Icelandair cuts 737 MAX order

Icelandair yesterday announced a revision to its order for Boeing 737 MAX aircraft as part of a settlement it has reached with Boeing over the grounding of the estranged aircraft. The agreement reached between the two parties also requires Boeing to cover some of the costs of the aircraft type's grounding.

Icelandair Boeing 737 MAX 8. Photo by Anselm Ranta | AeroNewsX

Icelandair, like many other flag carriers around the globe, was heavily impacted by the COVID-19 crisis being forced to ground most of its fleet throughout the months of April and May. This forced the airline to make massive changes to its business, leading to a restructuring program and the job losses of more than 200 of the airlines employees. During July, the airline famously threatened to fire all of its cabin crew and replace them with out-of-work pilots due to a dispute with the union representing the cabin crew. However, the dispute was resolved shortly after the announcement and the cabin crew‘s jobs were saved. Easing restrictions in Europe over the June/July period have worked in the airline's favour, allowing it to resume the majority of its summer flying schedule to European nations and thus generating much needed revenue. But one aspect of Icelandair's business which continues to produce losses are the grounded 737 MAX aircraft, for which the airline has recently agreed to a compensation plan with the 737 MAX manufacturer Boeing.

Initially, Icelandair had ordered 16 Boeing 737 MAX aircraft. The airline received its first 737 MAX aircraft in March 2018 and had six of the aircraft delivered before the worldwide grounding of the type in March 2019 in response to the crash of Ethiopian Airlines Flight 302. In a press release yesterday, Icelandair announced that as a result of the type's ongoing grounding, it would be cancelling four of its remaining orders for the 737 MAX aircraft as part of an agreement reached with manufacturer Boeing. As a result of the cancellations, the backlog for Icelandair now stands at six aircraft, all of which will be delivered for Q2 2021 to Q1 2022 as demand further recovers from the coronavirus crisis.

Another aspect of the deal between Icelandair and Boeing is a confidential amount of compensation which will be paid to Icelandair to cover for the ongoing grounding of the carrier's 737 MAX aircraft. According to the airline, the compensation will "cover a substantial portion of the damages,” which likely includes the leasing of Boeing 737, 757 and 767 aircraft to cover for the grounded MAX's in order to prevent flight cancellations. A spokesperson from Icelandair also stated the MAX aircraft remain an important part of the airline‘s fleet plan in the future and the agreement allows Icelandair more flexibility for its growth and fleet development.

Icelandair has also recently completed bargaining agreements with unions acting from pilots, cabin crew and maintenance engineers. Agreements have also been reached with the airline's major stakeholders in order to aid its restructuring and match anticipated cash income.