Boeing Chairman: Balance sheet can handle settlements over grounded 737 Max

Boeing can handle the settlements it’s likely to pay to airlines over the forced grounding of its 737 Max jet, the company’s new chairman told CNBC on Tuesday.

“There’s no question there will be a fair number of settlements,” said David Calhoun, a Blackstone executive and longtime Boeing board member. “Our company and our balance sheet has provided for what we think that resolution will be.”

The 737 Max fleet of nearly 500 planes has been grounded across the globe since mid-March following two crashes over less than five months that killed 346 people combined. The grounding has forced airlines to cancel thousands of flights, driven up costs and dented airlines’ profits.

To make up for the expected loss in services, Boeing in the second quarter took a $4.9 billion after-tax charge to compensate airlines but final amounts are unknown because regulators haven’t yet lifted the grounding.

But airlines are getting hit. American Airlines said last month that the grounding would reduce its pretax income by $540 million this year, up from an estimate of $400 million it made in July.

Likewise, Southwest Airlines, the largest U.S. operator of the Max, said late October that the grounding cost it $210 million in revenue in the quarter and $435 million in revenue in the first nine months of the year. The airline added that it expects “the damages to grow into 2020.”

“We’re not happy about our situation,” Southwest CEO Gary Kelly told CNBC’s “Squawk on the Street” in October. “We put our future in the hands of Boeing in the Max and we’re grounded. I want to settle with Boeing to settle our damages.”

It’s a problem that Calhoun said he understands.

“There’s no question: We have let him down. He knows [the Max] has served him well and he knows it has served his safely,” Calhoun said of Kelly on “Squawk Box.” “But this gap, where he needs capacity and it’s not there, is a real problem for him. Anybody at that moment in time has to make the decision that we’re going to consider other alternatives.”

Boeing’s current rival to the 737 Max is Airbus.

“We’re going to have to step up to the plate if and when that day happens and put our best foot forward,” Calhoun added.

Shares of Boeing were up about 1.2% in premarket trading.

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