Boeing takes US$4.9 billion charge for prolonged grounding of 737 MAX planes

green and white leafed plantsSEATTLE: Boeing said on Thursday (Jul 18) it will take an after-tax charge of US$4.9 billion in the second quarter on estimated disruptions from the prolonged grounding of its lucrative 737 MAX passenger planes after two deadly crashes.

The charge is from “potential concessions and other considerations to customers” and the impact of continued lower production, the world’s largest planemaker said in a statement as airlines who use the planes extend flight cancellations until November.



The charge will result in a US$5.6 billion reduction in revenue and pre-tax earnings in the second quarter, Boeing said.

Boeing shares rose 2 per cent in aftermarket trading, a sign that investors were comfortable with the size of the initial charge, disclosed less than a week before the company plans to release financial results on Jul 24.

Boeing is facing one of the worst crises in its history as its fastest-selling jetliner has been grounded since March after crashes in Ethiopia and Indonesia that together killed 346 people in the span of five months. The Chicago-based planemaker is now reckoning with a blow to its reputation and the financial cost of getting the planes back in the air.

“We are taking appropriate steps to manage our liquidity and increase our balance sheet flexibility the best way possible as we are working through these challenges,” Boeing chief financial officer Greg Smith said in a statement.



In a tweet, Boeing chief executive Dennis Muilenburg said the company remains focused on safely returning the 737 MAX to service. “The MAX grounding presents significant challenges for our customers, company and supply chain.”

Boeing also said estimated costs to produce its flagship single-aisle aircraft increased by US$1.7 billion in the second quarter, driven primarily by higher costs from a longer-than-expected reduction in its aircraft production rate.

Boeing reduced the number of single-aisle aircraft it produces monthly in the Seattle area from 52 to 42 following the second crash in Ethiopia while suspending deliveries of the aircraft to airlines, which cuts off fresh cash infusions and hits margins.

When it reported first-quarter results in April, Boeing abandoned its 2019 financial outlook, halted share buybacks and said lowered production because the grounding had cost it at least US$1 billion so far.

But the fuller picture of how much the grounding will cost Boeing, and how it plans to repair its image with the flying public, was not expected until the end of the second-quarter because 737 production cuts did not begin until mid-April.

Boeing also said it assumes the 737 MAX return to service in the United States and other countries will begin early in the fourth quarter, though the company cautioned the exact timeline could shift as it has in recent weeks.

Southwest Airlines Co joined US rivals on Thursday in cancelling more flights until early November, which has also prompted the low-cost carrier to freeze new pilot hiring.

United Airlines, with 14 MAX jets, posted quarterly earnings on Tuesday that showed a boost in unit revenues thanks to reduced seat capacity in the sector, though costs are seen spiking over the year due to the grounding.

Boeing is facing a slew of probes by regulators across the world as well as US lawmakers and the Department of Justice.

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