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American Airlines takes a $350 million hit on 737 Max grounding

By
Clyde Hughes
American Airlines said the grounding of the Boeing 737 Max 8 is costing the airline millions in losses. File Photo by John Angelillo/UPI
American Airlines said the grounding of the Boeing 737 Max 8 is costing the airline millions in losses. File Photo by John Angelillo/UPI | License Photo

April 26 (UPI) -- American Airlines' chief executive said Friday that the company is expected to lose $350 million over the grounding of Boeing's 737 Max 8 this year after the plane was involved in two crashes.

Doug Parker, CEO and chairman of the American Airlines Group, made the comments in relation to the airlines' first-quarter results.

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Regulators worldwide grounded the Max 8 in March after one of the planes crashed in Ethiopia -- just six months after another Max 8 crash in Indonesia. The crashes killed a combined 346 people.

An automatic safety feature may have forced the nose of each plane lower when it incorrectly detected danger of going into a stall. American announced earlier this month that it will cancel 90 flights daily through August because of the 737 Max 8 grounding.

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"Our near-term earnings forecast has been affected by the grounding of our Boeing 737 Max fleet, which we have removed from scheduled flying through Aug. 19," Parker said in a statement. "We presently estimate the grounding of the 737 Max will impact our 2019 pretax earnings by approximately $350 million."

American Airlines stock tumbled 3 percent Friday after the company lowered its earnings forecast in part because of loss connected with the 737 Max.

On Wednesday, Boeing announced that production costs for the 737 have increased by $1 billion because of the fallout from the crashes. The company is expected to submit software fixes to the automatic safety feature to the Federal Aviation Administration soon in hopes to get the plane back in the air.

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Parker added that American is also expected to pay $650 million more in fuel expenses this year because of spiking oil prices.

"Even with these challenges, we expect our 2019 earnings per diluted shares excluding net special items to grow approximately 10 percent versus 2018," Parker said. "As we look forward to 2020 and beyond, we anticipate that our free cash flow production will increase significantly as our historic fleet replacement program winds down."

United and Southwest airlines announced this month that they were grounding their fleet of 737 Max planes through July.

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