Grounded 737 MAX Won’t Negatively Affect Airport Credits-Fitch

March 20, 2019/Fitch Ratings

The grounding of Boeing 737 MAX planes (MAX) by aviation officials worldwide will not have a near-term negative effect on airport ratings, Fitch Ratings says. The aircraft has only started to gain widespread adoption across carriers globally, having been introduced to the market only within the past two years. The immediate impact to airport traffic and operating revenues should be minimal to the extent this grounding is temporary and does not lead to additional aircraft operational stoppages. Risks to air travel could become more acute if the grounding extends into the peak spring or summer travel seasons.

The 737 MAX has been incorporated into airlines’ plans to expand systemwide aviation fleet capacity and to replace less fuel-efficient planes. Although Fitch has not observed a significant disruption in air travel in the North America, EMEA, APAC or LatAm regions, a prolonged grounding could affect the airlines’ plans for adding new routes or maintaining profitability on existing routes, which could ultimately suppress airport traffic and revenues.

In North America, the three largest domestic carriers – Southwest (34 aircrafts), American (24) and United (14) operate with this model aircraft. However, the 737 MAX represents less than 5% of the three airlines’ total combined fleet. Air Canada, Westjet and Sunwing Airlines also operate this aircraft within the Canadian markets but, similar to U.S. carriers, have minimal operational disruptions. While each of these carriers has announced some flight cancellations, passengers have largely been accommodated through rebookings. Therefore, Fitch does not expect any material loss of air travel.

Within EMEA and APAC, there have been a few cancellations but most passengers have been rebooked. The use of the 737 MAX aircraft is spread out across many carriers but no single carrier has a material concentration exposure. Norwegian Air has the largest 737 MAX fleet in EMEA, although their 18 737 MAX planes account for just 1% of capacity. Some point-to-point trans-Atlantic services operated by Norwegian have been nominally disrupted, and any durable traffic declines will be felt more keenly at the regional airports where Norwegian flies.

In India, SpiceJet and Jet Airways have 18 737 MAX aircraft, some of which were already grounded by Jet Airways due to financial troubles. The 737s form a very small proportion of the total Indian commercial airspace, so the impact on airport traffic is expected to be negligible. However, both carriers had large orders of these planes, which could suppress passenger growth and ultimately affect airport traffic. Other carriers that may have order adjustments or cancellations include Garuda (almost 50 aircrafts currently on order), FlyDubai (with an open order of 250, making it one of the largest MAX customers) and Norwegian (they have postponed some deliveries of new 737 MAX aircraft). Airports where these carriers comprise a significant portion of passenger traffic are susceptible to reduced revenues should routes be cut back or eliminated.

In Latin America, the 737 MAX is a small portion of the fleet and has not been used for main routes in the region. Fitch has observed that passengers to date have been rebooked with minimal impact on air travel. In Brazil, the only airline that had deployed the 737 MAX was Gol (seven aircrafts representing 5.6% of fleet capacity), and the local regulator has suspended Gol’s 737 MAX flights. This plane was used mostly for routes to the U.S. LATAM Airlines, the largest airline in the region, does not operate this aircraft while Copa Airlines, Aerolineas and Aeromexico suspended some flights, which represent a slight component of their overall schedule.

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