Boeing takes $4.9B hit, sees MAX 8 flying by end of 2019

Air
07-19-2019 10:23 am
Christine Hogg

Christine Hogg

Christine Hogg is the Associate Digital Editor at PAX Global Media. Prior to joining PAX, she obtained her Honours BA in Journalism from the University of Toronto. Upon graduating, she went on to write for several travel publications while travelling the world. Her longest trip was a three-week stint in Europe, and the shortest was a 16-hour adventure in Iceland. Get in touch: christine@paxglobalmedia.com.

Following Transport Canada's grounding of Boeing 737 MAX 8 series back in March 2018, the company has reported a $5.6 billion reduction of revenue and pre-tax earnings in the second quarter.

Boeing will record an after-tax charge of $4.9 billion ($8.74 per share) in connection with an estimate of potential concessions and other considerations to customers for disruptions related to the 737 MAX grounding and associated delivery delays.

Additionally, Boeing's estimated costs to produce the aircraft in the 737 accounting quantity increased by $1.7 billion in the second quarter, primarily due to higher costs associated with a longer than expected reduction in the production rate. The increased 737 program costs will reduce the margin of the 737 program in the second quarter and in future quarters.

The substantial loss can be attributed to two fatal crashes aboard the 737 MAX 8 series, one operated by Lion Air, and the other operated by Ethiopian Airlines, killing a combined total of 346.

Since then, Boeing says its been working to correct its faulty Maneuvering Characteristics Augmentation System (MCAS) software, which was responsible for forcing both planes' noses in a downward position, leading them to inevitably crash.

Return of the MAX 8?

As it stands, Boeing continues to work with the civil aviation authorities to determine when the Boeing 737 MAX 8 aircraft is safe to take to the skies once more.

According to a press release, for purposes of the second-quarter financial results, Boeing has assumed that regulatory approval of 737 MAX return to service in the U.S. and other jurisdictions begins early in the fourth quarter 2019, but actual timing of return to service could differ from this estimate.

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. Any changes to these assumptions could result in additional financial impact.

"We remain focused on safely returning the 737 MAX to service," said Boeing chairman, president and CEO Dennis Muilenburg. "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."

On July 17, the company dedicated $50 million of a previously announced $100 million fund to provide near-term financial assistance to families of the victims of the Lion Air Flight 610 and Ethiopian Flight 302 accidents.

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