BA Boeing Co

By Alison Sider 

Southwest Airlines Co. and Boeing Co. said they struck a deal to compensate the airline for some of the damage from the nine-month grounding of the 737 MAX jetliner.

The carrier said Thursday it would share $125 million of the proceeds with its employees. Southwest didn't disclose the full terms of the compensation, which it said covered a portion of its projected financial damages. It said it is continuing to negotiate with Boeing.

"We're pleased we were able to reach a settlement -- nobody can be happy about the situation we're in," Gary Kelly, Southwest's chief executive, said in an interview.

The 737 MAX has been grounded around the world since March following two fatal plane crashes within five months. The grounding has been costly and disruptive for airlines, forcing them to cancel thousands of flights and go without planes they had built into their schedules.

Southwest had 34 MAX jets in its fleet when the aircraft was grounded and was due to receive dozens more over the course of the year. The settlement announced Thursday addressed Southwest's losses in 2019. Mr. Kelly said the grounding has resulted in an $830 million reduction in operating income. The two companies are continuing to discuss how to compensate the airline for losses next year.

Boeing took a $5.6 billion charge against its second-quarter earnings to cover payments to customers. Those payments are expected to be a mix of cash and discounts on aircraft features, services and deliveries over a number of years. The company has said insurance policies would cover $500 million in customer compensation, as well as any damages paid to the families of the 346 victims of the two crashes.

Icelandair Group Hf in September said it reached a deal with Boeing to cover a fraction of what the airline said amounted to $140 million in costs up to that time for grounding its six MAX jets and delays to the delivery of another 10.

Other U.S. carriers have said they are negotiating with Boeing but want to see how high their costs climb before reaching a settlement.

Southwest currently has scheduled MAX flights to resume in March. Mr. Kelly said the company is evaluating whether to extend cancellations amid signs of further regulatory delays. American Airlines Group Inc. said Thursday that it is striking the MAX from its schedules until April 7, about a month longer than previously planned. American has said it expects the grounding to decrease its 2019 earnings by $540 million.

"This was their failure, not ours," American Chief Executive Doug Parker said at a conference last month. "Boeing is saying all the right things about their commitment to their customers and the damage they have done to us."

Southwest employees have said they have lost income because the airline is flying fewer flights without its MAX planes. The union that represents the airline's nearly 10,000 pilots sued Boeing earlier this year and said it plans to continue to pursue its legal action.

"This agreement doesn't get anywhere close to compensating the very real and significant losses SWAPA pilots and other employees have experienced, " the Southwest Airlines Pilots Association said Thursday.

Southwest said it would provide profit-sharing details early next year, including how much each employee would receive.

Dave Sebastian contributed to this article.

Write to Alison Sider at alison.sider@wsj.com

(END) Dow Jones Newswires

December 12, 2019 18:08 ET (23:08 GMT)

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