Airlines

Southwest reaches deal with Boeing over 737 Max, plans to share $125 million with employees

Key Points
  • Southwest is the largest operator of 737 Max planes.
  • The carrier had 34 Max in its fleet at the time of the grounding and dozens more on order.
  • Southwest didn't disclose the terms of the deal but said it would share $125 million with employees.
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Southwest reaches deal with Boeing over financial damages related to 737 Max grounding

Southwest Airlines said Thursday it has reached agreement with Boeing to compensate the airline for some of the financial damages from the grounding of the 737 Max.

Southwest didn't disclose the terms of the agreement, but the Dallas-based airline reiterated that it would share $125 million with its employees.

"This profitsharing award is based on the projected financial damages for annual 2019 due to the MAX groundings, just as if you had earned profitsharing on those projected profits this year," Southwest CEO Gary Kelly told employees, who called their performance "nothing short of heroic."

The low-cost airline said talks with the manufacturer are ongoing and that it expects Boeing to cut prices on Southwest's current and future aircraft orders because of the grounding. Southwest shares were up 1.6% in early afternoon trading.

Boeing declined to comment on the discussions with Southwest or other customers and said in a statement that "we are working closely with all of them to support them through this difficult time."

The Boeing 737 Max has been grounded since mid-March after the the second of two fatal crashes in the span of five months. Southwest is the largest U.S. operator of 737 Max planes and had 34 in its fleet at the time of the grounding.

Boeing took a nearly $5 billion after-tax charge in the second quarter to compensate carriers for the flight ban, but the total cost isn't yet clear because the grounding is ongoing. The Federal Aviation Administration's top administrator told CNBC on Wednesday that recertification of the plane would stretch into 2020, dashing Boeing's forecast that regulators would sign off on the jetliners by the end of the year.

Under new administrator Steve Dickson, who was sworn in in August, the agency has projected a hard line against Boeing after criticism the agency handed off too much of the 737 Max certification work to the manufacturer. Dickson met with Boeing CEO Dennis Muilenburg in Washington, D.C. Thursday, striking a hard stance on the process in message about it to lawmakers.

Dickson "is concerned that Boeing continues to pursue a return-to-service schedule that is not realistic due to delays that have for a variety of reasons," said the email, which was seen by CNBC. "More concerning, the Administrator wants to directly address the perception that some of Boeing's public statements have been designed to force FAA into taking quicker action."

The FAA following the meeting told lawmakers that Dickson "reminded Mr. Muilenburg that FAA controls the review process and that he has told FAA's aviation safety experts working on continued review of the 737 MAX to take the time they need to get this right and they have his full support."

He also encouraged Boeing to use a safety-improvement and monitoring system used by airlines.

The prolonged grounding, now in its 10th month, has cost airlines including Southwest hundreds of millions of dollars in revenue. Southwest has cut routes and scaled back its growth plans with the planes grounded.

American Airlines on Thursday took the Max out of its schedule until April 7, more than a full year since regulators grounded the plane. United and Southwest currently have the the 737 Max out of their schedules until early March. Southwest said it doesn't have any immediate plans to change its schedule but the president of the Southwest pilots' union told its members in a note Thursday that it doesn't expect the plane back until "at least" April.

Southwest's pilots union sued Boeing in October, saying the grounding cost them more than $100 million in income.

United also said it doesn't have any immediate plans to change its schedule. A spokesman said the carrier is considering simulator training for its 737 Max pilots, regardless of what the FAA mandates, adding that it hasn't yet made a decision.

A Southwest Airlines jet leaves Midway Airport on January 25, 2018 in Chicago, Illinois.
Scott Olson | Getty Images