
The 737 MAX has just completed flight testing
American can’t find financing for 737 MAX aircraft
American Airlines has a total of 100 Boeing 737 MAX 8 aircraft on order. The airline took delivery of the first such plane in late 2017, and so far has about two dozen “MAXs” in its fleet.
With the 737 MAX nearing certification, American is potentially on the hook for taking delivery of 17 Boeing 737 MAX 8 aircraft this year.
The Wall Street Journal reports that American Airlines is allegedly looking for a way to get out of these plane orders, as the airline is struggling to find financing.
Understandably the airline has little need for these planes at this point, but the even bigger issue is that American is struggling to finance these planes, which shouldn’t come as a surprise. Given how leveraged American Airlines already is, and the overall outlook for the industry, how will American find financing for new planes?
What’s not known is what exactly American Airlines’ contract with Boeing says regarding a situation like this. When you combine a global pandemic with an aircraft being grounded for over a year due to serious issues, this is an unprecedented situation.
Presumably American’s purchase agreement wasn’t contingent upon the airline being able to get financing, at least not without a huge penalty for cancelling the order. I guess we’ll see if there are other creative options — like deferrals — that can be worked out between American and Boeing.
American Airlines 737 MAX 8
Bottom line
American Airlines is allegedly trying to cancel an order for 17 Boeing 737 MAX 8, which the airline may otherwise be obligated to take delivery of in 2020. Understandably new aircraft financing is harder to come by than ever before, and that doesn’t even account for the fact that the airline has no need for these planes.
American’s situation isn’t unique, as I imagine Airbus and Boeing will be facing big battles when it comes to getting customers to actually take delivery of new planes.
I wonder how Southwest is going to handle their order since I think this is all they fly. Are they even needed?
People please! Lavatory size and seat spacing is an airline choice. They tell the manufacturer what they want and the manufacturer builds it, assuming it is FAA compliant.
I'm a bit slow these last few months and have finally realized that using the word *k*i*l*l as a result of an airplane crash triggers the moderator moderation procedure.
Reasonably so since some nuts go around threatening to do that to other people. Sad.
I presume that moderation will allow the trivial post.
@Pierre
How about the DC10 with the collapsing floorboards? Renamed the MD11 and flew for years after the engineering problems were fixed. Still freighters around.
The DH Comet was a stress/metal fatigue failure. Modern maintenance would have caught it before it became fatal.
A32X series plunked a number killing many but they managed to hide it as the crashes were not as obvious and looked like pilot error.
If it walks like a duck and quacks like a duck, it’s a duck. The Max is a dead duck but won’t lie down.
Ben, what happens to aircraft orders of airlines that have folded eg. Jet Airways had a sizeable order and you’ve had ready aircraft in Jet’s colours sitting on the ground in Everett
@ Chris
The ONLY Western plane with a comparable history / timeline was the De Haviland Comet, withdrawn in 1952 and re-entering service in 1956 as the Comet 4, of which a total of 68 were ever built and brought in service. Not encouraging.
The Comet by the way had the one innovation which was unfortunately never followed upon, it was the only airliner with a completely clean wing and fuselage, with the engines entirely...
@ Chris
The ONLY Western plane with a comparable history / timeline was the De Haviland Comet, withdrawn in 1952 and re-entering service in 1956 as the Comet 4, of which a total of 68 were ever built and brought in service. Not encouraging.
The Comet by the way had the one innovation which was unfortunately never followed upon, it was the only airliner with a completely clean wing and fuselage, with the engines entirely buried deeply inside the wings. I wonder what modern technology would make of this now. The closest thing to resemble it 25 years later, but not really, was the Concorde.
Most people won’t even know that they are flying on a Max, and unless some new accident occurs everything will soon be forgotten. The Max is not the first plane that has crashed due to engineering faults.
It's interesting how all orders will be resolved. Obviously Boeing will want airlines to take to them so they themselves stay in business, but forcing airlines could take them could lead to airlines going out of business and thus leaving fewer future customers and possibly undelivered planes...
@Jan I actually knew how to use one. My dad used one for a lot of engineering stuff. cooll piece of technology
@dan don't diss the slide rule now. Those were great for designing moon-landing capable things. "super computers" in 2020 are just used for memes and twitter fights.
Armchair experts abound. Here is my thinking, they will make some deal to sell the max, while hopefully they fast track a clean sheet. I still scratch my head that they designed the 747 with slide rules in months compared to years with super computers.
Boeing has the death of 382 Max passengers on its bloody hands because it went cheap on engineering. $12 an hour third world engineers were sure a great bargain.
It's sad that honest hard working Boeing workers suffer while the scum that are responsible walk away with millions.
I apologize for not checking my post to combat spellcheck.
I flew the ( minimum space Max.
I used the lag. I am 180 and slim,and turning around is difficult and washing your hands also washes the front of your clothes. It is embarrassing, looking as if I wizzed in my trousers.
Will I fly it? Probably not.
I hope AA wiggles out of this 737Max plane order; personally, I won't fly in one, certified or not. So the fewer they have the better. Hopefully they won't go under though; I used to fly them all the time. Though not going anywhere right now. Maybe next year (maybe not).
The 737 MAX is a very uncomfortable plane especially in coach ... lavatories the size of a penny --
@ Bupkiss
I am not sur eif your comment referred to mine. I don't pretend to know law, my wife is the attorney in multiple Countries and I usually lose.
