Airlines

Boeing chairman: Balance sheet can handle settlements over grounded 737 Max

Key Points
  • Boeing has positioned itself to handle the settlements it'll likely pay to airlines over the forced grounding of its 737 Max jet. 
  • The 737 Max fleet of nearly 500 planes has been grounded across the globe since mid-March following two crashes over less than five months that killed 346 people combined.
  • "Our company and our balance sheet has provided for what we think that resolution will be," Boeing Chairman David Calhoun says.
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Boeing chairman: The balance sheet can satisfy 737 Max settlements

Boeing can handle the settlements it's likely to pay to airlines over the forced grounding of its 737 Max jet, the company's new chairman told CNBC on Tuesday.

"There's no question there will be a fair number of settlements," said David Calhoun, a Blackstone executive and longtime Boeing board member. "Our company and our balance sheet has provided for what we think that resolution will be."

The 737 Max fleet of roughly 400 planes has been grounded across the globe since mid-March after two crashes in less than five months that killed 346 people combined. The grounding has forced airlines to cancel thousands of flights, driven up costs and dented airlines' profits.

To make up for the expected loss in services, Boeing in the second quarter took a $4.9 billion after-tax charge to compensate airlines but final amounts are unknown because regulators haven't yet lifted the grounding.

But airlines are getting hit. American Airlines said last month that the grounding would reduce its pretax income by $540 million this year, compared with an estimate of $400 million it expected in July.

Likewise, Southwest Airlines, the largest U.S. operator of the Max, said in late October that the grounding cost it $210 million in revenue in the third quarter and $435 million in revenue in the first nine months of the year. The airline added that it expects "the damages to grow into 2020."

"We're not happy about our situation," Southwest CEO Gary Kelly told CNBC's "Squawk on the Street" in October. "We put our future in the hands of Boeing in the Max and we're grounded. I want to settle with Boeing to settle our damages."

It's a problem that Calhoun said he understands.

"There's no question: We have let him down. He knows [the Max] has served him well and he knows it has served him safely," Calhoun said of Kelly on "Squawk Box." "But this gap, where he needs capacity and it's not there, is a real problem for him. Anybody at that moment in time has to make the decision that we're going to consider other alternatives."

Boeing's current rival to the 737 Max is the Airbus A320neo.

"We're going to have to step up to the plate if and when that day happens and put our best foot forward," Calhoun added.

Shares of Boeing were up 2.3% midday Tuesday.

—CNBC's Leslie Josephs contributed to this report.

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Watch CNBC's full interview with Boeing Chairman David Calhoun
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Key Points
  • "From the vantage point of our board, Dennis has done everything right," Chairman Dave Calhoun tells CNBC.
  • Boeing's CEO has offered to forgo bonuses this year, Calhoun says.
  • CEO Dennis Muilenburg was harshly criticized by lawmakers last week his 2018 compensation.
  • The Boeing 737 Max remains grounded after two fatal crashes.