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BA Boeing Co

192.95
1.00 (0.52%)
After Hours
Last Updated: 22:51:31
Delayed by 15 minutes
Share Name Share Symbol Market Type
Boeing Co NYSE:BA NYSE Common Stock
  Price Change % Change Share Price High Price Low Price Open Price Shares Traded Last Trade
  1.00 0.52% 192.95 193.38 191.20 192.00 4,462,211 22:51:31

Boeing Details Financial Hit From 737 MAX Grounding --4th Update

24/04/2019 6:28pm

Dow Jones News


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By Doug Cameron and Andrew Tangel 

Boeing Co. executives said they didn't know when the 737 MAX would return to service and defended the design and certification of their best-selling plane, grounded by global regulators in the wake of two fatal crashes.

The aerospace giant said Wednesday that it was taking an initial hit of more than $1 billion while the plane is grounded and production of additional aircraft remains scaled back.

Chief Executive Dennis Muilenburg said there had been "no technical slip"in the development of the 737 MAX. Crash investigators have implicated a flight-control system in the deadly crashes in Indonesia and Ethiopia that killed all 346 people on board the two flights.

"There was no surprise or gap or unknown here or something that somehow slipped through a certification process," Mr. Muilenburg said on a call with analysts and reporters Wednesday morning.

Mr. Muilenburg said the Federal Aviation Administration would soon conduct certification flights to test the 737 MAX's updated software, a key step to restarting commercial flights. Boeing is also working with airlines and pilots to restore trust among fliers, he said.

"We're going to get that airplane back up and flying for our customers," Mr. Muilenburg said after Boeing reported a drop in quarterly sales and profits in the wake of the MAX grounding last month.

Boeing's shares rose about 1%, reversing an earlier decline as the plane maker reported first-quarter earnings of $2.15 billion. The profit demonstrated the resilience of Boeing's broader portfolio, with sales of 787s and other jetliners as well as services and military hardware limiting the decline.

However, the company said it would suspend the huge share buybacks that have propelled its share price over the past three years and it dropped full-year profit and sales guidance for 2019. Investors have cut some $27 billion off Boeing's market value since a 737 MAX operated by Ethiopian Airlines crashed last month, valuing the company at $212 billion.

The initial costs include $1 billion to cover Boeing's estimate for higher plane-production expenses spread over the life of the MAX program. It didn't reduce its workforce even after cutting production of the plane, in part to prepare for a return to higher output levels.

That doesn't include unspecified costs to fix the flight-control software implicated in the accidents, additional pilot training, customer compensation and any passenger liability payments to families of people killed in the crash of the Ethiopian Airlines flight and the crashed 737 MAX operated by Indonesia's Lion Air in October.

Mr. Muilenburg highlighted the work of a committee of Boeing directors who will evaluate how the plane maker designs aircraft, saying it will examine "potential process improvements that we can make" with the aim of improving safety.

Mr. Muilenburg said Boeing believed he should maintain his chairmanship of the company's board, saying its members are very engaged and led by a strong lead director. Some proxy advisory firms have suggested Boeing split the dual CEO and chairmanship roles ahead of Boeing's annual investor meeting on Monday.

Boeing's initial estimate for tackling the MAX crisis compares with analysts estimates running as high as $3 billion, including payouts to airlines and suppliers.

The suspension of buybacks in mid-March and shelving of 2019 financial guidance marks a sharp reversal from the optimism displayed by Boeing executives in January, when they set plans to deliver more than 900 jetliners this year alongside higher sales and profits.

Boeing has amassed more than 5,000 orders for the single-aisle MAX and planned to boost monthly production by five planes to 57 this summer, which analysts expected to account for more than 40% of annual sales and profits.

Instead, it has cut output to 42 a month, leaving planes to pile up around its Seattle-area assembly plants as the global grounding left it unable to deliver new planes. Boeing didn't book any commercial orders for a 737 in March, the first month without such a sale in almost seven years.

The lower output means Boeing will likely cede its title as the world's biggest plane maker to European rival Airbus SE at the end of this year.

Regulators have grounded the 737 MAX world-wide until regulators sign off on a software fix that Boeing is preparing for the system that investigators believe contributed to both crashes.

More than 370 MAX planes had already been delivered, forcing carriers including Southwest Airlines Co. -- which reports quarterly earnings on Thursday -- to cancel flights and reconfigure schedules ahead of the busy summer travel season.

Southwest has canceled MAX flights through early August. American Airlines Group Inc. has canceled MAX flights through Aug. 19.

Boeing executives said the plane maker would work with branding experts and airlines to enlist pilots to regain the trust of the flying public.

"We know it will take time," Mr. Muilenburg said. "We have to earn and re-earn the trust of the flying public."

Boeing reported profits of $2.15 billion for the quarter, compared with $2.48 billion a year earlier, with sales dipping 2% to $22.92 billion.

Write to Doug Cameron at doug.cameron@wsj.com and Andrew Tangel at Andrew.Tangel@wsj.com

 

(END) Dow Jones Newswires

April 24, 2019 13:13 ET (17:13 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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