Faulty Jet Repairs to Cost Southwest Airlines $12M - Analyst Blog

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Southwest Airlines Co. ( LUV ) may end up paying one of the heftiest fines ever charged by the Federal Aviation Administration (FAA). The regulator has alleged the carrier for non-compliance of maintenance regulations in some of its 737 jetliners. The Dallas-based carrier has a months' time to respond to the proposed charges.  

The latest $12 million penalty dates back to 2006, when Southwest Airlines had hired Aviation Technical Services (ATS) to provide skin sealing work on 44 of its B-737 jets. According to the FAA, the contractor followed a disapproved method to replace the fuselage skins to prevent them from cracking. ATS also failed to properly stabilize the planes while repairing them.

The regulator also found some improper ground firing issues on two Southwest Airlines aircraft. The FAA has argued that the carrier has operated the planes for more than 20 passenger flight-runs without fixing the issue. Although technically this stands as ATS' fault, in such cases, FAA generally holds the airline responsible for repairs done by other companies.

In the past, the FAA has been unrelenting on maintenance-related issues and has, without mercy, fined carriers that failed to follow regulations laid down by it. This is the second biggest fine for Southwest Airlines after the carrier was initially charged in 2008 for flying 60,000 passenger flights with 46 of its B-737 aircraft without making the repairs mandated by the regulator. The then record-high fine of $10.2 million was reduced to $7.5 million in 2009 following negotiations.

Other companies that have been on FAA's target list are the erstwhile American Airlines, which is now a part of American Airlines Group Inc. ( AAL ), and aircraft manufacturer The Boeing Co. ( BA ). While American Airlines was fined $24.2 million for faulty repairs, Boeing was charged $13.2 million for delays in availability of fuel tank safety equipment.

Although Southwest Airlines has clarified that the latest allegations do not involve any aircraft currently under operation, we believe the extension of this issue might impact its traffic, with passengers feeling jittery about boarding the carrier's planes. However, Southwest Airlines may negotiate with the FAA in a bid to lower the penalty amount.

Southwest Airlines currently carries a Zacks Rank #1 (Strong Buy). Another similar Zacks Rank #1 stock to watch out for is Delta Airlines Inc. ( DAL ).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: LUV , AAL , BA , DAL

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