How much will it cost Boeing to compensate for all grounded B737 MAX planes?

A SpiceJet B737 MAX 8 aircraft. The airline has said it might compensation from the Boeing company over the grounding of its fleet.Wikimedia

The airlines of 50 nations that are incurring a heavy loss from the grounding of their Boeing 737 MAX family aircraft could hit the US maker of the plane with a hefty bill, aviation sources indicate. Airlines across the world have grounded B737 MAX aircraft on the orders of respective national civil aviation authorities following the accident of an Ethiopian Airlines plane, the second similar accident involving a new B737 MAX in five months after Indonesian Lion Air crash on October 29.

While national civil aviation authorities were taking their time to decide on the course of action individual airlines started grounding the MAX planes on their fleet announcing their decisions. On March 13, US President Donald Trump in an unconventional move beat the US Federal Aviation Administration (FAA) to announce a ban on the flying of B737 MAX planes. "It's a terrible, terrible thing," Trump said on Wednesday, announcing that the planes would be grounded in the US, lamenting that modern aircraft are becoming too complicated to fly.

The grounding of a large number of aircraft popular with airlines worldwide has resulted in chaos at airports across the world. While the compensation that the Boeing company might be liable to pay would depend on the contracts that the company has signed with individual airlines, aviation experts say the company might have to foot a heavy bill. The severe shortage of aircraft of the same capacity as MAX planes will complicate the issue for most airlines as there are not enough free aircraft available anywhere.

Some industry observers draw a parallel to the current fiasco with the temporary grounding of Boeing 787 Dreamliner in 2013. Boeing then paid an undisclosed amount to airlines after the grounding of the aircraft following complaints of onboard batteries catching fire. The crisis lasted only two weeks and only 50 aircraft were involved, according to a report in Newsweek. A CNN report then quoted Boeing company as claiming that the financial cost of the crisis to the company then was minimal. Japan's All Nippon Air said after the 2013 incident that it lost about $15 million from grounding its 17 Dreamliners, though it did not reveal the amount of compensation. However, there were nearly 350 B737 MAX in operation and there is no end in sight for the crisis. Boeing has not given a timeframe for releasing the fix for the technical issue that the aircraft might be facing.

According to George Ferguson, an analyst at Bloomberg Intelligence, Southwest Airlines Co, the airline with the largest fleet of 34 MAX planes, the airline would incur an extra cost of around $8.5 million for replacing all the grounded aircraft. Ferguson estimates a cost to Boeing of at least $100 million a month just from reimbursing carriers. And that doesn't include the cost of a software update in the works or any other modifications that may be required. "The longer it drags on, that number goes up," Ferguson told Bloomberg. Finding used aircraft to replace the grounded planes would cost about $250,000 a plane each month, Ferguson said.

Norwegian Air Boeing 737 MAX 8
A Norwegain Air Boeing 737 MAX 8 aircraft. The airline has said it would approach Boeing for compensation for its grounded aircraft.Wikimedia

So far two airlines have said they will approach Boeing for compensation on the basis of their purchase contract. Budget airline SpiceJet is the worst hit by the B737 MAX aircraft snag in India, having been forced to ground its 13 aircraft. The airline has another 157 aircraft on order. A SpiceJet executive said after the grounding that the airline will approach the manufacturer for sufficient compensation. India's other airline with MAX planes on its fleet is Jet Airways with five. They were all on wet lease and had been grounded by the lessors over non-payment of dues. The airline is any way in financial doldrums and is unlikely to be in a position to seek compensation.

Norwegian Air of Norway has said it will seek compensation as per the purchase contract. "It is quite obvious we will not take the cost related to the new aircraft that we have to park temporarily," Norwegian CEO Bjørn Kjos said in a recorded message to customers, according to a CNN report. "We will send this bill to those who produce this aircraft." The airline was operating 18 MAX models and had on order 110 in total, Business Insider said.

Among the major users of the airliner are Dallas, Texas, based US airline Southwest Airlines, Montreal headquartered Air Canada, Chicago, Illinois-based United Continental, Dublin-based Ryanair Holdings, Baerum, Norway-based Norwegian Air Shuttle, Air China of Shanghai, China Southern Airlines of Chongquing, and China Eastern of Minang, Shanghai.

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