Temporary Grounding of Certain Boeing 737 MAX 9s Highlights Airlines Sector Vulnerability to Operational Disruptions

In this commentary, Morningstar DBRS looks at the Federal Aviation Administration’s (FAA) decision to temporarily ground certain Boeing (B) 737 MAX 9 fleets following a safety incident on January 6, 2024, and its implications for the airlines sector.

Key highlights include:
-- The temporary order to ground certain Boeing 737 MAX 9 fleets for inspection will temporarily disrupt operations for certain airlines that have a higher proportion of affected planes.
-- We do not expect this to have a material impact on the credit profile of the airline sector unless it causes a prolonged aircraft grounding, such as the identification of a fundamental design flaw.
-- Nonetheless, we think this incident highlights the vulnerability of the sector to operational disruptions, which could materially affect short-term travel activity.

“At this stage, the FAA’s inspection directive is limited to only a small portion of the total B 737 MAX fleet, but this will still temporarily disrupt operations for certain airlines that have a higher proportion of affected planes (such as Alaska Airlines and United Airlines),” said Rohit Kumar, Assistant Vice President of Diversified Industries at Morningstar DBRS. “While we do not expect a significant long-term impact on the credit profile of the airline sector or airlines themselves unless the current issue results in a prolonged aircraft grounding, this incident highlights the sector's vulnerability to operational disruptions as well as manufacturing and design vulnerabilities of aircraft models”.