IBA counts the cost of grounding the Max fleet

Lauren Eldershaw
By Lauren Eldershaw March 15, 2019 16:26

IBA counts the cost of grounding the Max fleet

For airlines, the direct cost for grounding the 737 MAX 8/9 Fleet will be in the region of $150,000 per day per aircraft grounding, according to IBA.

IBA calculates the direct costs from the grounded of an aircraft that are not absorbed as follows:

Leasing/finance costs: a typical lease rental of $360,000 per month mean every day $12,000 is lost. Airlines have to pay those lease rentals/finance costs irrespective of whether the aircraft flies or not.

Staff costs: flight and cabin crews used specifically on the type cannot be transferred onto another type. Using rough order of magnitude figures.. for two flight crew and four cabin crew this could amount to $5,000 per day.

Parking fees: Airports (particularly major city ones) can be very expensive places to park aircraft. IBA uses a typical fee of $5,000 per day.

Passenger re-routing/compensation: the major issue is the logistics of keeping promises to fly passengers from A to B (and back). For the purpose of this exercise, IBA assumes six flights per day at 90% load factor @ 180 pax max. This can be a nightmare for an airline/tour operators to organise and extremely costly. Options may include simply cancelling the flights and repaying the revenue to organising alternatively flights via wet leasing. Wet leasing short term may be a preferred option for some airlines who have high load factors and want to provide continuity to their loyal customers. Large airlines with some excess capacity may be able to provide alternatives from their own fleets, other airlines will be less flexible as they won’t have such capacity available. IBA estimates costs to be in the order of disruption to 1,000 passengers per day to be an average of $100 per pax, totalling $100,000 per day.

There are several variations on options that an airline may adopt and the loss of profit will clearly be less than loss of revenue.

Passengers may also be stranded and incurring hotel bills that may not be fully paid for by the airlines but may become travel insurance claims.

Aircraft will be left stranded at airports other than their main bases, whilst their crews will have to return home. Likewise when the “fix” is organised engineers will need to perform pre-flight checks and the relevant fixes. If software upgrades are required they will need to be uploaded by the engineers.

IBA states that the loss of revenue and profit is a much more complex calculation but cash generation is vital. Many airlines will have had “thin” Northern Hemisphere Winters and already in a “low cash” situation and to lose revenue in March could tip them into the red (and beyond).  IBA says that it is closely monitoring a handful of airlines who are close to the edge through its Operator Risk Index.

In terms of loss of revenue, there are several ways to calculate it. In recent years, the IT outage that caused one airline to cancel 2100 flights was costed at $150m – circa $75,000 per flight.

Lauren Eldershaw
By Lauren Eldershaw March 15, 2019 16:26