How has the 737 MAX grounding affected the inflight connectivity industry?

The grounding of the Boeing 737 MAX line of aircraft has sent shockwaves throughout the aviation industry. While the impact on operators of the type has been clear to see, with many reporting drops in profits, flight cancellations and route cutting due to the loss of the aircraft, there are many other stakeholders involved as well.

737 MAX grounding
What’s the effect of the 737 MAX grounding on IFEC? Photo: SounderBruce via Wikimedia

From the supply chain for the aircraft itself to the industries built around on board enhancements, businesses far and wide have felt the bump in the road caused by the grounding of the plane. We take a look at how the wider IFEC market has been impacted, and what the consequences have been.

Who might have felt the pinch?

There are so many IFEC suppliers who are tied in with the 737 MAX. Panasonic look after WestJet’s 737 MAX fleet, Global Eagle for Southwest and Norwegian, Viasat for American Airlines and Aeromexico. There’s also Lufthansa Technik, Cobham, Inmarsat and Collins, all of whom have a hand in equipping Boeing’s bestselling aircraft with inflight connectivity.

737 MAX
Hundreds of businesses in the supply chain may have felt the impact. Photo: Boeing

Then there are hundreds of smaller suppliers who could have been affected; from components manufacturers to antenna developers to companies supplying the cabling. However, for most of these businesses, the 737 MAX is only a component of their trade, and there are other things to fall back on while the aircraft are grounded.

However, some have spoken out in earnings calls and to media, expressing concern for profits amid the current disaster.

Astronics

Astronics supply all sorts of IFEC components to airlines, from antennas to screens to power outlets. They partner with Panasonic on IFC, and United is a major customer. Their second quarter earnings call brought with it a $7.7m loss for the group.

Astronics
Astronics posted a loss. Photo: Astronics

CEO Peter Gundermann put at least some of that loss down to the impact of the MAX, saying,

“…we have become aware of a couple of situations, where Airlines that are dependent or have been expecting declines in the 37 Max in higher quantities have pushed progress off. And that kind of makes sense when you think about it because IFE is, generally, an aftermarket type of installation. It’s usually a fleet-wide installation. And when they don’t have the affluence they thought they would have … when their capacity shrinks, the last they want to do is take aeroplanes out of service, if they don’t have to.”

Gundermann went on to note that, as some of their equipment is modular, much of it is translatable between other models of aircraft, so there is not a big backlog of equipment waiting to be installed. However, as airlines are increasingly reluctant to take any aircraft out of service for a refit, some customers were choosing to delay their IFEC installations until the MAX situation is resolved.

Global Eagle

Global Eagle counts among its 737 MAX customers the world’s largest operator of the type, Southwest Airlines. As well as this, they have a hand in IFEC for flydubai’s MAX fleet, for LOT Polish and for Mauritania Airlines. CEO Josh Marks commented in their second quarter earnings call that, “MAX reactivation is important for sustained positive free cash flow.”

Southwest MAX
Global Eagle connect the Southwest Airlines fleet of MAX. Photo: Southwest

Prior to the aircraft becoming grounded, Global Eagle served 26 connected aircraft and many more MAX with the media and content side of the business. While the planes are grounded, content is not being used to generate additional royalty revenue, which is impacting the company’s bottom line. However, the biggest impact is being felt on the equipment side of the business. Marks said,

“We are a Boeing line fit supplier for the MAX program. The substantial majority of our MAX installation this year will come through the Boeing line fit program, where our equipment is installed at the factory. During the second quarter, Boeing delayed delivery date for 5 shipsets, which shifted about $2 million of equipment revenue to the third quarter versus our expectations.

“To summarize, when the MAX reenters service, we’ll activate several dozen aircraft that are already equipped with our systems. When this occurs, we expect about $3 million positive impact in service revenue per quarter and about $2 million positive EBITDA impact per quarter. Therefore, MAX service revenue is an important factor in our ability to generate sustainable positive free cash flow.”

Overall, Global Eagle says that, so far, the MAX impact has been approximately $2m. However, as they continue to install MAX aircraft during the grounding, albeit at a reduced rate, the impact has been less for them than some other suppliers.

Gogo

Gogo is predominantly an aftermarket supplier, much like Astronics. As such, the impact of the MAX grounding has been felt not only in terms of a downturn in the rate of installation on the MAX aircraft itself, but also on other aircraft models that airlines have been unwilling to take out of service.

Gogo
Gogo has a backlog of 36 MAX aircraft. Photo: Gogo

In their earnings call CEO Oakleigh Thorne said,

“We’ve been able to complete 7 installations. We still have 12 in our installation schedule, including 1 line-fit, and we’ve removed 8 from our installation schedule for this year. In total, we have a backlog of 36 MAXes, which includes the seven installed because we do not count an aircraft as online until it is producing revenue. The bigger impact has been the airlines holding back on other aircraft that were in our install schedule, as they need to use those aircraft to fill in for MAXes that they cannot fly.”

While the supplier didn’t put a number on the impact of the grounding, it’s clear that their operations are being somewhat hampered by the current situation.

Viasat

Viasat supply Aeromexio with inflight connectivity and were lined up to provide IFEC on Icelandair’s incoming MAX 8s too. They also supply American Airlines’ 737 MAX with a factory fit solution. As part of their most recent earnings call, CFO Shawn Duffy commented that the grounding of the MAX had “negatively affected terminal shipments”. Overall, revenues at Viasat reduced by 17%.

Viasat
Viasat said the MAX grounding negatively affected terminal shipments. Photo: Viasat

However, the MAX fleet is a fairly small nugget of Viasat’s overall business, as the company recorded 1,335 equipped aircraft, excluding the 46 grounded 737 MAX. CEO Mark Dankberg was relatively positive about the long term outcome, saying,

“The grounded planes are inhibiting our growth to some extent this fiscal year and that effect is likely to increase for a little while as new planes that otherwise would be fine are delayed but it also means we anticipate this step increase when the MAX returns to service.”

Other suppliers

Interestingly, Inmarsat did not mention anything about the 737 MAX during their most recent earnings call.

Similarly, Get Connected talked to Lufthansa Technik, who said, “…our connectivity business so far has only felt an almost negligible impact from the 737MAX grounding and we do not expect this to change significantly in case the grounding drags on.”

Clearly, while some IFEC suppliers are beginning to feel the pinch, for others, it’s a barely noticeable inconvenience. With Boeing moving forward with flight testing in October, we could see the MAX back in the skies even before the end of the year, and the global IFEC industry can get back to normal.

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