United Airlines' Costs Rise Amid 737 MAX Grounding, CFO Says
November 13 2019 - 5:02PM
Dow Jones News
By Nina Trentmann
United Airlines Holdings Inc. has experienced a double-digit
increase in operating costs on certain routes because of the
continued grounding of Boeing Co.'s 737 MAX aircraft, the airline's
finance chief said.
Chicago-based United uses alternative aircraft such as the
Boeing 757-200 in place of 14 MAX planes that are currently
grounded, Chief Financial Officer Gerry Laderman said in an
interview Wednesday. United also is in conversations with Boeing
about potential compensation, he said.
United's capacity-growth forecasts have been partially upended
by the grounding of the jet, Mr. Laderman said. "We are not hitting
that number, and there are routes that we cannot fly because of
this. And Boeing is aware."
Boeing's MAX was grounded by regulators in March after two fatal
crashes in the span of less than five months claimed 346 lives.
The grounding has forced airlines to cancel thousands of flights
and miss out on the revenue they would have brought in. Uncertainty
about the timing of the plane's return to service has affected
airlines' internal planning and scheduling.
The Federal Aviation Administration could lift its ban as soon
as December. If it does, United could reintroduce the plane as
early as January.
United expects to cancel about 75 flights a day in December,
which would result in about 2,300 canceled flights for the
month.
The airline also is using Boeing's 757-200 on its
Houston-Anchorage route instead of the 737 MAX it planned to use
for that route. The 757-200 is more expensive to operate in terms
of fuel and maintenance costs, Mr. Laderman said.
"That is one of the line items we are showing Boeing," he said.
"But it is much more than that."
There are other routes using the 757-200 as a temporary
substitute for the MAX, he said. United, which has more than 100
orders for 737 MAX aircraft, was initially scheduled to have 30 of
them by the end of this year.
"We will be happy to take the aircraft as soon as Boeing can
make them available to us in a condition that meets the
requirements of our contract," Mr. Laderman said.
United, which is in conversations with Boeing about potential
compensation, plans to resolve the matter with the manufacturer
once the full impact of the 737 MAX grounding on its balance sheet
is known, Mr. Laderman said.
The airline has cash reserves of more than $5 billion, he said,
"so we don't have to rush into anything."
Boeing has set aside an initial $6.1 billion to compensate its
customers. The Chicago-based manufacturer declined to comment.
United is alone among U.S. MAX operators in not detailing the
estimated financial cost of the grounding.
"Our investors have enough faith in us to know that we will
manage this successfully," Mr. Laderman said.
Meanwhile, United has begun preparing for a campaign aimed at
rebuilding passenger confidence in the 737 MAX, Mr. Laderman
said.
"It is the airlines that will be the ones that have to convince
consumers that the airplane is safe," said Stephen Trent, a
director at Citigroup Inc.'s research unit. "How the MAX comes back
is a delicate dance in terms of timing, pricing and metrics such as
seat mile costs."
--Alison Sider contributed to this article.
Write to Nina Trentmann at Nina.Trentmann@wsj.com
(END) Dow Jones Newswires
November 13, 2019 16:47 ET (21:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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