International firm weighs in on impact of Boeing 737 Max grounding on Samoa Airways

The global grounding of the Boeing 737 Max threatens to impact the finances of Samoa's national carrier negatively, with new estimates suggesting the cost to Samoa Airways' bottom line could be millions of tala.

British international airline consultancy firm OAG - the world authority on airline schedules - calculated that Samoa Airways was offering 158,000 fewer seats for passengers than before the crisis, when Boeing planes were grounded in March.

The costs of cancelling pre-booked flights, lost revenue from flying smaller planes and the cost of arranging for a replacement aircraft (Samoa Airways secured a 737-800 on a "wet lease" from Malaysian airline Malindo) were estimated by OAG at US$100 (T$250) a seat. 

That brings the cost borne by Samoa Airways since the March grounding of the 737 Max to more than US$15.5 million ($38m).

“In the data that we had for February, Samoa Airways were scheduling that B737 service; as far as they would have been aware the aircraft was going to arrive and they were selling seats," OAG's Executive Vice-President, John Grant, told the Samoa Observer. 

"Samoa Airways had replaced [its plane] with a leased aircraft from elsewhere. [But] probably at an inflated price given the immediacy of need."

OAG used a notional estimate of US$100-per-seat and did warn that costs will vary between affected airlines, depending on how quickly and cheaply they could access replacement aircraft and how many advanced bookings they needed to cancel.

Samoa Airways arranged for a "wet lease" of a replacement aircraft from Indonesian-headquartered Malindo Air, which includes the cost of a replacement crew and pilots.

When compared to reported Q4 losses of $6.6 million tala for 2018, the financial impact of the Boeing grounding threatens to blow a hole in the airline's books. 

Emails with questions were sent to the Samoa Airways Chief Executive Officer, Seiuli Alvin Tuala, Chairman of the Board, Tuia Paepae Letoa, and Minister of Public Enterprises, Lautafi Selafi Purcell for their comment since Wednesday last week have not been responded to.

Federal Aviation Administration emergency order grounded all 737 Max models globally in March after the second crash in Ethiopia which killed 159 people and the tragic Lion Air Flight 6IO last October when 189 perished in a crash in Indonesia. 

Both crashes involved a Boeing MAX 8 aircraft, less than six months after they were released to their operators by American aircraft manufacturer Boeing.  It is not known when they will be given the all-clear to fly. 

Samoa Airways was due to take receipt of a new lease with the U.S.-based Air Lease Corporation for a new Boeing 737-Max 9 aircraft which was initially to replace a Boeing 737-800 owned by Iceland Air. 

Steven F. Udvar-Házy, the C.E.O. of Air Lease Corporation, told the Samoa Observer the dry lease is for five years and depending on the time of the year, the lease rate could be anywhere between US$300,000 to US$500,000 (T$750,000 to $1.25 million tala) a month.

“The dry lease is for five years and it depends on the time of the year, as different months they have different level of passenger flows,” he said.

Prior to the global grounding, the Samoa Airways sent pilots to Seattle Washington, the Air Lease Corporation compound to learn the specs of the plane and undergo training and familiarise them with the new B737 Max 9. 

More than 30 flights underwent the training, however the global grounding led Samoa Airways to sign a wet lease with Malindo Air.

The employment status of Samoa Airways flight attendants and pilots is unclear; emails to Samoa Airways management have not been answered. 

Recent travellers told the Samoa Observer the round trip there were no Samoans working on-board the flight. 

O.A.G.'s calculations suggest the world's airlines have grounded planes with the equivalent of 41 million seats since the grounding began in March, which will cost the the global aviation industry more than US$4 billion. 

China Southern, Air Canada, Southwest, Turkish Airlines and American are the top five airlines in terms of lost seats due to the grounding.

Samoa Airways has previously considered taking legal action to recover their losses from Boeing. But it remains to be seen whether the company will compensate its customers for the grounding.

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