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Monday, 22 July 2019 00:00 - - {{hitsCtrl.values.hits}}
SEATTLE (Reuters): Boeing Co. said on Thursday it would take an after-tax charge of $ 4.9 billion in the second quarter on estimated disruptions from the prolonged grounding of its lucrative 737 MAX passenger jets after two deadly crashes.
The charge is from “potential concessions and other considerations to customers,” and the impact of continued lower production, the world’s largest planemaker said in a statement, as airlines that use the planes extend flight cancellations until November.
The charge will result in a $ 5.6 billion reduction in revenue and pre-tax earnings in the second quarter, Boeing said.
Boeing is facing one of the worst crises in its history as its fastest-selling jetliner has been grounded since March after crashes in Ethiopia and Indonesia that together killed 346 people in a span of five months.
The Chicago-based planemaker is now reckoning with a blow to its reputation as well as the financial cost of getting its planes back in the air.
“We are taking appropriate steps to manage our liquidity and increase our balance sheet flexibility the best way possible as we are working through these challenges,” Boeing Chief Financial Officer Greg Smith said in a statement.
Boeing Chief Executive Dennis Muilenburg said in a tweet that the company remains focused on safely returning the 737 MAX to service.
“The MAX grounding presents significant challenges for our customers, company and supply chain,” he tweeted.
The grounding of the 737 MAX has sent shockwaves through the industry and pushed back the launch of a new Boeing aircraft – a twin-aisle jet for the middle of the market known as NMA.
Boeing’s board is unlikely to give the project a green light until it has a full picture of the financial exposure caused by the 737 crisis, industry sources say.
Boeing also said estimated costs to produce its flagship single-aisle aircraft increased by $ 1.7 billion in the second quarter, driven primarily by higher costs from a longer-than-expected reduction in its aircraft production rate.
Boeing reduced the number of single-aisle aircraft it produces monthly in the Seattle area from 52 to 42 following the second crash in Ethiopia while suspending deliveries of the aircraft to airlines, which cuts off fresh cash infusions and hits margins.
The lower rate means Boeing has to pay more for parts, which are priced according to the volume Boeing buys. Boeing said it was working towards building 57 of the 737s a month in 2020.
But the fuller picture of how much the grounding will cost Boeing, and how it plans to repair its image with the flying public, was not expected until the end of the second quarter since 737 production cuts did not begin until mid-April.
Boeing also said it assumes the 737 MAX return to service in the United States and other countries beginning early in the fourth quarter, though the company cautioned the exact timeline could shift as it has in recent weeks.
