How United walks away from the MAX 10

United CEO Scott Kirby is quoted by Reuters saying "Boeing is not going to be able to meet their contractual deliveries on at least many of those airplanes and let's leave it at that." We also published a view on this. What might this statement mean? After all, the statement signals a sense of power in the hands of United. Were it not for Airbus having no delivery slots, Kirby's statement might have been even more forthright. Mr. Kirby's visit to Toulouse "leaked", probably to add weight to "let's leave it at that." We don't know if that visit was about an existing A350 order, or something else. Can United walk away from its 200 MAX 10 commitments at zero loss? It appears so. What we are about to share is not based on any confidential information. What we have been able to confirm from people familiar with current Boeing contractual language is that the wording is largely the same. Below is language from a Boeing contract with a US airline, addressing delays. We added emphasis in bold. Based on our reading: United can deploy an "Excusable Delay" clause Boeing must notify United, in writing, of the Excusable Delay United then has the right to terminate the agreement withing 15 days of receipt of such notice from Boeing Failure to terminate by United at this point, waives the airline's right to terminate If the Excusable Delay causes a delivery to run 12 months beyond scheduled delivery, and the above termination option was not used, then either party may terminate within 15 days after the expiration of that 12 month period Since United has NOT terminated under clause 6.2.1 below, we expect the United is waiting to make a determination under 6.2.2. This is probably where Kirby and his team are holding now and is the basis of their confidence. This is likely United's point of power over Boeing from a legal sense - we are not attorneys, so this is not a legal opinion. United therefore is not forced to terminate their MAX 10 deal until delivery is "delayed for more than 12 months beyond the month in which delivery is scheduled." The MAX 10 was launched June 19 2017. In June 2017 at the Paris show, United converted an order for 100 MAX 9s to MAX10s. United placed an order for 150 MAX 10s in June 2021. Scheduled service was to start in 2023. We assume the 12 month Excusable Delay clause comes during 2024. The airline has yet to confirm which month in reply to our request for clarification. But this may be why Mr. Kirby made his statement, and more importantly, why he visited rather than called Toulouse. While United seems to have the upper hand, based on the contract language, United has to make a call sooner rather than later. The key driver to this call is when Boeing delivers it written notice to United about the "Excusable Delay causes a delivery to run 12 months beyond scheduled delivery." Once that document arrives, United has 15 days to pull the trigger or get stuck with the MAX 10. United won't lose its deposits but has to get Boeing to refund the money. Boeing has been there before and won. Boeing is not an easy company to fight with. By the way, the term "excusable delay" goes back to a case in 1956 between TWA and Lockheed. ARTICLE 6. Excusable Delay. 6.1 General. Seller will not be liable for or be deemed to be in default under this Agreement on account of any delay in delivery of any Aircraft or other performance hereunder arising out of causes such as: acts of God; war, armed hostilities, riots, fires, floods, earthquakes or serious accidents; governmental acts or failures to act affecting materials, facilities or Aircraft; strikes or labor troubles causing cessation, slowdown or interruption of work; damage to an Aircraft; failure of or delay in transportation; or inability, after due and timely diligence, to procure materials, systems, accessories, equipment or parts; or arising out of any other cause to the extent it is beyond Seller's control or not occasioned by Seller's fault or negligence. A delay resulting from such causes is referred to as an "Excusable Delay". Seller shall as soon as is reasonably practical notify Buyer if Seller concludes, based on its appraisal of the facts, that due for any reason the delivery of an Aircraft will be delayed beyond the scheduled delivery month or delivery date specified in any notice to Buyer from Seller in accordance with the terms hereof. 6.2 Excusable Delay of 12 Months. 6.2.1 Anticipated Delay. If Seller concludes, based on its appraisal of the facts and normal scheduling procedures, that due to an Excusable Delay, delivery of an Aircraft will be delayed more than 12 months beyond the month in which delivery is scheduled, Seller will promptly so notify Buyer in writing and either party may then terminate this Agreement with respect to such Aircraft by giving written notice to the other within 15 days after receipt by Buyer of Seller's notice. Failure of a party to terminate the purchase of an Aircraft for an Excusable Delay pursuant to this paragraph results in a waiver of that party's right to terminate the purchase of such Aircraft for any delay in delivery caused by such Excusable Delay. 6.2.2 Actual Delay. If, due to an Excusable Delay, delivery of an Aircraft is delayed for more than 12 months beyond the month in which delivery is scheduled, and such right to terminate has not been waived under paragraph 6.2.1, either party may terminate this Agreement with respect to such Aircraft by giving written notice to the other within 15 days after the expiration of such 12-month period.

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