Boeing to cover “fraction” of Icelandair’s 737 MAX loses
Icelandair, the flag carrier of Iceland, has confirmed the ongoing talks with Boeing on September 20, 2019, stating that an interim compensation agreement has been reached with the plane manufacturer. The agreement, however, covers only “a fraction” of total loss caused by the 737 MAX grounding, the Icelandic airline states.
“Icelandair has reached an interim agreement with Boeing regarding compensation which covers a fraction of the Company’s total loss due to the suspension of the Boeing 737-MAX aircraft,” a statement by the airline read.
While details of the agreement are confidential, Icelandair’s statement does explain that the grounding of 737 MAX has so far affected the company’s earnings by approximately $135 million ‒ this is with Boeing’s compensation taken into account. Previously, Icelandair estimated that 737 MAX grounding had affected its earnings by $140 million (as of August 1, 2019).
In total, Icelandair estimates that MAX suspension to date would impact its year’s earnings (interest and tax excluding) by $70-90 million. The talks with Boeing and the compensation agreement reached so far are not definitive. “Icelandair Group will continue its discussions with Boeing regarding compensation due to the financial effects of the Boeing 737-MAX suspension,” the company also notes.
The MAX grounding has caused Icelandair, in its own words, “adverse effects” on its operations. The carrier currently has six MAXs in its fleet and had been expecting to increase the number to nine by the end of the year. This accounts for a quarter of its total fleet and 27% of its seat capacity. Following the aircraft grounding, the airline had leased five aircraft to mitigate the effect. Four of the leases already expired and were not renewed, the airline revealed in August 2019.
Icelandair reported a total comprehensive loss of $86.4 million for the first half of the year. “[...] the position in which the Company now finds itself as a result of the suspension of the MAX aircraft is without any precedent and has a significant impact on the operations and performance of the Company,” Bogi Nils Bogason, President & CEO was quoted in a statement as saying at the time.
Presumably, MAX grounding became a serious obstacle preventing the airline from profiting on increasing passenger numbers in Iceland. “In these circumstances, our key focus has been on minimising the impact of the suspension on the Company, our passengers and the Icelandic tourism industry by adding leased aircraft to our fleet during the summer. We have also placed emphasis on ensuring seating capacity to and from Iceland, with the result that the number of Icelandair’s passengers travelling to Iceland has increased by 39% in the second quarter compared to the same period last year. Despite these mitigating measures, which have prevented major cancellations of flights, the situation has caused considerable disruptions in our flight schedule and our operations. This has in turn impacted our passengers and presented us with complex challenges [...]”.
Boeing 737 MAX operations were suspended by aviation authorities worldwide in mid-March 2019. Boeing expects that the airliner could return to service by the end of the year, yet it remains unclear whether other aviation authorities will follow the FAA’s example and “unground” the aircraft all at the same time. The most recent Icelandair’s flight schedule adjustment (announced on August 16, 2019) reveals that the airline does not expect the 737 MAX to return to service this year (by the end of December 2019).
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