Boeing (NYSE:BA) has paid Southwest Airlines (NYSE:LUV) $428 million due to ongoing issues with the 737 MAX, according to Southwest’s quarterly report filed Monday, a sign of how much the troubled aircraft is weighing on cash flow at the aerospace giant.
The 737 MAX was grounded in March 2019 after a pair of fatal accidents, causing existing operators to scramble to fill their schedules with older planes. Southwest had 34 MAX planes in its fleet at the time of the grounding, and was scheduled to take delivery on 41 additional planes through the rest of the year.
The airline said in its second-quarter regulatory filing that it received $428 million in total cash proceeds from Boeing in the first half of 2020 as compensation for the issues. The two parties late last year reached a memorandum of understanding to compensate Southwest for estimated financial damages, but the terms were confidential at the time.
Boeing burned through $4.7 billion in the first quarter and is expected to report even higher cash burn when it reports second-quarter earnings this week, largely due to the ongoing 737 MAX issues. Southwest is just one customer for the plane, but it is an important one. Southwest has only flown 737s throughout its history, and the airline is responsible for a significant part of Boeing’s 737 MAX backlog.
Boeing hopes to have the 737 MAX recertified to fly before year’s end, but the financial ramifications from the grounding will continue for years to come. Southwest CEO Gary Kelly said on a call with investors last week that the airline intends to renegotiate its future purchases.
“I think the way to visualize the situation with Boeing is that, basically, where we go from here needs to be negotiated, period,” Kelly said. “It’s almost like we don’t have a firm contract for deliveries. So all of that has to be completely reset because Boeing is out of compliance with their contract.”