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Jul 18, 2019

Boeing to take US$4.9B charge as 737 Max fallout worsens

Boeing to Take $4.9 Billion Charge on 737 Max Grounding

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Boeing Co. (BA.N) plans to record a US$4.9 billion accounting charge related to its beleaguered 737 Max jetliner when the company reports quarterly earnings next week.

The after-tax charge, equivalent to US$8.74 a share, covers potential concessions and considerations for airline customers who have been forced to cancel thousands of flights and line up replacement aircraft since the Max was grounded in March, the company said in a statement Thursday. The costs will clip US$5.6 billion from revenue and pretax earnings in the quarter.

The writedown underscores the financial cost to Boeing after two deadly crashes in a five-month span engulfed the U.S. planemaker in one of the biggest crises in its century-long history. New flight-computer software on the Max, Boeing’s best-selling jet, has been linked to the disasters in Indonesia and Ethiopia, and company engineers are still working on an update.

“This is a defining moment for Boeing,” Chief Executive Officer Dennis Muilenburg said in the statement. “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.”

Boeing climbed 1.3 per cent to US$365.66 after the close of regular trading in New York. Since the March 10 crash of an Ethiopian Airlines 737 Max 8 jet, Boeing has fallen 15 per cent, the biggest decline on the Dow Jones Industrial Average.



Return to Service

Investors will be parsing the company’s results, slated for July 24, for additional details of the financial blow that Boeing is absorbing as it churns out the Max while waiting for regulators to clear the single-aisle workhorse to resume commercial flights. The company said it’s assuming that approval of the plane’s “return to service in the U.S. and other jurisdictions begins early in the fourth quarter” of this year.

Boeing’s first-quarter profit margins were dented by US$1 billion in estimated costs after it cut factory output of the narrow-body jets following the global grounding. That estimated expense has grown by another US$1.7 billion, primarily due to a “longer than expected reduction in the production rate,” the company said.

The higher costs will reduce the margin for the 737 program, Boeing’s largest source of profit and revenue, in the second quarter and future quarters.

A total of 346 people died in the crashes.