Boeing takes $4.9bn hit on 737 Max crises in second quarter
As the Max’s grounding enters its fifth month, Boeing has announced it would take a $4.9 billion after-tax charge in the second quarter to reflect its estimate of compensation owed to airlines that have had to scramble to adjust schedules. The estimate includes potential concessions to MAX customers for the service disruptions and associated delivery delays to the aircraft. The charge will reduce revenue and pre-tax earnings by $5.6 billion in the quarter.
Boeing cautions that while the charge will be taken in the second quarter, it expects any potential concessions or considerations to be provided to customers over a number of years.
The longer than expected reduction in the MAX’s production rate from 52 to 42 per month will also push estimated costs up by $1.7 billion in the second quarter. The increased costs will reduce the 737’s margin in the second and future quarters, the company said.
Boeing chief executive Dennis Muilenburg called it a defining moment for the company. “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 recognised this quarter reflects the current challenges and helps to address future financial risks.”
Repeatedly during the Max crisis, Boeing has been on the wrong side of reaction. The two mortal crashes were linked to flight software that was added to help adapt the 737 design to accommodate new, more fuel-efficient engines, raising uncomfortable questions about whether Boeing rushed development of the plane to better compete with the success of Airbus SE’s A320neo family. Boeing and the Federal Aviation Administration were among the last to support a grounding of the plane, playing catch-up to regulators from China, Europe and elsewhere.
Industry watchers opine that the chances of Boeing’s second-quarter charges being merely a starting point for the financial toll of the Max crisis are high.
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