Cancellations, compensation head Boeing’s way over Max-8

garuda-indonesia-max-8-boeing.jpg

The grounding of the global Max-8/9 fleet is going to have repercussions – Lion Air and Garuda of Indonesia are already talking full cancellation of orders totalling some 200 aircraft, but I suspect saying it and doing it are very different things. Other airlines are considering their choices.

If cancellations become contractually difficult to exit, the one thing you can be sure of is that compensation claims are heading Boeing’s way. Norwegian – an airline that really doesn’t have the leeway to suffer yet another out-of-its-own-control financial hit, has already started the process rolling.

TUI in the UK operates just a handful of the aircraft and stated it would cost them £3.4 million a week to fund replacements and manage customers travel plans to fit inevitably amended schedules, right before the crucial Easter holidays – in the UK Easter is a four-day holiday Friday to Monday and schools are closed for nearly three weeks. It’s a crucial time of year for airlines in Europe, especially Catholic countries where its the biggest religious holiday of the year.

These two are just the tip of the proverbial iceberg. American Airlines, whose slavish refusal to bend to customer concerns refusing to fly on a Max-8 (unlike Southwest who allowed customers to re-book their tickets), left a very bad PR taste in everyone’s mouths, is likely to feel it too needs recompense, along with United and Southwest, and every other airline affected.

For the Boeing customers with aircraft still to be delivered, it’s not cash they’ll get, even if they might prefer it. It’ll be hefty discounts off of future deliveries, negotiated to the last cent.

Either way its going to hit Boeing’s short-term profits and stock values, but over time it’ll barely even register.