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Grounding Boeing’s 737 Max to Have Little Impact on Airlines’ Credit

Last week, U.S. President Donald Trump grounded all of Boeing's 737 Max (Max) aircraft after a fatal crash in Ethiopia—the second Max crash in the past six months. Today, credit professionals at Fitch Ratings say this decision won't have "a new-term negative effect" on airlines' credit but could potentially cause problems over time.

According to Fitch, Boeing introduced Max planes about two years ago, and only recently have airlines begun using them for global travel. Although halting Max plane use will disrupt airport traffic and operating revenues, Fitch states any impact "should be minimal."

"The 737 Max has been incorporated into airlines' plans to expand systemwide aviation fleet capacity and to replace less fuel-efficient planes," the report states. "Although Fitch has not observed a significant disruption in air travel in the North America, EMEA, APAC or LatAm regions, a prolonged grounding could affect the airlines' plans for adding new routes or maintaining profitability on existing routes, which could ultimately suppress airport traffic and revenues."

Max planes make up less than 5% of all aircraft between Southwest, American and United in North America, Fitch noted. So, if passengers' flights are cancelled, they have typically rescheduled flights on different planes; therefore, there's no "material loss."

—Andrew Michaels, editorial associate

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Tuesday, 18 June 2019