I think it is make or break for Boeing to not start a pattern of letting customers out of their obligations.
I am no expert and honestly, sitting in a seat as a passenger I might be able to understand blatant nuances...
@ Bupkiss
I am not sur eif your comment referred to mine. I don't pretend to know law, my wife is the attorney in multiple Countries and I usually lose.
I think it is make or break for Boeing to not start a pattern of letting customers out of their obligations.
I am no expert and honestly, sitting in a seat as a passenger I might be able to understand blatant nuances in wine, champagne or service. I and other passengers have no idea what the cockpit is dealing with INCLUDING technical issues.
Always good for a laugh to read the hate-on-Boeing nonsense here from self-appointed experts - first in aviation safety and now also in contract law. Suuuuure....
Now would be a good time to have friendly trade relationships with China, which seems to like Boeing aircraft and has a growing market for them.
But as we have learned, trade wars are easy to lose.
I expect that Boeing will either negotiate or litigate. If they give in that is the end, every airline will try to refuse taking delivery as honestly, they don't need them anymore.
Interesting to read so many comments critical of Boeing for developing the plane in the first place...why would they not build this plane? To stretch a 50 year old design to new life, who wouldn't do that???
And as for air worthiness of the recertified plane...the FAA has been incredibly involved with it this time, there's no way Boeing purposely slips anything in this time around. With all the scrutiny I'd think people would...
Interesting to read so many comments critical of Boeing for developing the plane in the first place...why would they not build this plane? To stretch a 50 year old design to new life, who wouldn't do that???
And as for air worthiness of the recertified plane...the FAA has been incredibly involved with it this time, there's no way Boeing purposely slips anything in this time around. With all the scrutiny I'd think people would feel safer on the MAX than on many other planes.
AA basically forced Boeing to build the Max and now they don't want it anymore?!!? Unbelievable.
Who wouldn't cancel 737 Max orders in this environment? At this point it might be wiser for Boeing to scrap the programme and just churn out existing models until it gets back to its focus on engineering quality. At that point it could try a new model, right now it's the wrong thing - a plane passengers don't want to fly (with good reason) and airlines don't want to buy.
Didn't the Fed Reserve say that it's willing to buy corporate debt? AA can issue bonds to finance the purchase and the Fed can buy the bonds.
Wouldn't almost every airline out there have a 'get out of jail' free card with these aircraft at this point? The planes are over 1yr delayed at this point for several airlines and looking to be almost 2yrs for non-US based carriers due to additional certification beyond FAA approval. If there is any airline still SERIOUSLY wanting this aircraft, they're either completely out of touch with reality or getting an unbelievable deal to stick with...
Wouldn't almost every airline out there have a 'get out of jail' free card with these aircraft at this point? The planes are over 1yr delayed at this point for several airlines and looking to be almost 2yrs for non-US based carriers due to additional certification beyond FAA approval. If there is any airline still SERIOUSLY wanting this aircraft, they're either completely out of touch with reality or getting an unbelievable deal to stick with Boeing. It's either a flying coffin or an extra inch seat width on a NEO that won't go out of control midflight. Tough call!
AA is probably going bankrupt in near future. So forget about buying new planes.
Boeing was arrogant to build the MAX in the first place and to continue once it was grounded was even more arrogance. AA due to the grounding being over a year will be able to walk away (like Norwegian and others are doing). AA should do the following:
1. re-evaulate 737 Max needs / 737-800 longevity
2. re work the order with Boeing
3. remove a row from coach to increase leg room...
Boeing was arrogant to build the MAX in the first place and to continue once it was grounded was even more arrogance. AA due to the grounding being over a year will be able to walk away (like Norwegian and others are doing). AA should do the following:
1. re-evaulate 737 Max needs / 737-800 longevity
2. re work the order with Boeing
3. remove a row from coach to increase leg room and change capacity to 166 on MAX and -800 aircraft (the new A321 configuration are great, more room then DL for sure).
and for Boeing. . . focus on 787 and 777X; slow down the 737 line and begin a clean sheet narrow / semi widebody for 2030 with 160 / 180 / 220 / 250 seating capcities and ranges from 2500 - 5500 nms.
Time for both of them to cut their losses and move on.
I imagine they should be able to cancel based on the decreased value of the MAX brand and customer perception of the plane alone. I’d leave out the pandemic and ability to finance.
It seems like this financing issue has nothing to do with the debt load and is connected to the MAX issues. It would be akin to a bank not wanting to loan me money for a car if I had to DUIs in the last year, even if I had gone to rehab and promised the government regulator that I have changed I swear.
This is interesting. Didn’t they technically start the 737 MAX programme by saying “we’ll be ordering 100 new generation 737 jets re-engined with CFM LEAPs“ before Boeing even announced anything back in 2011?
A cancellation their size would be a really hard blow for Boeing, atop Norwegian’s. Could other airlines follow suit?
A big question to be answered is how many AA frames were built and are currently sitting on the flightline up in Renton, not yet delivered. They were still building the plane for a while even after deliveries were halted, were they not? A deferral might not be as easy as it would have been 6 months ago.
They have a market cap of $5 billion and with $20 billion in current debt. Apparently Wall St does not want to touch this debt