Boeing to take $5B hit due to 737 MAX groundings
The 737 MAX grounding crisis will cost Boeing $5.6 billion in revenue, to be recognized in the financial results of the second quarter of 2019. The manufacturer admits expecting potential concessions and “other considerations” to last over “a number of years” in various forms of economic value.
Due to 737 MAX grounding and consequential delivery delays, Boeing will record an after-tax charge of $4.9 billion ($8.74 per share), the company revealed in a statement on July 18, 2019. “This charge will result in a $5.6 billion reduction of revenue and pre-tax earnings in the quarter,” it states. The crisis has affected 737’s production rate, currently standing at 42 aircraft per month, resulting in the rise of production costs by $1.7 billion (also in Q2 2019).
In Boeing’s “best estimation”, the earliest date when MAX could return to service is the “early” fourth quarter of 2019, depending on regulatory approval. “The second-quarter financial results will further assume a gradual increase in the 737 production rate from 42 per month to 57 per month in 2020, and that airplanes produced during the grounding and included within inventory will be delivered over several quarters following return to service”.
"We remain focused on safely returning the 737 MAX to service," Boeing Chairman, President and CEO Dennis Muilenburg is quoted as saying in the statement . "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 recognized this quarter reflects the current challenges and helps to address future financial risks".
In the first quarter of 2019, Boeing reported $22.9 billion revenue ‒ a 2% downfall from the corresponding quarter in 2018. While the results were not yet heavily affected by MAX crisis, as the global MAX grounding took place at the very beginning (March 2019) of the financial quarter, the manufacturer already warned investors that previously issued 2019 financial guidance “did not reflect 737 MAX impacts”.
Boeing is to issue full second-quarter earnings on July 24, 2019.
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