Southwest Air, Boeing Reach Confidential MAX Compensation Pact

Southwest Airlines strikes a deal to receive compensation for financial fallout related to the grounding of Boeing’s 737 MAX aircraft.
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Southwest Airlines (LUV) - Get Report on Thursday confirmed that it had reached a confidential agreement with Boeing (BA) - Get Report to receive compensation from the airplane maker for a portion of the projected financial fallout related to the grounding of Boeing’s 737 MAX aircraft.

Southwest also authorized a “discretionary, incremental profit-sharing accrual” for employees tied to the projected reduction in operating income due to MAX groundings, the company said.

“On behalf of the Southwest board of directors, we are grateful to our employees for their extraordinary efforts throughout the year and are pleased to share proceeds from our recent agreement with Boeing,” CEO Gary Kelly said in a statement.

The agreement comes amid ongoing scrutiny of Boeing’s handling of issues surrounding the 737 MAX – specifically what the company knew about in terms of potential dangers related to the jet's automated flight-control system.

After the first crash of a Lion Air Boeing 737 MAX last year, U.S. federal safety officials estimated there could be 15 more fatal crashes of the MAX over the next few decades if Boeing didn't fix the critical system.

Yet in analysis disclosed during a hearing of the House transportation committee earlier this week, the Federal Aviation Administration didn't ground the plane until a second deadly crash of an Ethiopian Airlines plane five months later.

"The FAA rolled the dice on the safety of the travelling public and let the MAX continue to fly until Boeing could overhaul its MCAS software," said Peter DeFazio, chairman of the committee.

Southwest and other airlines have shifted schedules and cut flights to offset the reduced number of planes in their respective fleets. Southwest had the highest number of MAX aircraft flying when the grounding was ordered almost a year ago.

Shares of Southwest were up 1.48% at $54.77 in morning trading on Thursday, while shares of Boeing were little changed at $349.99.