Business Insider Edition

Boeing is taking a R69 billion hit over the 737 Max crisis, but warns costs could climb even further

Sinéad Baker , Business Insider US
 Jul 20, 2019, 04:16 PM
Boeing CEO Dennis Muilenburg at a press conference after Boeing's annual shareholders meeting in Chicago in April.
Jim Young-Pool/Getty Images
  • Boeing is taking a $5 billion (R69 million) hit as it deals with the ongoing fallout from the two fatal crashes of its 737 Max planes that killed 346 people.
  • Boeing is dealing with slowed production of the jets and airlines demanding compensation as the plane remains grounded.
  • It said that its "best estimate" is that the plane will return to service in the last quarter of 2019, but the company could incur more costs if that date changes.
  • Boeing also said it expected an extra $1.7 billion (R23 billion) in costs to produce the planes, mostly driven by the slowed production rate of the 737 Max.
  • Boeing is facing one of its biggest-ever crises after the crash, as its reputation and that of regulators comes under fire and airlines have been forced to cancel thousands of flights.
  • For more stories, go to Business Insider SA.

Boeing announced that it is taking a $5 billion (R69 billion) hit as its crisis following two crashes by its 737 Max planes continues, warning that amount could climb if the planes stay grounded longer than it expects.

It announced on Thursday that it plans to take a $4.9 billion (R68 billion) accounting charge over the disruption caused by the planes being grounded around the world, which has led to demands of compensation from airlines and slowed production of the jets by Boeing.

This will mean a $5.6 billion (R78 billion) reduction in Boeing's revenue and pre-tax earnings in the second quarter, the company said.

And Boeing also said that it expects $1.7 billion (R23 billion) in additional costs in the second quarter related to rising costs for the production of the 737 due to its slowed production rate.

Boeing also said that it expects the plane to return in the last three months of 2019, despite industry fears that the jet may not return to service until 2020. Some in the industry are worried about further delays after regulators discovered new issues with the plane that could push back the date of its recertification even further.

Boeing noted uncertainty about the timing of the plane's return and said that this return date was an "estimate" that could change. It said the hit to profits could change if the return date does.

The aviation giant has cut the production of the planes from 52 a month to 42 a month, and has been forced to delay the delivery of the planes to customers, leaving them clogging up fields and even an employee car park at Boeing's Renton, Washington headquarters.

Airlines are seeking compensation for these delayed deliveries as well as the months of flights they have had to cancel as the 737 Max remains out of the sky.

Airlines like Southwest and United have cancelled flights until November, and some airlines have indicated that they may have to extend cancellations further, and could disrupt holiday season travel.

The two 737 Max crashes, which killed 346 people, started a major crisis for Boeing that has now bled into the wider aviation industry.

The way planes are built, certified, and regulated have all come under renewed scrutiny in federal and Congressional investigations since the crisis began.

Boeing also faces lawsuits from shareholders, pilots, and from the families of victims around the world, which further threaten its reputation and deepen the financial impact of the crisis on one of America's largest companies.

Boeing CEO Dennis Muilenburg said on Thursday: "We remain focused on safely returning the 737 MAX to service."

"This is a defining moment for Boeing. Nothing is more important to us than the safety of the flight crews and passengers who fly on our airplanes."

"The MAX grounding presents significant headwinds and the financial impact recognised this quarter reflects the current challenges and helps to address future financial risks."

Boeing is releasing its full second-quarter earnings on July 24, and will further discuss the impact of the 737 Max's grounding.

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