4 ms·

What would financially happen to an airplane company with a fleet of dozens of Max 8s?

sushibowl 8y ago
Depends on how big the airline is, what percentage of its fleet consists of max 8s, etc. Generally, planes like this have high operating costs, and usually are kept in the air pretty much constantly to be able to make a profit. Having one grounded potentially means losses of hundreds of thousands of dollars a day.
- organsnyder 8y ago
  Surely airlines purchase insurance to hedge against this sort of thing?
  - moate 8y ago
    IANAL, but I would not want to deal with the headache of underwriting whatever plan you're thinking about. Who would they be buying this insurance from? What specifically could it be protecting against? Seems much more likely that they'd need to seek restitution against the producer of the planes through civil court channels. "You sold me a faulty plane/didn't explain what your product did well enough and now you need to refund my money" but on a multi-million dollar scale.
    - organsnyder 8y ago
      Insurance for loss-of-use is quite common (edit: in other industries—no idea for aviation), though it's normally (AFAIK) for natural disasters and other random occurrences. I wonder how the purchasing contracts between Boeing and the carriers are structured—perhaps they have a warranty that would do something similar.
dvdgsng 8y ago
We'll see, but some companies have ordered hundreds of this model, e.g. Southwest Airlines ordered 245! https://en.wikipedia.org/wiki/Southwest_Airlines_fleet#Current_fleet https://en.wikipedia.org/wiki/Southwest_Airlines_fleet#Curre... Orders & Deliveries of the 737 MAX (all models): https://en.wikipedia.org/wiki/List_of_Boeing_737_MAX_orders_and_deliveries#Orders_and_deliveries_graph https://en.wikipedia.org/wiki/List_of_Boeing_737_MAX_orders_...
gsnedders 8y ago
Only one airline has a fleet of more than two dozen 737 MAXs (of any variety) currently: Southwest (and that's only 5% of their fleet). There are essentially no airlines with large fleets of them yet, which makes this relatively easy for them to deal with. That said, "relatively easy" is still a comparative: aircraft are frequently leased and having any out of service will be costing the airline a lot of money.
maxxxxx 8y ago
They will probably suffer and hopefully put a lot of heat on Boeing.
SilasX 8y ago
Naive me would expect that these are typically lease agreements whereby the OEM promises an SLA with compensation if they have to take the aircraft out of service for design issues? If they don't do it that way, why not?
- structural 8y ago
  First, because taking aircraft out of service for design issues is incredibly rare (less than once a decade across all kinds of passenger aircraft). Second, because airplane manufacturers have a significant amount of negotiating power, combined with airlines very often not being in a great financial position: Boeing certainly wouldn't want to be liable for storage costs and the logistics of getting a fleet of planes back to a central facility if an airline went bankrupt, for example. Leases also get legally interesting when the assets involved move internationally on a daily basis...
  - SilasX 8y ago
    I wasn't proposing that any of that and I'm not sure it's relevant (e.g. in this case it's a software update that can be done without moving the plane); I agree they wouldn't want to take over a dead airline, and such an agreement doesn't get the incentives right. But it's common for OEMs to take the hit for things that are their own fault, if it isn't legally required. And the rarity of the incidents plus Boeing's asymmetric knowledge of them would favor Boeing being a guarantor. And remember, I just said the design issues. Obviously the airline would be expected to take hits from e.g. FAA groundings from their own maintenance failures. Edit: That leaves asymmetric bargaining power in your reply, but I don't see OEM aircraft competition as being so monopolized that they wouldn't compete on "hey this company makes us bear the costs of their design problems but this one doesn't".

Depends on how big the airline is, what percentage of its fleet consists of max 8s, etc. Generally, planes like this have high operating costs, and usually are kept in the air pretty much constantly to be able to make a profit. Having one grounded potentially means losses of hundreds of thousands of dollars a day.

organsnyder 8y ago
Surely airlines purchase insurance to hedge against this sort of thing?
- moate 8y ago
  IANAL, but I would not want to deal with the headache of underwriting whatever plan you're thinking about. Who would they be buying this insurance from? What specifically could it be protecting against? Seems much more likely that they'd need to seek restitution against the producer of the planes through civil court channels. "You sold me a faulty plane/didn't explain what your product did well enough and now you need to refund my money" but on a multi-million dollar scale.
  - organsnyder 8y ago
    Insurance for loss-of-use is quite common (edit: in other industries—no idea for aviation), though it's normally (AFAIK) for natural disasters and other random occurrences. I wonder how the purchasing contracts between Boeing and the carriers are structured—perhaps they have a warranty that would do something similar.

dvdgsng 8y ago

We'll see, but some companies have ordered hundreds of this model, e.g. Southwest Airlines ordered 245! https://en.wikipedia.org/wiki/Southwest_Airlines_fleet#Current_fleet https://en.wikipedia.org/wiki/Southwest_Airlines_fleet#Curre... Orders & Deliveries of the 737 MAX (all models): https://en.wikipedia.org/wiki/List_of_Boeing_737_MAX_orders_and_deliveries#Orders_and_deliveries_graph https://en.wikipedia.org/wiki/List_of_Boeing_737_MAX_orders_...

gsnedders 8y ago

Only one airline has a fleet of more than two dozen 737 MAXs (of any variety) currently: Southwest (and that's only 5% of their fleet). There are essentially no airlines with large fleets of them yet, which makes this relatively easy for them to deal with. That said, "relatively easy" is still a comparative: aircraft are frequently leased and having any out of service will be costing the airline a lot of money.

maxxxxx 8y ago

They will probably suffer and hopefully put a lot of heat on Boeing.

SilasX 8y ago

Naive me would expect that these are typically lease agreements whereby the OEM promises an SLA with compensation if they have to take the aircraft out of service for design issues? If they don't do it that way, why not?

structural 8y ago
First, because taking aircraft out of service for design issues is incredibly rare (less than once a decade across all kinds of passenger aircraft). Second, because airplane manufacturers have a significant amount of negotiating power, combined with airlines very often not being in a great financial position: Boeing certainly wouldn't want to be liable for storage costs and the logistics of getting a fleet of planes back to a central facility if an airline went bankrupt, for example. Leases also get legally interesting when the assets involved move internationally on a daily basis...
- SilasX 8y ago
  I wasn't proposing that any of that and I'm not sure it's relevant (e.g. in this case it's a software update that can be done without moving the plane); I agree they wouldn't want to take over a dead airline, and such an agreement doesn't get the incentives right. But it's common for OEMs to take the hit for things that are their own fault, if it isn't legally required. And the rarity of the incidents plus Boeing's asymmetric knowledge of them would favor Boeing being a guarantor. And remember, I just said the design issues. Obviously the airline would be expected to take hits from e.g. FAA groundings from their own maintenance failures. Edit: That leaves asymmetric bargaining power in your reply, but I don't see OEM aircraft competition as being so monopolized that they wouldn't compete on "hey this company makes us bear the costs of their design problems but this one doesn't".