WestJet is facing indefinite delays in the delivery of numerous new aircraft following a panel blowout incident on a Boeing 737 Max plane last month, prompting a halt to increased production at the U.S. aircraft manufacturer.
The airline, headquartered in Calgary, acquired 42 Boeing 737 Max 10 jetliners in 2022 and holds options for an additional 22, alongside nearly two dozen previous Max orders still awaiting fulfillment.
These substantial deals aimed to bolster WestJet’s fleet by at least 65 aircraft, with 50 of them being Max 10s, by 2029. The airline anticipated this move to be a “game-changer,” reducing fuel expenses and supporting its growth trajectory.
However, the Max 10 has not yet received final certification. Following the panel incident, U.S. regulators announced a pause in Boeing’s production expansion until safety concerns were adequately addressed.
In response to the emergency, the Federal Aviation Administration (FAA) grounded all 737 Max 9s for inspection and initiated an investigation. This action came after a door plug panel detached from an Alaska Airlines plane mid-flight on January 5, resulting in an emergency landing due to a refrigerator-sized hole in the cabin wall.
As of February 5, the FAA reported that 94% of the 144 Max 9s operated by United Airlines and Alaska Airlines, comprising two-thirds of all Max 9s globally, had been cleared for service.
WestJet expressed confidence in managing the production disruptions, stating ongoing collaboration with Boeing regarding aircraft delivery and schedules. The airline emphasized the flexibility of its order book and fleet planning to support its growth strategies.
The Max 10, as the largest aircraft in the 737 series, offers 20% fewer carbon emissions per passenger compared to previous models. Fleet modernization is crucial for enhancing efficiency, reducing costs (with jet fuel and labor being major expenses), and demonstrating commitment to environmental targets.
However, the situation with Boeing compromises WestJet’s ability to achieve these goals, according to John Gradek, an aviation management professor at McGill University. He highlighted the increasing operational costs and decreasing efficiency of aging aircraft.
The 65 new aircraft ordered by WestJet represent nearly 40% of its current fleet, potentially replacing some of the 88 planes from the previous generation of 737s over time.
The list price for the 42 Max 10s ordered in 2022 amounted to $7.6 billion, with significant discounts typical for large purchases. Both Boeing and WestJet emphasized the significance of the deal, citing the Max 10’s cost-effectiveness and its potential to strengthen the airline’s presence and offerings across Canada.
In addition to delivery delays, WestJet faces competition from no-frills airlines like Flair Airlines and Lynx Air, following the cessation of its budget subsidiary Swoop in October. Moreover, a new collective agreement with pilots has increased labor costs for the carrier, amidst ongoing battles for market share in domestic and leisure travel.
The FAA’s order to cap 737 production at 38 per month until quality control issues are resolved will likely impact other Boeing partners. Boeing had initially planned to increase production to 42 per month in 2024.
Analyst Savanthi Syth of Raymond James highlighted the potential long-term implications, including further delays in Max-10 certification and delivery schedules, in a note to investors on January 31.
