General aviation

Boeing takes $5.6 billion hit due to Max grounding

An Air Canada Boeing 737 Max8 departs Vancouver International Airport in February (photo: Brett Ballah).

Boeing gave the latest indication of just how big the Boeing 737 Max crisis had grown Thursday, announcing it would record a $5.6 billion (U.S.) charge in the second quarter, and face higher costs in the months ahead. After taxes, the amount drops to $4.9 billion.

The Max has been grounded around the world since March, forcing airlines, including Air Canada and Westjet, to shift capacity, re-route passengers, and suspend some flights to accommodate what appears to be, by all available evidence, a record summer for flying in Canada.

Boeing is working with the Federal Aviation Administration and other aircraft regulators to get the Max back into service. But the manufacturer said Thursday it did not expect approval to come until the fall, at the earliest. It would then take several weeks or even months for airlines to get their planes crewed and back in the air.

Boeing also reported Thursday that production costs shot up $1.7 billion in the second quarter, mostly because it has taken longer than expected to slow production of the Max. Those costs, the company said, would reduce margins on its best-selling aircraft in the months ahead.

Boeing has cut production of the Max to 42 per month as it deals with the ongoing crisis, and has resorted to storing aircraft in Seattle and in the desert as new planes can’t be delivered to customers.

“We remain focused on safely returning the 737 MAX to service,” said Boeing Chairman, President and CEO Dennis Muilenburg in a statement. “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.”

This is a defining moment for Boeing

Dennis Muilenburg, Boeing Chairman, President, and CEO

Boeing is facing lawsuits from the families of crash victims, as well as claims from airlines who have lost a major part of their fleet for several months.

“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,” said Boeing’s Chief Financial Officer Greg Smith. “Our multi-year efforts on disciplined cash management and maintaining a strong balance sheet, in addition to our strong and broad portfolio offerings, are helping us navigate the current environment.”

The company said it would issue new financial guidance that takes the Max crisis into account at some point in the future. That guidance will assume Boeing can once again increase Max production to 57 aircraft a month next year, and deliver aircraft already produced to their intended airlines.

“Any changes to these assumptions,” the company warns, “could result in additional financial impact.”

Boeing will release its second quarter results, including the $4.9 billion charge and increased production costs, on July 24.