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19 Jul 2019

BY James Chapple

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Boeing facing $5 billion hit from 737 Max grounding

Boeing is facing a $5 billion hit from the grounding of its 737 Max after the aircraft was involved in two fatal crashes in just five months.

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Boeing facing $5 billion hit from 737 Max grounding

The aircraft manufacturer said on Thursday (18 July) it would record a $4.9 billion post-pax charge in its second-quarter results next Wednesday (24 July).


This, says Boeing, will likely result in a $5.6 billion reduction in Q2 revenue and pre-tax earnings.


However, while the hit will dent Boeing’s Q2 balance sheet, the adverse effect will be felt over several years and will take various forms, Boeing has said.


Boeing has also revealed the cost of producing the 737 has gone up some $1.7 billion during Q2 due to a “longer than expected” reduction in rate of production, which Boeing said would reduce margins on its 737 program in Q2 and in future quarters.


Its full Q2 results will detail the impact of the 737 Max grounding in full, and the company’s outlook taking the grounding into account.


The Max was grounded in March following a second fatal crash in just five months when Ethiopian Airlines flight 302 came down en route to Nairobi. All 157 people onboard died.


It followed the tragedy involving Lion Air flight 610, which crashed in the Java Sea shortly after taking off from Jakarta last October, killing all 189 people onboard.


Boeing says it is continuing to work with civil aviation authorities across the world to return the 737 Max to service, stressing the final decision rested with these authorities.


“For the purposes of the second-quarter financial results, the company has assumed regulatory approval of 737 Max return to service in the US and other jurisdictions begin early in the fourth quarter 2019,” said Boeing.


“This assumption reflects the company’s best estimate at this time, but the 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 aircraft 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 chief executive 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 aircraft.


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

 

Meanwhile, Southwest Airlines has become the latest carrier to push back its 737 Max schedule, cancelling flights through to early November and freezing new pilot hires, Reuters reports.


It comes after American Airlines and United Airlines took similar steps earlier this month, pushing back their 737 Max flying schedules towards the end of the year.

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