October 30, 2019 / 7:16 PM / 12 days ago

U.S. lawmakers question Boeing's $1 million rebate clause for Southwest 737 MAX orders

(Reuters) - To convince Southwest Airlines Co (LUV.N) to buy the Boeing 737 MAX, the plane maker reassured the airline that pilots would not need expensive simulator training and backed up the promise with a $1 million (£776,096.24) per plane rebate if training was needed, U.S. lawmakers said on Wednesday.

Boeing Chief Executive Dennis Muilenburg testifies before the House Transportation and Infrastructure Committee during a hearing on the grounded 737 MAX in the wake of deadly crashes, on Capitol Hill in Washington, U.S., October 30, 2019. REUTERS/Sarah Silbiger

The 737 MAX training requirements were a topic of questioning at a hearing centered on Boeing Co’s (BA.N) development of the aircraft that has come under scrutiny following two fatal crashes.

Representative Peter DeFazio, who chairs the House Transportation and Infrastructure Committee, asked Boeing Chief Executive Dennis Muilenburg about the Southwest rebate, which he said would have covered 280 orders for the 737 MAX.

Muilenburg said he “believed that was part of the contract structure we had with Southwest.” He added “it’s not uncommon for us to have incentive clauses in these contracts.”

A spokesman for Southwest, one of Boeing’s largest 737 MAX customers, said he did not have specific details on the contractual agreement with Boeing but said it was a standard agreement on 737 MAX aircraft delivery.

“We have customary language in each of our delivery contracts to hold parties accountable to previously determined benefits of launching a new aircraft type, incorporating guarantees for various items into every contract from the 737-300s to the 737 NGs, a standard practice that is not new to us, the industry or the MAX aircraft,” Southwest said.

DeFazio said that if the U.S. Federal Aviation Administration had required simulator training on the 737 MAX, it “would have cost Boeing hundreds of millions of dollars and given its competitor an advantage.”

At the time, Airbus SE (AIR.PA) was courting large carriers like American Airlines Group (AAL.O) with a new, fuel-efficient narrowbody jet to rival the 737, triggering Boeing’s decision to make a new 737 model with more fuel-efficient engines rather than developing an all-new plane, which would have taken longer, sources have said.

Changes in the new model led to the need for software known as MCAS that played a role in both fatal crashes.

Boeing has been working on revised pilot training and software updates for the 737 MAX to win approval for commercial flights following an eight-month global grounding in the wake of the two crashes.

Reporting by David Shepardson, Tracy Rucinski and Eric M. Johnson; Editing by Sandra Maler and Lisa Shumaker

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