Boeing Forecasts Initial $1 Billion Hit From 737 MAX Troubles--3rd Update
April 24 2019 - 9:48AM
Dow Jones News
By Doug Cameron
Boeing Co. said it would take an initial hit of more than $1
billion on the global grounding of the 737 MAX and suspended
full-year financial guidance, providing a first look at the
financial damage from two fatal crashes of its best-selling
plane.
The initial charge includes $1 billion to cover Boeing's
estimate for higher plane-production expenses spread over the life
of the MAX program, as well as unspecified costs to fix
flight-control software implicated in the accidents and additional
pilot training as part of efforts to return the aircraft to
service.
The grounding of the MAX, securing regulatory approval for a
software fix and winning back the confidence of customers and
flyers have become the biggest challenge to Boeing since regulators
grounded the global 787 Dreamliner fleet in 2013 following a spate
of onboard battery fires that led to no injuries.
The two 737 MAX crashes killed all 346 people on board.
Boeing's shares rose 1.4% in pre-open trade on Wednesday,
reversing an earlier decline as it reported first-quarter earnings
of $2.15 billion. The profit demonstrated the resilience of
Boeing's broader portfolio, with sales of 787s and other jetliners
as well as services and military hardware limiting the drop in free
cash flow.
However, the company said it would suspend the huge share
buybacks that have propelled its share price over the past three
years and dropped full-year profit and sales guidance for 2019.
Investors have cut some $27 billion off Boeing's market value since
the Ethiopian Airlines crash, valuing the company at $212
billion.
Boeing's initial estimate of for tackling the MAX crisis
compares with analysts estimates running as high as $3 billion,
including payouts to families of passengers killed in the twin
crashes as well as airlines and suppliers.
The suspension of buybacks in mid-March and shelving of 2019
financial guidance marks a sharp reversal from the optimism
displayed by Boeing executives in January when they set plans to
deliver more than 900 jetliners this year alongside higher sales
and profits.
It has amassed more than 5,000 orders for the single-aisle MAX
and planned to boost monthly production by five planes to 57 this
summer, which analysts expected to account for more than 40% of
annual sales and profits.
Instead, it has cut output to 42 a month, leaving planes to pile
up around its Seattle-area assembly plants as the global grounding
left it unable to deliver new planes. Boeing didn't book any
commercial orders for a 737 in March, the first month without such
a sale in almost seven years.
The lower output means Boeing will likely cede its title as the
world's biggest plane maker to European rival Airbus SE at the end
of this year.
Regulators have grounded the 737 MAX world-wide until regulators
sign off on a software fix that Boeing is preparing for the system
that investigators believe contributed to both crashes.
More than 370 MAX planes had already been delivered, forcing
carriers including Southwest Airlines Co. -- which reports
quarterly earnings on Thursday -- to cancel flights and reconfigure
schedules ahead of the busy summer travel season.
Southwest has canceled MAX flights through early August.
American Airlines Group Inc. has cancelled MAX flights through Aug.
19.
The company reported profits of $2.15 billion for the quarter
compared with $2.48 billion a year earlier, with sales dipping 2%
to $22.92 billion.
Write to Doug Cameron at doug.cameron@wsj.com
(END) Dow Jones Newswires
April 24, 2019 09:33 ET (13:33 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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