American Airlines has been ready to bring the 737 MAX back into service. I believe it’s close to ready myself, notwithstanding the latest word that the FAA is requiring a fix to wiring bundles that could potentially affect the avionicsdon’t believe they’ve lost anything close to that since they’ve largely cut what they believe are the biggest money losing flights. However the airline came to a confidential settlement with Boeing over the grounding.
Airline CEO Doug Parker has said that he believes Boeing’s shareholders – rather than American’s – will bear the costs of the grounding. We don’t know whether this is a final settlement or simply covers grounding issues to date (or those anticipated, pending a return to service sometime in the spring), in other words if additional delays from new issues like wiring bundles push back the plane’s return whether there could be an additional claim.
However the fact that American is saying they’ll contribute an additional $30 million to employee profit sharing gives us some indication of the value of the settlement.
- American contributes 5% of pretax profits to profit sharing
- If American assumes the revenue just goes straight to pretax profit that would suggest a $600 million payout from Boeing.
That’s higher than the $580 million Parker previously talked about, but there have been additional costs and delays in the interim and there will be additional costs to get the MAX program back up and running – including potentially being required to do simulator training rather than iPad training for MAX pilots.
What American hasn’t been clear on is whether “$600 million more pre-tax profit just means $30 million more profit sharing” or whether they’re actually paying out $30 million more than their financial results would otherwise imply. I suspect that if it were the latter they’d actually say so, and the $30 million contribution to employee profit sharing isn’t really news and just ‘how their profit sharing plan works’ (specific accounting for Boeing’s settlement payout – timing and whether it’s simply attributable to top line revenue) notwithstanding.
American’s profit sharing contribution is lower in percentage terms than United’s and Delta’s. American also earns lower profits. And since they outsource less work, they have more employees to split profits across. American has about 130,000 employees – but management employees receive bonuses rather than payouts from this pool, and different employee groups receive profit sharing on different formulas. Still, (taxable) payouts from the MAX grounding won’t come anywhere close to being as lucrative as the ‘tax cut $1000 payout’ two years ago.