Boeing sets Max-related liability
2Q charge to be $4.9B as company deals with jet grounding
Boeing Co. plans to record a $4.9 billion accounting charge related to its beleaguered 737 Max jetliner when the company reports quarterly earnings next week.
The after-tax charge, equivalent to $8.74 a share, covers potential concessions and considerations for airline customers who have been forced to cancel thousands of flights and line up replacement aircraft since the Max was grounded in March, the company said in a statement Thursday. The costs will clip $5.6 billion from revenue and pretax earnings in the quarter.
Investors will be parsing the company’s results, set for release Wednesday, for details of the financial blow that Boeing is absorbing as it churns out the single-aisle aircraft while waiting for regulators to clear the Max to resume commercial flights. Boeing was little changed at $361 after the close of regular trading in New York.
The Max, Boeing’s bestselling jet, has been grounded since March after two flights crashed within a five-month span, killing 346 people. The disasters and questions about the aircraft’s design have engulfed the Chicago planemaker in one of the worst crises in its century-long history.
Boeing’s first-quarter profit margins were dented by $1 billion in estimated costs after it cut factory output of the narrow-body jets after the global grounding.
That estimated expense has grown by another $1.7 billion, primarily because of a “longer than expected reduction in the production rate,” the company said.
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 said it is assuming that regulatory approval of the Max’s “return to service in the U.S.
and other jurisdictions begins early in the fourth quarter” of this year.
The nation’s top transportation official said Thursday that aviation regulators have no timeline for returning the Max to service and won’t act until they are sure it is safe.
The Federal Aviation Administration has to be assured that a fix is being developed, Transportation Secretary Elaine Chao said in a speech in Washington.
“The FAA will lift the aircraft’s prohibition order when it is deemed safe to do so,” Chao said. “That is the bottom line: There is no timeline.”
Chao was speaking before the Air Line Pilots Association’s Air Safety Forum. The association is the largest pilots union in North America.
Boeing is altering software on the plane that had malfunctioned in both crashes, pushing each plane’s nose down without pilot input.
The crews weren’t able to counter the plane and they lost control.
The FAA also is developing new training requirements for pilots on the 737 Max, Chao said.
A technical advisory board including experts from NASA and the Air Force also is weighing in on the decision, Chao said.
Her comments mirror what FAA acting Administrator Daniel Elwell has been saying in recent months.
The attempt to adapt the software on the Maneuvering Characteristics Augmentation System, which has been identified as a factor in crashes in Indonesia and Ethiopia, has been slower than was initially predicted.
In recent weeks, the FAA identified a new potential flaw linked to how the plane responds during a failure of a flight computer on the plane. Boeing has said that it can address the problem with a separate software patch.
The plane-maker has been telling customers and other entities that it will complete its package of fixes and flight tests and submit it to the FAA by September.
Airlines have been canceling flights. Southwest Airlines Co., a major Max customer, announced this week that it is removing the Max from schedules through Nov. 2, about a month later than previous date of Oct. 1.
Without the plane, Southwest says it will drop about 180 flights a day from its schedule, up from 150.
Southwest also is delaying the addition of new pilots as a result of the Max grounding.
The airline told pilots last week that it was postponing two classes for new pilot training and two for pilots upgrading to captain. The classes were to begin in September, October and December.
Southwest had 34 Max jets when the plane was grounded in March, and the airline expected to receive more as the year went on, but Boeing halted deliveries.