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Sunday, August 18, 2019  Spokane, Washington  Est. May 19, 1883
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News >  Business

Boeing takes $5.6 billion revenue hit over 737 Max problems

UPDATED: Thu., July 18, 2019, 6:18 p.m.

In this March 14, 2019,  photo, a worker walks next to a Boeing 737 MAX 8 airplane parked at Boeing Field in Seattle. Boeing said Thursday, July 18, it will take a $4.9 billion charge to cover possible compensation to airlines whose Max jets remain grounded after two deadly accidents. (Ted S. Warren / Associated Press)
In this March 14, 2019, photo, a worker walks next to a Boeing 737 MAX 8 airplane parked at Boeing Field in Seattle. Boeing said Thursday, July 18, it will take a $4.9 billion charge to cover possible compensation to airlines whose Max jets remain grounded after two deadly accidents. (Ted S. Warren / Associated Press)
By Douglas Macmillan Washington Post

Boeing said the grounding of its 737 Max jets would reduce its revenue and earnings by $5.6 billion in the second quarter, the largest financial impact of two deadly crashes of the jetliner so far.

In a statement Thursday, the plane manufacturer said it would record a $4.9 billion charge to compensate airline customers for the delays in getting its 737 Max planes back into service. Boeing’s costs to produce the airplane were also $1.7 billion higher in the second quarter due to changes in production rates, the company said.

The financial toll of the 737 Max grounding is starting to add up for Boeing, which has frozen sales of its flagship jetliner since regulators issued a global grounding of the plane in March. Airlines have canceled thousands of flights late into the fall of this year – incurring losses of hundreds of millions of dollars – while a timeline for the jet’s return remains uncertain.

Boeing said Thursday that it is basing its financial projections on the assumption that regulators will approve safety fixes to the 737 Max and clear the planes for commercial travel early in the fourth quarter of this year.

“This assumption reflects the company’s best estimate at this time, but actual timing of return to service could differ from this estimate,” the company said in a release.

Boeing is expected to report second-quarter revenue of $20.4 billion when it reports earnings Wednesday. The company said it will discuss the financial impact of the 737 Max grounding on a conference call with analysts that day.

In April, American Airlines said it expects to lose out on $350 million in 2019, assuming that the grounding order is lifted by Aug. 19. If the grounding were to extend longer than that, it could impact American Airlines by about $180 million for a full quarter, an executive at the airline said.

Boeing is likely to repay customers in the form of discounts, additional service packages, and other extras, over a period of years, rather than cash payout to compensate for the losses, analysts have said.

The accounting charge does not include any estimate of how much the plane maker could eventually pay to the families of the 346 people who died in the crashes in Ethiopia and off the coast of Indonesia. Families are suing for damages to hold the company accountable. Boeing’s insurers are likely to be on the hook for part or all of its legal fees.

The airlines are waiting for the Federal Aviation Administration to sign off on a Boeing-designed software fix for a flight control system that played a role in two deadly crashes. That fix was originally expected to be delivered no later than April, according to an FAA directive issued in early March, but the process has been complicated by the discovery of other technical problems.

The FAA has declined to offer a firm timeline or even estimate when it expects to lift its grounding order for the Max.

Boeing has taken precautions to brace for the financial impact of the 737 Max grounding, including securing a new line of credit, selling bonds and halting a stock buyback program. The business requires a large amount of cash to produce new planes and invest in operations.

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