American Airlines is the latest carrier that is contemplating cancelling some orders of the troubled 737 MAX. Wall Street Journal on 10 July, cited sources claiming that American has threatened to cancel around 17 orders after struggling to secure financing.
Now, American is reportedly working with Boeing to arrange the necessary funding to avoid cancellations of the previously speculated 17 orders. The report also clarifies that not 17 rather only a dozen cancellations may ‘potentially’ occur.
Flight Global cited an unnamed source that said:
American…is seeking Boeing’s help to secure financing at favourable rates, which have become more difficult to obtain amid the coronavirus downturn.
This latest revelation plays in favour of both Boeing and American Airlines. Boeing is obviously the major beneficiary. The US aerospace company sustained heavy hits this year as the coronavirus crisis accelerated the case of order cancellations from customers. The total number of MAX cancellations already form the majority of total aircraft cancellations this year.
While American will be relieved to receive at least some of the 76 deliveries currently pending. Air traffic levels — at this time of the year — in the US are nowhere near 2019 levels. But demand is rapidly growing as domestic carriers resume flights on more local and international routes.
Boeing Scrambling to Secure Financing
Right now Boeing is struggling to secure the necessary financing for resuming deliveries. According to Reuters, a drop in demand for its best selling twin-jet has dried up funds for smooth deliveries. With a backlog of around 4 000 orders, this is a sticky situation for Boeing. A senior aviation financier explains:
Nobody wants to take new aircraft and this is particularly true for the MAX right now.
Boeing’s current strategy — to heal its balance sheet — involves selling off the jets to lessors, which would then lease the aircraft to airlines. It may go as far as buying back the jets and leasing them to airlines itself.
Whatever the case, Boeing knows that it needs to subsidize the sale of new aircraft to airlines — as in the case of American — to avoid more cancellations. Its own financing body, Boeing Capital Corporation, might play a role in this process.
Boeing’s next-generation narrowbody airliner has been grounded for 15 months now. And there still remain many hurdles the 737 MAX has to overcome before it can take to the skies once again.
It is currently awaiting regulatory approval as flight testing began last week.
Do you think AA will cancel its some orders for the 737 MAX? Let us know in the comments!