Dallas, TX-based Southwest Airlines Co.LUV will have to shell out $2.8 million to settle a lawsuit that alleges violation of maintenance norms by the low-cost carrier.
On Dec 21, the U.S. Department of Justice announced that Southwest Airlines has agreed to pay the amount in settlement of the Federal Aviation Administration’s (FAA) charge that the carrier has flouted several safety regulations laid down by the regulator. According to a report in the Wall Street Journal, the decision was conveyed to a Seattle district court last week.
In its lawsuit, the FAA accused Southwest Airlines of supervising faulty repairs by a contractor to some of the Boeing 737s operated by the carrier between 2006 and 2012. Southwest Airlines has agreed to pay the civil penalty to improve its oversight and control of maintenance contractors working on Southwest Airlines’ planes.
In the event of the carrier failing to implement the operational changes in the settlement deal, Southwest Airlines will pay a further $5.5 million in deferred civil penalties. According to an AP report, in Nov 2014 Southwest Airlines was dragged to court by the FAA over its non-compliance of the latter’s maintenance norms.
We note Southwest Airlines and the FAA have been at loggerheads over maintenance issues for quite some time now. Consequently, the settlement can be viewed as a positive development for Southwest Airlines which, according to media reports, is “committed to meeting or exceeding all applicable FAA safety regulations”. We expect investor focus to remain on the issue, going ahead.
Zacks Rank
Southwest Airlines currently carries a Zacks Rank #2 (Buy). Investors interested in the airline space may also consider SkyWest Inc. SKYW, Deutsche Lufthansa Aktiengesellschaft DLAKY and Controladora Vuela Compañía de Aviación, S.A.B. de C.V. or Volaris VLRS. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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