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Boeing to compensate Southwest for financial damages over 737 MAX groundings

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Boeing to compensate Southwest for financial damages over 737 MAX groundings

Southwest Airlines Co. said Dec. 12 that it had struck a confidential deal with Boeing Co. to be compensated for a share of estimated financial damages in connection with the grounding of the crisis-engulfed Boeing 737 MAX fleet.

Southwest's board authorized a sum of approximately $125 million to be shared among employees. The so-called "discretionary, incremental profit-sharing accrual" reflects a proportion of the anticipated jolt to the airline's 2019 operating income following 737 MAX fleet's grounding.

Southwest expects to finance the accrual as part of its annual 2019 profit-sharing distribution in 2020, details of which will be shared early next year. Such details will include the profit percentage every Southwest employee will be eligible to receive.

Negotiations over compensation for damages related to the 737 MAX groundings continue between Boeing and Southwest, which expects to account for essentially the entire compensation as a deduction in cost basis of both existing and future firm aircraft orders. This is expected to decrease depreciation expense in future years, according to a company release.

Southwest, which has continued to take hits to its earnings from the prolonged grounding of Boeing 737 MAX jets, on Oct. 9 suspended some Boeing 737 NG airplanes following a quick-check ordered by the U.S. Federal Aviation Administration after the aircraft maker discovered structural cracks on a plane in China.

Boeing continues to face criticism over its 737 MAX fleet that was grounded in March following multiple crashes. FAA Administrator Steve Dickson said Dec. 11 that the FAA is unlikely to lift the grounding of Boeing's 737 MAX aircraft before the end of 2019.

Boeing said in November that it was aiming for the fourth quarter of 2019 to get FAA certification for the software updates of the 737 MAX flight control system, which has been blamed for the plane crashes.

Boeing was also expecting to resume deliveries of 737 MAX planes to airlines as early as December before their potential return to commercial service in the following month.