LDN - Business

Alaska Air prioritizes quality, safety of Boeing products over production rate

[April 18, 2024] CHICAGO (Reuters) - Alaska Air Group is not concerned about the production rate of Boeing's 737 MAX planes as it is more focused on the quality and safety of the planemaker's jets, a top company executive said on Thursday.

The Seattle-based carrier had to ground its MAX 9 fleet for weeks following a mid-air cabin panel blowout on one of its flights in January. The grounding cost the company $162 million in the first quarter, resulting in a quarterly loss.

In an interview, Chief Financial Officer Shane Tackett said Alaska has deployed more of its inspectors at Boeing's factories since the incident to ensure the jetmaker produces the highest quality aircraft that it can confidently fly safely.

"We are prioritizing quality and safety first," Tackett told Reuters. "And (production) rate, it just isn't one of our priorities right now."

The U.S. Federal Aviation Administration (FAA) has capped the MAX production at 38 jets a month following the Jan. 5 incident. However, Boeing's monthly output is well below that level and in late March fell as low as single digits, Reuters reported this month.

The Boeing situation is rippling through the industry, compelling airlines to adjust their fleet plans at a time travel demand is projected to hit record levels.

Alaska, which operates an all-Boeing fleet, has also trimmed its growth plans and now expects its 2024 capacity to grow at less than 3% from a year ago. Tackett attributed the revision to the company's expectations of fewer-than-expected aircraft deliveries from Boeing.

It had planned for 23 deliveries this year, but CEO Benito Minicucci last month said the company was expecting about 10 planes this year.

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An Alaska Airlines aircraft flies past the U.S. Capitol before landing at Reagan National Airport in Arlington, Virginia, U.S., January 24, 2022. REUTERS/Joshua Roberts/File Photo

The Jan. 5 incident has placed a question mark over certification of the larger variant MAX 10, which Alaska expected in the second half of 2025.

Tackett said while there is no update on the certification timeline, Alaska expects further delays in the MAX 10 program.

But for the grounding of MAX 9, Alaska would have made a profit in the March quarter, which is traditionally its weakest quarter. Boeing has fully compensated to the company for the grounding in cash, but Alaska is seeking additional compensation.

The balance of the compensation is expected to be more heavily weighted towards credit for future aircraft purchases than cash, Tackett said.

Boeing's safety crisis sparked a revolt by U.S. airline bosses that ended up in a leadership overhaul last month. CEO Dave Calhoun will step down by year-end and Stephanie Pope has been appointed to lead Boeing Commercial Airplanes.

Tackett said Alaska is "encouraged" by Pope's initial work in her new role as well as Boeing's plans to improve the quality of production at its supplier Spirit Aero's plant in Wichita, Kansas and at its own assembly facility in Renton, Washington.

"We're encouraged by the plans that they've developed and that they are now starting to execute on," he said.

(Reporting by Rajesh Kumar Singh; Editing by Stephen Coates)

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