How Boeing’s problems drag down airlines like Southwest, United

The travails confronting aviation colossus, Boeing, are engendering discernible disturbances for preeminent airlines globally.

The Core Premise: Carrying companies, contingent on the anticipated influx of Boeing’s state-of-the-art aviation equipment to fulfill their expansion schematics, are involuntarily retracting anticipations, or desperately envisaging alternative arrangements.

Scrutinizing the Scenario: Southwest Airlines that it was attenuating its 2024 capacity augmentation projection and implementing schedule reprioritization strategies, prominently in the latter half of the annum. This culminated in a 15% diminution in its equity valuation within 24 hours.

• The crux of the issue for Southwest, a company that solely operates a Boeing 737 fleet, is an anticipation of a decreased yield of 737 MAX aircraft from the manufacturer than initially conjectured, taking into account no 737-7 units this financial year.

Examining the Context: Boeing currently grapples with serious quality-related disquiets subsequent to an incident involving an exit door plug detaching mid-flight during a journey with Alaska Airlines, thus sparking inquiries that have deferred production timelines.

• An inspection of the 737-9 MAX production aisle by the Federal Aviation Administration divulged issues of “non-compliance in Boeing’s manufacturing process control, parts handling and storage, and product control” earlier in the week.

The Broad-based Perspective: A contraction in the number of available aircraft could invariably imply reduced seating capacity and inflated maintenance expenses for airlines — ergo reduced revenue influx and escalated expenditure outflows.

• With a reported 1 to 1.5 percentage-point curtailment in its formerly postulated capacity augmentation for 2024, Southwest has responded by enacting cost minimization initiatives, as announced by CEO Robert Jordan in a recent conference call.
• The implemented frugality measures ensue a hiring freeze for its reservation support squad and slated suspensions for pilot and flight attendant employment initiation classes, according to CEO Jordan.
• “Our current expectations are to conclude the fiscal year with a significant downsizing in personnel numbers compared to 2023, in contrast to our earlier guidance of a flat to nominal downsizing,” he augmented further.

For Boeing, ongoing complications could culminate in comprehensive business attrition.

• Delta’s CEO Ed Bastian on Sunday, expressing anticipation of up to three additional years for the arrival of its 737 Max 10 order from Boeing. He further acknowledged appreciable satisfaction with Airbus’s rival single-aisle plane, the A321neo.
• United Airlines’ CEO Scott Kirby communicated to conference attendees earlier in the week that United has broached negotiations with Airbus to procure more A321neo planes due to anticipated delays in Boeing deliveries.
• While Delta’s equity valuation has realized marginal appreciations over the preceding week, United witnessed a 3% dip in its shares’ valuation earlier in the day before closing 1.7% lower.

Appraising the Situation: Airlines are juggling immediate aviation equipment demands against a long-term projection of the sector.

• “It’s in everyone’s interest that Boeing emerges stronger from this tumultuous period, not just in two years, but five and even a decade down the line,” opined Southwest’s Jordan. “And that takes precedence over delivery delays.”
• Paralleling Jordan’s comments, Kirby last month labeled Boeing as its most crucial collaborator, whilst remarking it to be “one of the most important companies in the country.”