United Airlines' Costs Rise Amid 737 MAX Grounding, CFO Says

Date : 11/13/2019 @ 10:02PM
Source : Dow Jones News
Stock : Boeing Co (BA)
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United Airlines' Costs Rise Amid 737 MAX Grounding, CFO Says

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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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