Deep Red Sea: Boeing losses mount as 737 MAX crisis continues
UPDATE 26-09-2019, 19:00 (UTC +3): Added comments from Chief Executive Officer David Calhoun and Chief Financial Officer Greg Smith from Boeing's earnings Conference Call.
As the 737 MAX is staying put at least until mid-2020 and cash flow further diminishes as Boeing posted record-low orders and deliveries’ numbers, the company published its Q4 and full-year results for 2019 with an update on the 737 MAX and the 787 programs, including the total costs of the groundings.
The latest financial update indicates how deep the manufacturer’s losses are. While it ended Q3 2019 with a profit of $895 million, mostly due to the admirable performance of Boeing’s Defense, Space & Security and Global Services divisions, its nine-month performance was already in the red. Losses amounted to $864 million, mostly related to the $4.9 billion charged the company voluntarily took due to the 737 MAX groundings shortly before it announced its second-quarter performance.
Nevertheless, Q4 2019 was an eventful period for the company, including the fact that its former Chief Executive Officer Dennis Muilenburg was ousted from the company. Boeing also expected the groundings of its “game-changer” aircraft to end during the period when it announced its Q3 results. However, persisting issues, such as the potential short-circuit of the controls of the horizontal stabilizer and onboard flight-control computer problems have delayed the return-to-service of the MAX.
Furthermore, Boeing announced that it would temporarily stop the production of the narrow-body on December 16, 2019. The production stop came into effect on January 6, 2020, as Boeing started redeploying employees working in Renton, Washington, to other facilities that manufacture other products.
Swimming in losses
Boeing ended Q4 2019 with a net loss of $1 billion and a full-year loss of $636 million.
The Commercial Division of the company, which recorded only 380 aircraft deliveries throughout 2019, ended the quarter with a loss of $2.8 billion and a full-year end result of $6.6 billion in the red. Revenues were down by 44% compared to 2018, as deliveries dropped from 800 to 380 throughout the year. Meanwhile, the Defense, Space & Security and Global Services branches reported a quarterly profit standing at $31 million and $684 million and a yearly profit of $2.6 billion and $2.6 billion, respectively.
David Calhoun, the newly inaugurated President and Chief Executive Officer of the Chicago-based manufacturer, recognizes that the company has “a lot of work to do” as Boeing aims to return the “737 MAX to service safely and restoring the long-standing trust that the Boeing brand represents with the flying public,” he added.
“Safety will underwrite every decision, every action and every step we take as we move forward. Fortunately, the strength of our overall Boeing portfolio of businesses provides the financial liquidity to follow a thorough and disciplined recovery process."
"Rebuilding the relationships with our customers and our regulator in the process of getting the MAX back up is also critically important," said Calhoun when answering a question during Boeing's investors call, reiterating that the manufacturer is always "dependent upon these relationships."
Whether the aircraft brings the same value of proposition as previously, Calhoun answered that he spoke directly to the biggest MAX customers and they expressed that they "still believe in the value of this airplane."
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