American Airlines Extends Boeing 737 MAX Grounding Period

American Airlines AAL, with 24 Boeing 737 MAX jets in its fleet, extended the grounding period of such jets by more than a month. This Fort Worth, TX-based carrier now expects the jets in its fleet to remain grounded through Dec 3, 2019, as opposed to the earlier date of Nov 2. As a result of the extension, American Airlines anticipates approximately 140 flights to be cancelled per day through Dec 3.

In July, while releasing its second-quarter 2019 results, American Airlines had estimated its 2019 pre-tax earnings to be affected to the tune of roughly $400 million on account of the flight cancellations. The expected loss amount is likely to increase with the extension in Boeing 737 MAX jet’s grounding time period. This is primarily because the extension implies that the jets will not resume operations during the busy Thanksgiving weekend.

Notably, all U.S.-registered Boeing 737 MAX jets have been grounded since March this year after the jets were involved in two fatal air crashes in different parts of the world over a span of five months apparently due to software malfunctioning. While the first accident took place in Indonesia during October 2018, the second one was the Ethiopian Airlines’ crash on Mar 10.

The jets need to certified by the US Federal Aviation Administration (FAA) before they can resume flying. However, the concerned FAA panel recently stated that they require more time to complete the review process and certify that the jets are safe enough to resume operations. This announcement by the FAA panel has naturally fueled apprehensions as to whether the jets would fly again in 2019.

American Airlines apart, Southwest Airlines LUV and United Airlines UAL extended the grounding periods of the Boeing 737 MAX jets in their respective fleets. United Airlines having 14 Boeing 737 MAX jets in its fleet, now expects the jets to remain grounded through Dec 19 as opposed to the earlier expectation of Nov 3. According to a CNBC report, this is anticipated to result in 93 flights being cancelled per day in November and 96 a day in the Dec 1-18 period.

With the largest exposure to Boeing 737 MAX jets among U.S. carriers, Southwest Airlines has 34 such jets in its fleet. The carrier has decided to remove Boeing 737 MAX jets from its schedule until Jan 5, 2020.

Zacks Rank & A Key Pick

American Airlines carries a Zacks Rank #3 (Hold). A better-ranked airline stock is Delta Air Lines (DAL), carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Delta has outpaced the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 3.8%.

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