By Doug Cameron and Andrew Tangel
Boeing Co. posted its first annual loss in more than two decades
and said the costs from the 737 MAX crisis have climbed above $19
billion.
The MAX has been grounded world-wide since last March, after a
pair of plane crashes within five months of each other killed 346
people. The crashes have drawn intense scrutiny of the plane
maker's engineering culture, damaged the company's relationships
with suppliers and customers, and led to the ouster of its chief
executive last month.
Boeing doesn't expect regulators to approve the plane to fly
again before midyear and has halted production, further disrupting
airline schedules and suppliers' plans, and hurting its own
finances.
"It's a very challenging moment for Boeing," new CEO David
Calhoun said Wednesday after the company reported a full-year loss
of $636 million, compared with a profit of $10.46 billion in 2018.
Sales fell 24% to $76.6 billion. The loss was the company's first
for a full year since 1997.
Mr. Calhoun has signaled a back-to-basics approach since
starting the job this month, and said he would focus on rebuilding
trust, boosting transparency and shoring up engineering with a
heavy emphasis on safety. He expressed confidence the MAX will
re-enter service despite repeated delays in winning regulatory
approval, and win the trust of pilots and passengers.
Mr. Calhoun, who served on Boeing's board for a decade before
becoming CEO, pushed back against the notion he was an insider
responsible for earlier management decisions about the MAX. He said
he would address Boeing's broader cultural problems, but said cost
or scheduling pressures weren't linked to Boeing's flawed design of
a flight-control system implicated in both MAX crashes.
"I watched the same movie you did -- I think I was in the
front-row seat, and I might come to exactly the same conclusions
you do," Mr. Calhoun said in a call with reporters on Wednesday.
"My leadership role here at Boeing is intended to make changes that
correct a lot of those situations."
Boeing shares rose 1.7% to $322.02 on Wednesday.
Mr. Calhoun faces challenges that extend beyond the MAX crisis,
one of the biggest in the company's 103-year history.
Boeing's MAX problems have derailed its overall product strategy
and strained its balance sheet. The Chicago-based company on
Wednesday announced a second cut in 787 Dreamliner production next
year and booked more charges on its military-tanker and space-taxi
programs.
Mr. Calhoun has shelved plans for a new plane seating 220 to 270
passengers -- intended to challenge a rival Airbus SE jet that has
dominated sales -- in favor of a market study, though he said the
company could move quickly once it had decided on a fresh
option.
Boeing's 777X jet, which flew for the first time last weekend,
is behind schedule, and deliveries aren't due to start until next
year, potentially forcing a cut in output of the existing 777
model.
Boeing's $410 million charge on its CST-100 Starliner space
capsule followed the failure of last month's debut mission to reach
its planned orbit. That will likely require a second uncrewed
launch before it can secure approval to fly with astronauts.
The defense unit is under pressure after design issues delayed
its KC-46A refueling tanker, and quality problems led the U.S. Air
Force to withhold some payments.
As for the MAX, Chief Financial Officer Greg Smith said
Wednesday that it will take about two months to spool up production
at Boeing's idled plant near Seattle, and about a year to deliver
the 400 planes built and now in storage.
Boeing hasn't cut any staff, but some of its suppliers have laid
off workers. Airlines that operate the MAX are losing hundreds of
millions of dollars as its fleet remains grounded. Many carriers
have removed the plane from schedules through June. Some, such as
United Airlines Holdings Inc., have said they don't expect to fly
it this summer.
The production halt and an expected move to low-level output
this year will inflate future MAX production costs at Boeing, which
has set aside $4 billion for additional expenses this year -- and
some of those funds will be used to aid suppliers.
Costs could rise further still, depending on when the troubled
jetliner is able to re-enter service.
The company settled $1.4 billion in customer compensation claims
last year and expects a total bill of $8.8 billion, excluding
potential payments to victims' families or the results of multiple
probes being conducted by the authorities. Boeing has a mounting
legal bill as it defends itself from civil lawsuits and probes by
federal prosecutors, securities regulators and congressional
investigators.
Mr. Calhoun said he didn't have an estimate for the legal fees,
telling reporters: "It's probably a big number and it's one I can't
wait to see go down."
Boeing said it burned through $4.3 billion in cash last year but
ended 2019 with $10 billion in liquidity. It is raising more
funding, and debt increased to $27.3 billion at the end of the
year.
Its cash profile will be dented further by plans to cut 787
Dreamliner production to 12 from 14 later this year, and then again
to 10 early next year before returning to 12 in 2023.
The move reflects the failure of expected orders from China to
emerge, even with the recent U.S. trade agreement flagged as
including aircraft deals. Boeing hasn't secured a new order from
China since the fall of 2017. Mr. Calhoun said he didn't think new
787 deals would depend on the second phase of the U.S.-China trade
pact.
For the fourth quarter, Boeing incurred a $1 billion loss,
compared with a $3.4 billion profit a year earlier.
Write to Doug Cameron at doug.cameron@wsj.com and Andrew Tangel
at Andrew.Tangel@wsj.com
(END) Dow Jones Newswires
January 29, 2020 18:22 ET (23:22 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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