American Airlines debuted its new domestic product when it flew its first Boeing 737 MAX in November 2017. The plane featured less space between seats, thinner seats, smaller lavatories and no seat back entertainment.
They’ve been converting their domestic fleet, including planes that already had seat back video, to this new standard. And they’ve planned to take delivery of more Boeing 737 MAX aircraft, even during the global pandemic with planes grounded and air travel demand at historic lows.
The Wall Street Journal reports, however, that they’re having difficulty obtaining financing for 17 new MAX aircraft.
- Planes aren’t worth what they once were
- American is highly leveraged already
- And markets are very concerned about the airline’s ability to pay back debt
American Airlines Group Inc. has threatened to cancel some of its orders for Boeing Co. ’s troubled 737 MAX jets, people familiar with the matter said, a sign of deepening financial stress in the aviation industry.
The Fort Worth, Texas-based carrier has struggled to secure financing for 17 jets it had expected Boeing to deliver this year, some of these people said.
American’s domestic inflight product and challenges finding financing aside it still seems crazy to me to take delivery of new aircraft and add even more debt to the airline – which was financially undeperforming even before this crisis, with air travel demand not likely to recover quickly and forward bookings already softening as COVID-19 cases rise in the United States.
The question I have is what covenants were agreed to – aside from usual cancellation penalties or costs to defer deliveries – when American entered into a settlement at the beginning of the year with Boeing over the MAX?
At the time the value of the settlement was estimated at around $600 million although the form and timing of payments weren’t clear. If the settlement included conditions including acceptance of future deliveries, that could explain the airline’s willingness to do so, and could mean rejecting deliveries now would be even more costly than usual.