American Airlines has reached a “confidential agreement” with Boeing on compensation for damages sustained last year following the grounding of its Boeing 737 Max fleet.
While not stating the exact amount of the compensation to be received, many speculate that it could be in the region of US$540 million, the amount American said it would have lost in pre-tax earnings due to the fleet’s cancellation in its Investor Relations Update in October.
Chief Executive Officer of American Airlines, Doug Parker, yesterday said “Despite the ongoing challenges the grounding has brought, American Airlines team members continue to do an incredible job caring for our customers.” Parker added that “Our ability as an airline to weather these unprecedented times is thanks to our phenomenal team, and it was important to us that we get a deal done before the end of the year. On behalf of the Board of Directors, we are proud to take the step of including this compensation in our 2019 profit-sharing program, even though the compensation will be received over several years.”
“Despite the ongoing challenges the grounding has brought, American Airlines team members continue to do an incredible job caring for our customers.”– Chief Executive Officer of American Airlines, Doug Parker
Under the profit-sharing arrangement, approximately five per cent of American’s profits would be shared among its employees.
However, Parker said “an additional accrual of more than US$30 million will be made to the airline’s 2019 profit-sharing program” and will be distributed by March 2020.”
“Given the projected reduction in annual operating income for 2019 as a result of the MAX groundings, American’s Board of Directors has authorised a discretionary portion of the settlement to be returned to American Airlines team members through the company’s 2019 profit-sharing program. The profit-sharing award is based on the company’s estimate of projected full-year 2019 financial damages for the MAX groundings.”
The airline said it does not expect the settlement’s impact to be realised in its fourth quarter, adding that much of the sum will be used for reduction in the cost basis of the grounded MAX planes and its future deliveries.
“American will continue its conversations with Boeing regarding compensation for damages related to the MAX grounding beyond 2019, and any future compensation will be similarly shared with its team members.”
Boeing’s Max 737 fleet was grounded after two crashes – first, a Lion Air aircraft in October 2018, and a Ethiopian Airlines aircraft in March 2019 – which killed 346 people in total.