Boeing posts biggest loss in a decade after 737 MAX grounding
Total cost of crisis now exceeds $8b. after company disclosed $4.9b. charge that includes compensation to airlines for delayed deliveries
Boeing Co. reported a nearly $3 billion quarterly loss on Wednesday, – its largest in a decade – as the world’s largest plane-maker struggles with the prolonged grounding of its best-selling 737 MAX jet, sending its shares down slightly in premarket trading.
Chicago-based Boeing has been unable to deliver any 737 MAX aircrafts since the single-aisle plane was grounded worldwide in March after two fatal crashes in Ethiopia and Indonesia in a span of five months killed 346 people.
The total cost so far of the 737 MAX crisis now exceeds $8b. after Boeing disclosed a $4.9b. charge last week that includes compensation that the plane-maker will have to pay airlines for delayed deliveries.
Boeing has embarked on a campaign to restore faith in its most popular jet and has pledged to remove any risk by reprogramming the software that was the common factor in both crashes, as it faces pressure to convince MAX operators and global regulators that the aircraft is safe to fly again.
“This is a defining moment for Boeing and we remain focused on our enduring values of safety, quality, and integrity in all that we do, as we work to safely return the 737 MAX to service,” Boeing Chief Executive Dennis Muilenburg said on Wednesday.
Investors on a conference call later on Wednesday morning will be eager for information on how Boeing plans to increase production, repair its image with the flying public and stem its loses, as well as more details on General Electric Co engine delays on the 777X widebody program.
Boeing said its first flight of the 777X is now delayed until early 2020 due to the engine problems announced last month, while its current plan for a first delivery to customers in late 2020 faced significant risk.
Initially, the 777-9 was scheduled for a first flight in the fourth quarter of 2018 with delivery to the first customer in the second quarter of 2020, according to a Boeing certification plan seen by Reuters.
The grounding of the 737 MAX has sent shock-waves through the industry and also pushed back the launch of a new Boeing aircraft, a twin-aisle jet for the middle of the market. That jetliner, known as NMA, is not just a crucial piece in Boeing’s fight with archrival Airbus in the lucrative longer-haul market but also for the eventual development of a 737 replacement, industry sources have said.
Boeing said that free cash flow fell to a negative $1.01b. in the quarter, the first full quarter of operations since the MAX was banned commercially, though that was narrower than the negative NIS 2.09b. analysts had expected, according to IBES data from Refinitiv.
“Although the headline numbers for 2Q look pretty grim, they are not as bad as we had been forecasting,” Vertical Research Partners analyst Robert Stallard said in a note. “So while the 777X news is a negative, Boeing’s shares may go OK today – after all, it could have been worse.”
Boeing reduced the number of single-aisle aircraft it produces monthly in the Seattle area from 52 to 42 after the second crash in Ethiopia while suspending deliveries of the aircraft to airlines, cutting off a key source of cash and hitting margins.
The lower rate means Boeing has to pay more for parts, which are priced according to the volume Boeing buys. Boeing said it was working toward building 57 of the 737s a month in 2020, and that airplanes produced during the grounding and included within inventory will be delivered over several quarters following return to service.
The company said it would issue a new 2019 outlook at a future date, as the current forecast, which was suspended in April following the two deadly crashes, does not reflect the recent charges.
Boeing’s net loss for the first full quarter of operations since 737 MAX commercial flights were halted was $2.94 billion, compared with a profit of $2.20 billion, a year earlier.
Sales slipped 35% to $15.75b. and also came in below the average expectation of $18.55b., according to Refinitiv data.
Global airlines have had to cancel thousands of flights and use spare aircraft to cover routes that were previously flown with the fuel-efficient MAX, eating into their profitability. (Reuters)