National Post (National Edition)
Boeing posts huge quarterly loss over 737 MAX issues.
Firm may have to halt jet’s production
posted its largest-ever quarterly loss on Wednesday due to the spiralling cost of resolving issues with its 737 Max, warning it may have to shut production of the grounded jet completely if it runs into new hurdles with global regulators in getting its best-selling aircraft back in the air.
Boeing chief executive Dennis Muilenburg said he was confident the Max would be back in service as early as October, but acknowledged for the first time that Boeing may have to slow or completely halt production of the 737 Max, a step it has not had to resort to on any commercial plane for more than 20 years.
The world’s largest planemaker also reported a fresh delay on its 777X widebody program as General Electric Co. engine problems pushed the first flight into 2020.
Boeing is looking to restore customers’ faith in its 737 Max and to satisfy the requirements of regulators by reprogramming the software pinpointed as a common factor in two deadly crashes in the span of five months.
“This is a defining moment for Boeing,” Muilenburg told analysts. He said Boeing has held weekly technical calls and a number of conferences with Max operators around the world and nearly 225 sessions in flight simulators testing its software.
Muilenburg’s comments came after the company posted its largest-ever quarterly loss, diving nearly US$3 billion into the red while burning US$1.01 billion in cash in the quarter.
Investors shrugged off the large loss after Boeing announced heavy charges last week, bringing the total cost so far of the 737 Max crisis to more than US$8 billion, mainly due to compensation the planemaker will have to pay airlines for the delayed deliveries and lower production.
Boeing’s shares dipped only slightly after second-quarter results were announced, but slipped three per cent after Muilenburg’s comments on the possibility of lowering production, or stopping it temporarily.
Chicago-based Boeing has been unable to deliver any 737 Max aircraft since the single-aisle plane was grounded worldwide in March after two fatal crashes in Indonesia and Ethiopia killed 346 people.
Muilenburg said the company would consider further 737 output cuts below the current rate of 42 aircraft per month, or potentially suspending production if warranted — a step Boeing has not taken since 1997 when it halted 747 production and delayed introduction of a new 737 so suppliers could catch up.
Boeing reduced the number of single-aisle aircraft it produces monthly in the Seattle area to 42 from 52 after the second crash in Ethiopia while suspending deliveries 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 per month in 2020.
Boeing also faces issues with other planes. It said its first flight of the 777X is delayed until early 2020 due to the engine problems announced last month, while its plan for a first delivery to customers in late 2020 faced significant risk.
The 777-9, the larger of two new jets in the 777 family, was initially scheduled for first flight in the fourth quarter of 2018 with delivery to the first customer in the second quarter of 2020, according to a Boeing plan.
Boeing would have to sell more 777 freighters to avoid a slowdown in output caused by 777X delays, but Muilenburg pointed to “strong demand signals” despite global trade tensions.
The grounding of the 737 Max has sent shock waves through the industry and pushed back the launch of a new Boeing aircraft, a twinaisle 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 lays foundations for the eventual development of a 737 replacement, industry sources have said.
Muilenburg said the company is making progress on building the business case for NMA, but getting the Max flying commercially remains its “top priority.”
Boeing said free cash flow fell to a negative US$1.01 billion in the quarter, the first full quarter of operations since the Max was banned commercially.
Boeing chief financial officer Greg Smith told analysts the 737 Max compensation to airlines could hurt cash flow in 2019 and beyond, and said Boeing will “diligently review all levers available” to minimize the financial impact.
The company said it would issue a new 2019 outlook at a future date. It suspended giving any 2019 guidance in April.
Boeing’s net loss for the second quarter was US$2.94 billion, compared with a profit of US$2.20 billion, a year earlier.
Sales slipped 35 per cent to US$15.75 billion and also came in below the average estimate of US$18.55 billion, according to Refinitiv data.
THIS IS A DEFINING MOMENT
FOR BOEING.