United Airlines is under increasing scrutiny from regulators after a number of safety issues in recent weeks. It could be a warning for the broader industry.
United may even have bigger problems than
Boeing
,
which announced Monday that CEO Dave Calhoun will step down at the end of the year. United stock tumbled in early trading Monday and the airline sector in general was also under pressure.
Delays to Boeing aircraft deliveries will force U.S. carriers to keep flying older planes, which typically require more maintenance. Repair and maintenance costs have been rising for airlines in recent years amid supply-chain problems.
When it comes to maintenance United has been forking out. It spent $2.74 billion on maintenance materials and repairs in 2023, a 27% increase on the previous year. It warned in its annual 10-K report last month that more delivery delays could lead to further increases in maintenance costs or cuts to its schedule—impacting revenue.
United has been fairly vocal in its frustrations with Boeing this year but the Federal Aviation Administration is now taking a greater interest in the carrier itself, following a series of mishaps. Ultimately, carriers are responsible for the maintenance of their aircraft.
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The FAA is increasing its oversight of
and could delay some future projects based on its findings. United faces potential restrictions on new routes and the use of new planes, The Wall Street Journal reported Saturday, citing people familiar with the matter.
The sheer number of incidents has concerned regulators. An aging United Airlines Boeing 737-800 aircraft was found to have a missing external panel earlier this month, while a United Boeing 777 lost a wheel taking off from San Francisco on March 7. A number of other United flights have encountered issues too, including a Boeing 757 which had a damaged wing and was forced to make an emergency landing in Denver last month.
The potential consequences of the FAA’s renewed oversight are clearly leaving investors worried too. The stock fell 3.4% on Monday.
dropped by 0.4%,
rose by 0.7%, and
gained 0.2%.
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It goes without saying that not being able to fly new routes or new planes would impact United’s financial performance. Wall Street is already unconvinced by United’s full-year guidance for earnings of between $9 and $11 per share in 2024–analysts currently see $9.65 per share.
It could also have implications for United’s long-term aggressive growth plans. The carrier has a target to grow domestic capacity by almost 30% by 2026 under its United Next strategy launched in 2021.
United removed the Boeing MAX-10, which is yet to be certified, from its internal plans earlier this year and said it will not grow as quickly without it.
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Restrictions by the regulator risk slowing growth even more.
“Over the next several weeks, we will begin to see more of an FAA presence in our operation as they begin to review some of our work processes, manuals and facilities,” United’s vice president of corporate safety said in a memo to employees Friday passed to Barron’s by the airline Monday.
“As part of this effort, the FAA will also pause a variety of certification activities for a period of time,” she added.
United’s problems and the FAA’s increased oversight are a reminder, if one were needed, of the maintenance problem that could potentially engulf the sector.
Write to Callum Keown at callum.keown@barrons.com
