Compensation Package: Boeing Assists Alaska Air with $160M Amid Crisis

Zinger Key Points
  • Boeing compensates Alaska Air with $160 million for MAX 9 grounding.
  • Alaska Airlines adjusts expectations, excludes compensation from loss calculations.

Alaska Air Group Inc ALK stated that Boeing Co BA had disbursed approximately $160 million to the airline during the first quarter as initial compensation for the impact of the 737-9 MAX groundings.

The company’s first quarter operation and results were significantly impacted by Flight 1282 in January and the Boeing 737-9 MAX groundings, which extended into February. 

Alaska Air said it lost approximately $160 million in first-quarter pretax profit, primarily comprising lost revenues, costs due to irregular operations, and costs to restore its fleet to operating service.

Also Read: Boeing CEO Dave Calhoun Retires Amid Safety Crisis, Departs With Multi-Million Dollar Exit Package

Absent these factors, Alaska’s first quarter adjusted pretax profit would have improved approximately 80% over prior year period, versus the pre-grounding expectations of a 30% improvement. 

Additional compensation is expected to be provided beyond first-quarter, the complete terms of which were not disclosed.

The company’s prior investor update on March 12, 2024, indicated its expectation that the remuneration for lost profits would be taken into earnings. 

The company will account for the compensation predominantly as a reduction to aircraft assets, which is the driver of the negative revision to its EPS expectation.

As a result of its revised accounting treatment, first-quarter adjusted loss per share will not include the Boeing compensation, and is expected to be approximately ($1.15) to ($1.05). This reflects approximately ($0.95) cents of lost earnings due to Flight 1282 and the 737-9 MAX grounding lost profits.

Price Action: ALK shares are trading higher by 4.58% at $43.80 on the last check Thursday.

Photo Courtesy: Robin Guess On

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