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Business News/ Companies / News/  Boeing sees $4.9 billion blow from fallout of 737 Max grounding
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Boeing sees $4.9 billion blow from fallout of 737 Max grounding

'This is a defining moment for Boeing,' Chief Executive Officer Dennis Muilenburg said
  • Boeing’s first-quarter profit margins were dented by $1 billion in estimated costs
  • Boeing warned that the timing of a return to service could change. Photo: BloombergPremium
    Boeing warned that the timing of a return to service could change. Photo: Bloomberg

    Boeing Co. plans to report a $4.9 billion accounting charge with its second-quarter results next week, a sign of the widening financial toll from the company’s beleaguered 737 Max jetliner.

    The after-tax writedown, equivalent to $8.74 a share, covers potential concessions and considerations for airline customers who have been forced to cancel flights and line up replacement aircraft as the Max’s grounding enters its fifth month, Boeing said in a statement Thursday. The costs will clip $5.6 billion from revenue and pretax earnings in the quarter.

    The assumptions behind the accounting charge also provided a glimpse of Boeing’s recovery plan for its best-selling jet, which crashed twice in a five-month span and engulfed the US planemaker in one of the worst crises of its century-long history. The company estimated that the Max will be approved to return to service in the US and other countries beginning “early in the fourth quarter," easing fears that the timetable would slip to 2020.

    “This is a defining moment for Boeing," Chief Executive Officer Dennis Muilenburg said in the statement. “Nothing is more important to us than the safety of the flight crews and passengers who fly on our airplanes. The Max grounding presents significant headwinds and the financial impact recognized this quarter reflects the current challenges and helps to address future financial risks."

    Boeing climbed 1.9% to $367.95 after the close of regular trading in New York. Since the March 10 crash of an Ethiopian Airlines 737 Max 8 jet, Boeing has dropped 15%, the biggest decline on the Dow Jones Industrial Average.

    Return to Service

    While Boeing warned that the timing of a return to service could change, the estimate of fourth-quarter approval was in line with recent schedule changes by the model’s US operators. United Airlines Holdings Inc., American Airlines Group Inc. and Southwest Airlines Co. have removed the plane from their schedules through early November.

    The fourth-quarter time frame also rebuts a recent Wall Street Journal report suggesting that initial flights would slip to 2020.

    “While it’s still fluid, Boeing must have a decent handle on it or they wouldn’t have thrown a date out there," said George Ferguson, an analyst with Bloomberg Intelligence.

    “I have to think they are far enough along in the process that they feel they understand everything the FAA needs," he said, referring to the Federal Aviation Administration.

    Boeing’s calculations also assume that monthly production of its 737 jetliners will gradually build to a 57-month rate next year, earlier than some analysts have estimated. Aircraft produced during the grounding, and already included in the company’s inventory, will be delivered “over several quarters" once the Max is cleared to fly, the company said.

    Boeing’s first-quarter profit margins were dented by $1 billion in estimated costs after it cut factory output of the narrow-body jets following the global grounding. That expense has grown by another $1.7 billion, primarily due to a “longer than expected reduction in the production rate," the company said.

    Profit Pressure

    The higher costs will reduce the margin for the 737 program, Boeing’s largest source of profit and revenue, in the second quarter and future quarters. The company is slated to report results on July 24.

    Investigators have linked new flight-computer software on the Max to the two crashes, which killed 346 people. Company engineers are still working on an update.

    While Boeing hones flight-computer software fixes and works to convince aviation authorities that its single-aisle workhorse jet is safe, teams of workers are tackling production and delivery issues.

    More than 500 of the aircraft are stored around the globe, including about 150 newly built models that Boeing can’t send to airlines while Max flights are halted. The disruption in deliveries could linger for years. Boeing plans to gradually step up production once the Max returns to service to ensure that its supply chain isn’t unduly stressed.



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    This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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    Published: 19 Jul 2019, 11:00 AM IST
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