American Airlines to Take $350 Million Hit From 737 MAX, Sees Ungrounding This Summer

By Reuters
April 26, 2019Businessshare
American Airlines to Take $350 Million Hit From 737 MAX, Sees Ungrounding This Summer
An American Airlines Boeing 737 MAX 8 flight from Los Angeles taxis after landing at Reagan National Airport, on March 13, 2019. (Joshua Roberts/Reuters)

American Airlines Group Inc cut its 2019 profit forecast on Friday, blaming an estimated $350 million hit from the grounding of Boeing’s 737 MAX planes, but said it was confident that the jets would start flying again before mid-August.

American, with 24 of the 737 MAX jetliners that were grounded worldwide in March following two fatal crashes on other airlines, has removed the aircraft from its fleet until Aug. 19, leading to about 115 daily cancellations.

Boeing is developing a software fix and new pilot training to be approved by regulators globally, and American Chief Executive Doug Parker said he had 95 percent certainty that passengers would actually be able to use tickets the airline sells on MAX flights past Aug. 19.

doug parker
American Airlines CEO Doug Parker greets workers at a ceremony to mark the opening of five new gates at O’Hare International Airport in Chicago, Ill., on May 11, 2018. (Scott Olson/Getty Images)

While American’s daily summer cancellations over the MAX only represent about 2 percent of its flight capacity, it said, the financial impact is disproportionate as revenue during its busy summer travel season is lost while the vast majority of costs remain in place.

As a result, Fort Worth, Texas-based American said it now expects its 2019 adjusted profit of $4.00 per share to $6.00 per share, from a previous forecast of between $5.50 per share and $7.50 per share.

Analysts on average expect 2019 earnings of $5.63 per share, according to Refinitiv data.

Shares were down 2.3 percent at $32.64 in early trading.

Boeing 737 MAX Airplanes
Boeing 737 MAX Airplanes Parked On The Tarmac At The Boeing Factory In Renton, on March 21, 2019. (Lindsey Wasson/Reuters)

American, the No. 1 U.S. airline by passenger traffic, also said it expects fuel expenses for the year to be about $650 million higher than its earlier forecast, citing a recent run-up in oil prices.

The airline reported first-quarter net income of $185 million, or 41 cents per share, compared with $159 million, or 34 cents per share, a year earlier.

Excluding items, the airline earned 52 cents per share, compared with the average analyst estimate of 51 cents per share.

Between the MAX and American’s grounding of another 14 aircraft of a different model for now-completed work on faulty overhead bins, American said, first quarter pre-tax income suffered about an $80 million hit.

Total operating revenue rose 1.8 percent to $10.58 billion, marginally missing estimates of $10.60 billion, according to Refinitiv data.

Still, Parker said demand remained strong heading into the summer. American expects unit revenue, a closely watched performance measure that compares sales with flight capacity, to rise between 1 percent and 3 percent in the second quarter.

By Sanjana Shivdas and Tracy Rucinski

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