Alaska holds Boeing accountable, wants to be made whole for $150M in losses

Alaska Airlines executives said Thursday they will push Boeing to improve its quality control and expect the jetmaker to reimburse the airline for at least $150 million in losses from the grounding of its 737 Max 9 fleet after the blowout of a door-sized fuselage panel on Flight 1282 earlier this month.

“It’s not acceptable what happened. We’re gonna hold them accountable. And we’re going to raise the bar on quality on Boeing,” said Alaska Air Group CEO Ben Minicucci. “We’re gonna hold Boeing’s feet to the fire to make sure that we get good airplanes out of that factory.”

Alaska said it has begun “a thorough review of Boeing’s production quality and control systems.”

And to validate the “quality of our aircraft as they progress through the manufacturing process,” it has expanded oversight of Boeing’s Max assembly lines in Renton.

With the Federal Aviation Administration having approved on Wednesday the required inspection procedures to get the Max 9s back in the air, the end of the immediate crisis for the airline is in sight. Chief Commercial Officer Andrew Harrison said all 65 of Alaska’s Max 9s should be flying again by the end of next week.

“Eight days from now, we’ll have the Max 9 fully back,” Harrison said, adding that this will restore the flight schedule to normal and passengers booked to fly on Alaska can be assured “they’re going to get to where they need to go safely and on time.”

Still, Chief Financial Officer Shane Tackett said profits this quarter will be impacted by at least $150 million from tickets that had to be refunded, the cost of buying tickets to reaccommodate passengers on other airlines, and extra overtime pay as the airline’s employees struggled to handle over 3,000 cancelled flights.

“We fully expect to be made whole for the profit impact of the grounding,” Tackett said.

And there may be a further financial impact later because Alaska said it expects delays to Boeing’s planned deliveries of another 23 Maxes later this year.

Boeing production of the Max, expected to slow from the imposition of multiple new internal and external inspections, was further constrained Wednesday when the FAA told Boeing it cannot raise Max production rates as planned until quality control is assured.

Tackett said Boeing was previously expected to deliver to Alaska another 16 Max 9s and seven Max 8s this year.

“Our suspicion is many of those will get delayed. But we don’t know for how long,” he said. “If we don’t get them, we’ve got some work to do to make sure we maximize the results we we can get with the current fleet.”

Tackett said Alaska could delay some planned airplane retirements and hold off on taking others out of service to refurbish their interiors.

He added that Alaska will make sure it has enough aircraft to fly the schedule being sold to passengers.

Maintaining relations with Boeing

The Alaska executives spoke on a conference call with analysts to discuss the 2023 financial results, which were positive. But that news was overshadowed by the negative impact of the Jan. 5 incident.

Despite the immediate hit to its reputation— just when Alaska is growing and expanding its network nationally, it finds itself mocked on Saturday Night Live— the airline’s leadership professed confidence that the damage won’t last once flying gets back to normal.

“At first people will have some questions, some anxiety,” about the Max, said CEO Minicucci. “But I believe over time the confidence will get back into this airplane.”

He added that Alaska fliers are loyal to the airline. “They trust us,” Minicucci said. “Our anticipation is when our Max 9 gets back up that we will fill our airplanes.”

Echoing that optimism, CFO Tackett said, “We don’t expect a brand-related long-term impact. We expect our guests to come back to us.”

And despite the “tough conversations” with Boeing’s leadership, CEO Minicucci said Alaska Airlines will stick with its all-Boeing, all-737 fleet. Last September, the airline retired the last Airbus plane it had inherited from the 2016 merger with Virgin America.

“We’ve got 231 737s that we’ve been happy with and until this incident we were happy with the Max,” Minicucci said. “We have 185 on order that are coming to us.”

“We remain fully committed to our relationship with Boeing,” he added.

CCO Harrison said that the impact of the Max 9 groundings in January was less than it would have been at a different point in the year, coming after the holidays and during a seasonal lull in air travel.

With planes less full, he said the airline managed to rebook over half of the passengers on the cancelled flights onto other Alaska flights. Additionally, the carrier’s regional subsidiary Horizon Air helped out by operating more than 150 previously unscheduled flights.

Harrison said Alaska was able to rebook over 10,000 impacted passengers and get them to their destinations.

Minicucci also addressed another detail that emerged after the Jan. 5 incident that caused some initial concern among the flying public. He was asked about the three occasions prior to the incident flight when pressurization indication lights on the Max’s instrument panel had briefly lit up.

The CEO dismissed these indications as inconsequential and unrelated to the mid-air blowout.

He said the lights indicated that the primary computer control of the pressurization had gone down and the system switched to a backup controller. And even if the backup had also gone down, the pilots would have had a third option of manual control.

“We got a faulty door plug from Boeing, totally unrelated to the light or to the pressurization issues,” he said. “The pressurization was never an issue on the airplane.”

Because of those three indications, Alaska did voluntarily restrict the plane from flying long-range over the ocean to Hawaii “out of an abundance of caution,” he said, though there was no obligation to do so.

Minicucci’s view was backed by National Transportation Safety Board chair Jennifer Homendy a few days after the accident investigation began.

As for the financial results reported Thursday, Minicucci called 2023 “another great year” for the airline.

Despite higher airport fees and increased labor costs after agreeing a new pilot contract, Alaska Air reported a full year profit of $235 million or $1.83 per share in 2023, compared to $58 million or $0.45 per share the previous year.

Those higher costs and a softening of fare prices led to a loss of $2 million or $0.02 per share in the fourth quarter, compared to profit of a $22 million or $0.17 per share a year earlier.

Still, the full year profit means the over 23,000 Alaska Air Group employees, at Alaska Airlines and Horizon Air, will be paid a total of $200 million in incentive bonuses next month, an average of 6.4% of their annual salaries, or more than three weeks of extra pay for most employees.