Boeing 737 MAX Grounding Means Higher Fuel Costs for Brazil's Gol
September 06 2019 - 5:59AM
Dow Jones News
By Nina Trentmann
Brazil's Gol Linhas Aéreas Inteligentes SA expects higher fuel
costs as the grounding of Boeing Co.'s 737 MAX forces the airline
to rely on less efficient aircraft.
The São Paulo-based company expects to spend 1% more on fuel in
the third quarter than planned and 2% more in the fourth quarter,
Chief Financial Officer Richard F. Lark said.
"That's a significant number," Mr. Lark said.
Fuel accounts for about 35% of costs at Gol, he said. The
airline, which offers domestic connections in Brazil and in other
Latin American countries, spent 976.2 million Brazilian reais
($238.15 million) on fuel in the second quarter, up more than 23%
from 792.7 million reais in the previous-year period.
The MAX has been a centerpiece of Gol's strategy to improve
efficiency, reduce fuel costs and to expand its range of
destinations. The company's operating fleet -- set to hit 137 by
the end of the year -- is to consist solely of MAX planes in about
10 years' time, Mr. Lark said.
Gol had seven Boeing 737 MAX airplanes at the end of the second
quarter, all of which have been out of service since March
following a decision by regulators to ground the plane while they
investigate two deadly crashes.
The airline had 129 outstanding orders for MAX jets at the end
of June, including 17 that were scheduled to be delivered in the
second half of this year, Mr. Lark said.
The airline has leased Boeing 737 NG aircraft to replace the
grounded MAX planes, but those consume about 15% more fuel than the
MAX, Gol said in its second-quarter earnings release.
"All airlines using the 737 MAX have this issue," said Stephen
Trent, an analyst at Citigroup Inc. "The 737 MAX burns less fuel
compared to other aircraft within the same category."
Ryanair Holdings PLC, Europe's biggest budget airline and the
region's largest 737 MAX customer, said in May that profit would be
dented this year by the plane's grounding.
Boeing has been working on updates to the MAX's flight-control
computers and a faulty automated stall-prevention system that is
blamed for the crashes that took 346 lives. The aircraft maker has
said it expects the MAX to return to service early in the fourth
quarter. But government and union officials have indicated that the
regulatory approval process could push the plane's return into the
holiday season.
Airlines, Boeing suppliers and other companies have for months
struggled to soften the blow of the grounding of the 737 MAX. But
the lack of visibility into when the ban could be lifted is
complicating that effort.
American Airlines Group Inc. and United Airlines Holdings Inc.
have said they would remove the MAX from their schedules until
December, while Southwest Airlines Co. and Air Canada haven't
scheduled any MAX flights until next year.
Mr. Lark is optimistic that the MAX will be airborne this year.
"Is there a possibility that this thing goes longer? I guess," he
said. "But it is unlikely."
Should the grounding extend past November, Gol might have to
change its fleet plan. It already had to adjust the route for its
flights to Miami to allow for refueling in the Dominican Republic,
given that the range of its replacement aircraft is lower, Mr. Lark
said.
Gol has suspended some of the deposits it usually pays to Boeing
for plane orders and expects to receive some MAX planes next year,
Mr. Lark said. The company hasn't discussed potential compensation
with the aircraft manufacturer yet, he said. "We will talk to them
once [the grounding] is resolved," he said.
Write to Nina Trentmann at Nina.Trentmann@wsj.com
(END) Dow Jones Newswires
September 06, 2019 05:44 ET (09:44 GMT)
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