Boeing Details Financial Hit From 737 MAX Grounding --4th Update
April 24 2019 - 1:28PM
Dow Jones News
By Doug Cameron and Andrew Tangel
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 in the
wake of two fatal crashes.
The aerospace giant said Wednesday that it was taking an initial
hit of more than $1 billion 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. Crash
investigators have implicated a flight-control system in the deadly
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 Wednesday morning.
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 a drop in
quarterly sales and profits in the wake of the MAX grounding last
month.
Boeing's shares rose about 1%, reversing an earlier decline as
the plane maker 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 decline.
However, the company said it would suspend the huge share
buybacks that have propelled its share price over the past three
years and it dropped full-year 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,
valuing the company at $212 billion.
The initial costs include $1 billion to cover Boeing's estimate
for higher plane-production expenses spread over the life of the
MAX program. It didn't reduce its workforce even after cutting
production of the plane, in part to prepare for a return to higher
output levels.
That 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 the crashed 737 MAX operated by Indonesia's Lion Air in
October.
Mr. Muilenburg highlighted the work of a committee of Boeing
directors who will evaluate how the plane maker designs aircraft,
saying it will examine "potential process improvements that we can
make" with the aim of improving safety.
Mr. Muilenburg said Boeing believed he should maintain his
chairmanship of the company's board, saying its members are very
engaged and led by a strong lead director. Some proxy advisory
firms have suggested Boeing split the dual CEO and chairmanship
roles ahead of Boeing's annual investor meeting on Monday.
Boeing's initial estimate for tackling the MAX crisis compares
with analysts estimates running as high as $3 billion, including
payouts to 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.
Boeing 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 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."
Boeing 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 and Andrew Tangel
at Andrew.Tangel@wsj.com
(END) Dow Jones Newswires
April 24, 2019 13:13 ET (17:13 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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