Alaska Air Group (ALK) has warned that grounding of its Boeing (BA) 737 Max 9 fleet will cost the company $150 million and could hinder the operator's flight capacity. Boyd Group International President Mike Boyd joins Yahoo Finance Live to discuss how major airlines may be in for a "very bumpy year" as bookings dwindle around safety concerns and inspections of Boeing's landmark jet.
Boyd sees a ripple effect “all throughout the economy” with suppliers and certain cities expected to feel the brunt of the blow. Boyd insists that Boeing has been “totally incompetent” over its manufacturing errors having greater economic fallout.
Boyd believes there would have to be a “quiet revolt” at Boeing's board of directors if shareholders sought a C-suite shakeup in CEO David Calhoun.
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Editor's note: This article was written by Eyek Ntekim
Video Transcript
BRAD SMITH: Checking its baggage, Alaska Airlines out with a warning in its earnings report, with delays-- with delays in deliveries, excuse me. It now projects capacity growth to be at or below the lower end of its previously projected range. The airline company is saying, the current grounding of the 737 Max 9 will cost them $150 million.
For more on the state of airlines, we're joined by Mike Boyd, Boyd Group International President. Mike, we've gotten a wave of airline earnings to start off this earnings season and kicked off with Delta. Ed Bastian told us, they don't have any kind of exposure to the -9, but of course, they do have orders for the -10.
We do know that this warning that's come out from Alaska, as well as what United has said, certainly catching investors' attention here. Which of these airlines do you believe is best positioned to maneuver some of the issues that we're seeing coming out of the Boeing Max 9?
MIKE BOYD: Well, being isolated more from the Boeing issue right now is American, and also Delta to some degree, but right now, today-- like for example, Southwest Airlines, or over half of its 545 airplanes on order-- 300 are -7s. And they're going to be materially delayed. They're out of the program for the coming year.
That's going to be a big hit for them because they don't have any replacements for those. And that means they're going to keep older airplanes on lease, things like that. That's a bad one. But United Airlines, they have about 700 Max derivatives on order right now. 700. And the -10 is the biggest one. They've been banking on that. And that's now out of the program.
So we're going to be looking at a very bumpy year, because airlines-- these airlines, a number of them aren't going to have the airplanes to put into the sky.
SEANA SMITH: So Mike, what do you think the developments of today-- what does that tell us then about the ultimate impact that we could see from all of this?
MIKE BOYD: Well, it goes through the entire economy. I mean, you already had Alaska start to pull down some flying to small community, because they had to redistribute their fleet. They have airplanes on order that aren't going to come, they're going to have to do something about that.
So all the way down, even to play-- it goes not just Seattle and not just Chicago, but Kalispell is going to get hit with this. And then all the small suppliers, you've got a big Boeing operation in Helena, Montana. That's going to be affected as well. So what Boeing has done, which is, I think, totally incompetent with this, is going to hurt the entire economy.
BRAD SMITH: Totally incompetent-- those are extreme words there, Mike. I mean, we've heard from some of the CEOs. What are you seeing in terms of the shift perhaps in how CEOs are thinking about their future relationships with the company?
MIKE BOYD: Well, when you have United Airlines, the biggest customer now saying we got to find somebody else-- and they might be able to do it. Boeing's dance card-- or the South-- or the dance card at Airbus is full until 2030 for newer bodies. But they're going to be looking. So when you have this number of your customers ticked off, yeah, that's incompetent.
You can't give it any other excuse, especially in light of the other things that have happened at Boeing. And I'm just not-- I'm just not really confident with some of the responses that Calhoun has made, very honestly. Because he got them into this.
BRAD SMITH: Do you think that that leads to then-- because now, that would potentially mean we see the second CEO change over in, what, six years for the company?
MIKE BOYD: Yeah, they may have to do it. I don't know where the board of directors is. I mean, you have their biggest customer, United, ticked off. You have Southwest, another big customer, ticked off, and badly hurt financially as a result of this. Again, taking all this together, I'm just wondering whether they really need to take a bulldozer to the front office and rethink things.
SEANA SMITH: How likely? Is that something that you think is even up for discussion right now? And walk us through, I guess, exactly how that could potentially here play out?
MIKE BOYD: Well, you'd have to have a quiet revolt or maybe even less a quiet revolt at the board of directors level if the stock keeps dropping, and if the future of the company looks dim. Right now, as I said, United is really ticked at them. And United has the horsepower to maybe go to Airbus.
They only have about 200 Airbuses on order. But when you have 700 Maxs on order of different types, they got power. And I think they may walk away. I don't know. To some degree, they may walk.
BRAD SMITH: Mike, just lastly while we have you, you mentioned those earnings that we saw come out from Southwest. And we've been monitoring the reaction in shares of LUV here this morning, at least as of right now on the Yahoo Finance platform with about 10 minutes to go until the start of trade. Looks like they're holding on to some gains here. Anything that jumps out to you from that report about the consumer or some of the other labor negotiations that they are moving through and towards as well in the flight attendants case?
MIKE BOYD: Well, what you hit on the head here, the new pilot contract at SWAPA is going to be 50% by the end of the-- by the time it comes amendable again. Flight attendants could be looking for the same thing. So we haven't really worked that into that because that's going to change where Southwest can fly, how they can fly, what their economics are to places like Hawaii, and things like that. So they're going to address that. And I don't think that's been looked at hard enough by the folks on Wall Street yet.
BRAD SMITH: Are they able to still be a profitable low cost carrier with some of the new negotiations?
MIKE BOYD: Well, they can be profitable. They're not really a low cost carrier. They just do a very good job. And people like me fly them because they do a damn good job. But overall, very often, their competition can even be lower. They're just a good airline. And that's what keeps them alive. It isn't fares.