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flydubai grounded fleet of Max 737 costly; Boeing situation worsening

In an attempt to add capacity, flydubai is looking for short term solutions to its grounded Boeing 737Max, as losses pile up. Boeing has its own set of issues

Flydubai has extended its wet lease agreement for four Boeing 737 aircraft The grounding of 14 Boeing 737 MAX aircraft in March impacted performance and led to a 30% schedule reduction Fitch revised its outlook on Boeing’s rating to negative because of delays and substantial debt buildup

State-owned flydubai’s order for 250 MAX jets is the second largest for the model after U.S. airline Southwest.

Boeing’s best-selling airliner was grounded after being involved in two crashes which killed all 346 passengers and crew aboard.

The grounding forced airlines to park more than 300 aircraft.

What to do when your fleet of spanking new Boeing 737 Max are parked, costing you a small fortune, and out of action for another 5-6 months at least?

Spend more money leasing.

It’s the latest short-term solution for flydubai, as it struggles to grapple with a worsening Boeing situation that is affecting global carriers who all hope the U.S. Federal Aviation Administration (FAA) regulators give their ok sooner rather than later.

Well, the minimum wait is this summer.

Read: flydubai first in the Middle East to introduce new cost- and eco-friendly winglets

flydubai gulping for air time

The UAE-based carrier has previously warned its operations will shrink to 2014 levels if the plane doesn’t return to service soon.

In an attempt to add capacity, Flydubai has extended its wet lease agreement for four Boeing 737 aircraft by a month till February 29, according to Arabian business, adding that Emirates Airlines has pulled 14 Max planes of its own. 

Boeing said on Tuesday it now does not expect to win approval to return the 737 MAX to service until mid-year after the MAX was grounded last March 2018, after an earlier expected February or March 2020 date.

“We are looking at short to medium-term leasing options to add more capacity for the coming few months,” a flydubai spokeswoman said on Wednesday, Reuters reported.

flydubai leased four previous model 737-800 jets from Dec 14 to Jan 25.

It has warned the MAX grounding is putting significant financial pressure on the airline, and said it could replace MAX jets with aircraft from rival plane maker Airbus.

“The grounding of our 14 Boeing 737 MAX aircraft in March has significantly impacted our performance and has led to a 30% reduction of our flying schedule.  Over the last ten months, whilst our MAX aircraft have been grounded, over 18 hours per aircraft each week have been spent by our engineering team to maintain the aircraft to the highest industry standards,” said Ghaith Al Ghaith, Chief Executive Officer at flydubai, back in early January 2020.

Read: flydubai Financial Results significantly impacted by Boeing 737 MAX grounding

Troubles ongoing for Boeing

Boeing’s new chief executive, David Calhoun, is tempting fate, Reuters reported

He says the $175 billion firm will not cut its $4.6 billion a year dividend, despite the fact the aircraft maker is burning cash every quarter while its 737 MAX models remain grounded. 

This would be ill-advised.  

The nearly year-long grounding has resulted in a lot of work without full payment and ballooning inventory on Boeing’s balance sheet. Debt rose almost 30% in last year’s third quarter alone to about $25 billion.   Jefferies estimates the company will go through about $3.5 billion per quarter – including the dividend – while the MAX is grounded.

The longer the MAX jets stand idle, the more difficult the company’s situation may become. The company will have to give customers bigger discounts, and some orders may be cancelled. Key suppliers could need financial help. And credit downgrades won’t help. Fitch on Wednesday revised its outlook on Boeing’s rating to negative because of the possibility of further delays and the company’s substantial debt buildup. The rating firm said borrowing could peak at nearly $34 billion.

Read: flydubai Financial Results significantly impacted by Boeing 737 MAX grounding

An FAA spokesman said in a statement that the agency is being thorough and deliberate as it checks Boeing’s proposed changes to the Max, and the agency has no timetable for finishing that review.

Calhoun’s comments came one day after Boeing announced that it doesn’t expect the FAA to certify the Max until this summer , and Calhoun repeatedly referred to June.

Shares of Chicago-based Boeing Co. fell $4.37 to close at $309, hours after hitting a 52-week low.