BA Boeing Co

Company defends design of aircraft but unsure about timing of its return to service

By Doug Cameron and Andrew Tangel 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 25, 2019).

Boeing Co. executives said they didn't know when the 737 MAX would return to service and defended the design and certification of their best-selling plane, grounded by global regulators following two fatal crashes.

The aerospace giant said Wednesday it has begun factoring in more than $1 billion in additional costs while the plane is grounded and production of additional aircraft remains scaled back.

Chief Executive Dennis Muilenburg said there had been "no technical slip" in the development of the 737 MAX. Accident investigators have implicated a flight-control system in the aircraft in the crashes in Indonesia and Ethiopia that killed all 346 people on board the two flights.

"There was no surprise or gap or unknown here or something that somehow slipped through a certification process," Mr. Muilenburg said on a call with analysts and reporters on Wednesday.

The aircraft maker has faced criticism from pilots and some former Boeing engineers for how it originally designed the MAX flight-control system known as MCAS, including its reliance on a single sensor rather than two. Boeing has said the system was designed and certified in a process consistent with previous new airplane models. The revised MCAS is expected to rely on two sensors to avoid a system misfire.

Mr. Muilenburg said the Federal Aviation Administration would soon conduct certification flights to test the 737 MAX's updated software, a key step to restarting commercial flights. Boeing is also working with airlines and pilots to restore trust among fliers, he said.

"We're going to get that airplane back up and flying for our customers," Mr. Muilenburg said after Boeing reported lower quarterly sales and profit in the wake of the MAX grounding last month.

More than 370 MAX planes had been delivered to customers, forcing carriers to cancel flights and reconfigure schedules ahead of the busy summer travel season.

Boeing's shares rose slightly Wednesday after the plane maker said its first-quarter profit fell 13% to $2.15 billion, while sales slipped 2% to $22.92 billion. The results demonstrated the resilience of Boeing's broader portfolio, with sales of 787 jetliners and other planes, as well as services and military hardware, limiting the declines.

However, the company said it had stopped share buybacks in mid-March and suspended the program, which has propelled its share price over the past three years. It also suspended its profit and sales guidance for 2019.

Investors have cut some $27 billion off Boeing's market value since a 737 MAX operated by Ethiopian Airlines crashed last month, leaving the company valued at about $212 billion.

Boeing's recognition of additional MAX-related costs includes $1 billion to cover higher plane-production expenses spread over the life of the jetliner program. The company hasn't reduced its workforce despite slowing production of the plane last month, in part to prepare for a return to higher output levels.

The initial assessment doesn't include unspecified costs to fix the flight-control software implicated in the accidents, additional pilot training, customer compensation and any passenger liability payments to families of people killed in the crash of the Ethiopian Airlines flight and October's crash of a 737 MAX operated by Indonesia's Lion Air.

Some analysts' estimates for tackling the MAX crisis, including payouts to airlines and suppliers, run as high as $3 billion. In a securities filing Wednesday, Boeing said it couldn't estimate how much it might have to pay as a result of various lawsuits and governmental investigations. The MAX is the subject of congressional and federal criminal investigations.

Mr. Muilenburg highlighted the work of a committee of Boeing directors who will evaluate how the plane maker designs aircraft. "If there is something that we can do to make airplane development programs or the certification process better and safer, we will pursue it," he said.

He also said Boeing believed he should maintain his chairmanship of the company's board, adding that its members are very engaged and led by a strong, independent lead director. Some proxy advisory firms have suggested ahead of Boeing's annual investor meeting on Monday that the company split the CEO and chairmanship roles

Boeing's suspension of buybacks and shelving of 2019 financial guidance highlight 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.

Analysts were expecting the MAX program to account for more than 40% of annual sales and profits, as the Chicago-based company had amassed more than 5,000 orders for the single-aisle jetliner.

At the outset of the year, Boeing planned to boost monthly 737 production by five planes to 57 this summer. Instead, it has cut output to 42 a month, leaving MAX planes to pile up around its Seattle-area assembly plants as the global grounding put a stop to deliveries.

Boeing delivered just 11 of the 737 MAX jets in March, less than half the rate of deliveries in the two previous months. Also, the company 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 the software fix that Boeing is preparing for the system that investigators believe contributed to both crashes. That has forced operators of MAX aircraft to scramble their schedules.

Southwest Airlines Co., which reports quarterly earnings on Thursday, has canceled MAX flights through early August. American Airlines Group Inc. has canceled MAX flights through Aug. 19.

Boeing executives said the plane maker would work with branding experts and airlines to enlist pilots to regain the trust of the flying public.

"We know it will take time," Mr. Muilenburg said. "We have to earn and re-earn the trust of the flying public."

Write to Doug Cameron at doug.cameron@wsj.com and Andrew Tangel at Andrew.Tangel@wsj.com

(END) Dow Jones Newswires

April 25, 2019 02:47 ET (06:47 GMT)

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