American Airlines' earnings top estimates, but costs from Boeing 737 Max grounding grow

American Airlines shares rose Thursday after posting third-quarter earnings that were slightly ahead of Wall Street estimates, despite rising costs from the Boeing 737 Max and hundreds of flight disruptions over the peak summer period.

American's net income rose more than 14% to $425 million from a year ago on revenue of $11.91 billion, which was slightly lower than estimates but higher than last year. American's shares were up 2% in morning trading.

The quarter was challenging for the Fort Worth-based airline. In addition to the Max grounding, the airline suffered operational problems that have forced its customer service team to call travelers to apologize and offer compensation such as frequent flyer miles for the disruptions.

The airline has accused the unions representing its mechanics of an intentional slowdown to gain leverage in contact talks, accusations the unions have denied.

American slightly lowered its full-year earnings forecast by 50 cents at the top end to a forecast range of $4.50 and $5.50.

The quarter's "results should have been better," CEO Doug Parker said in an earnings release. "Our third quarter was impacted by the continued grounding of the Boeing 737 MAX and the operational challenges resulting from ongoing labor contract negotiations. These challenges affected our customers, our shareholders and our team members, who we thank for their hard work and perseverance.

"Producing such strong results despite a difficult summer is due entirely to your hard work," Parker said in a note to employees.

Adjusted earnings per share came in at $1.42, above the $1.40 analysts expected.

The airline said it expects the Max grounding, now in its eighth month, will cost it about $540 million in pretax income this year. In July, the carrier forecast a $400 million hit to pretax earnings this year because of the grounding.

American is "working to ensure that Boeing shareholders bear the cost of Boeing's failures, not American Airlines' shareholders," Parker said on Thursday's earnings call.

American removed the Max planes from its schedules until mid-January as regulators haven't yet signed off on Boeing's fixes to the troubled jets. The airline expects to grow its capacity by 5% next year, assuming the Max returns.

American's CFO Derek Kerr said the airline slowed its hiring earlier in the fall amid the grounding but it has since picked up pace "so we're ready to roll" if the plane gets a green light from regulators.

Regulators grounded the planes worldwide after two fatal crashes — one in Indonesia in October 2018 and another, less than five months later, in Ethiopia. Regulators haven't said when they will allow the jets to fly again. They haven't yet approved software changes Boeing made for the planes after a flight control system was implicated in both crashes.

An American Airlines Boeing 737 Max 8 arriving from Washington's Ronald Reagan National Airport is seen taxiing to its gate at the Miami International Airport on March 12, 2019 in Miami, Florida.

Joe Raedle | Getty Images

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