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Southwest could receive over $1.2B from Boeing

Southwest Airlines Co. and Boeing Co. announced a settlement Dec. 12 regarding compensation for income Southwest lost in 2019 due to the 737 Max grounding.
Credit: AP
FILE - This July 17, 2019 photo shows Southwest Airlines planes at Phoenix Sky Harbor International Airport in Phoenix. Southwest Airlines Co. reports financial earns on Thursday, Oct. 24. (AP Photo/Ross D. Franklin, File)

DALLAS — Southwest will likely receive more than $1.2 billion from Boeing as compensation for the ongoing 737 Max saga, according to one analyst estimate.

Southwest Airlines Co. and Boeing Co. announced a settlement Dec. 12 regarding compensation for income Southwest lost in 2019 due to the 737 Max grounding.

Terms of that settlement were not disclosed, although the company said it set aside $125 million to share with employees through its profit sharing program. Southwest CEO Gary Kelly has said the grounding had an $830 million hit on the company's 2019 income.

RELATED: Boeing employees mocked FAA in internal messages before two deadly 737 MAX crashes

"Not all Boeing customers will be treated as well: Southwest is by far the most affected and is among the airframer’s most important clients as the launch customer on many 737 models," Bloomberg Intelligence analyst George Ferguson wrote in a research note.

Southwest representatives did not immediately respond to a request for comment Friday.

Southwest removed the aircraft from its schedule until April 13. That date could be pushed backed as the industry deals with a change of course from Boeing this week when the manufacturer recommended pilots receive training in a flight simulator before getting back in the 737 Max cockpit. 

The recommendation, if adopted by the Federal Aviation Administration, will further delay the plane's return, Ferguson said. One of the issues Southwest and other airlines will have to address is the lack of 737 Max simulators that exist in the world.

RELATED: Southwest Airlines delays return of 737 MAX service until April

Boeing's compensation to Southwest will likely increase because of the necessity of 737 Max simulator training. 

During congressional testimony from Boeing executives in October, U.S. lawmakers disclosed a clause in an agreement between Southwest and Boeing that said the manufacturer would pay the airline $1 million per plane if 737 Max simulator training was necessary. 

The idea was the 737 Max was so similar to previous models of the 737 that simulator training wouldn't be necessary, and therefore Southwest would save money on training costs.

Southwest is the largest operator of the 737 Max and was the launch customer of the plane. The Dallas-based carrier has hundreds of more 737 Max planes on order, and its growth plans are being seriously tempered by the plane's absence from its fleet.

Analysts at Bank of America said in a research note this week Southwest's capacity is expected to decrease 3.8 percent in the first quarter, the largest reduction since the 737 Max saga began.

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