Boeing Expects 737 Max Costs Will Surpass $18 Billion
Boeing on Wednesday said the costs associated with the grounding of the 737 Max were likely to surpass $18 billion, a significant increase over earlier forecasts.
The new estimate, announced during Boeing’s quarterly earnings report, is the company’s most recent approximation of just how expensive it will be to return the Max to service, compensate airline customers and restart the shuttered 737 factory.
Boeing continues to grapple with the fallout from the crashes of two Max jets in 2018 and 2019, which killed 346 people, leading to the worldwide grounding of the plane in March. In addition to the rising costs, the company is contending with a new chief executive, the temporary shutdown of the 737 factory and a range of challenges in other parts of the business.
Boeing on Wednesday said that the costs associated with shutting down and restarting the factory would amount to some $4 billion. The decision to temporarily halt production of the Max was only made last month, and Boeing had not previously given guidance on what the move would cost.
The company also said that the cost of compensating airlines that have suffered lost sales as a result of the grounding of the Max was now expected to reach $8.3 billion, up from a previous estimate of $5.6 billion. That figure represents a mixture of cash payments to airlines, as well as discounts on future sales.
And Boeing said that as a result of the grounding, which has lasted nearly a year now, it expected the overall cost to produce the 737 Max to rise to $6.3 billion in the years ahead, up from an earlier estimate of $3.6 billion.
In total, the anticipated costs now equal more than $18.6 billion, or nearly 20 percent of Boeing’s annual sales before the Max was grounded.
The Max crisis continued to weigh on the company’s financial results. Revenue for the quarter was $17.9 billion, down 37 percent from the same time a year earlier, before the jet was grounded.
Boeing also said it would incur a charge of $410 million as a result of its botched rocket launch late last year, when a space capsule it designed for NASA failed to reach the correct orbit.
Since taking over this month, Mr. Calhoun has tried to set himself apart from Mr. Muilenburg, who was pushed out after alienating airline customers and the Federal Aviation Administration with overly optimistic projections about when the Max would return to service.
“We recognize we have a lot of work to do,” Mr. Calhoun said in a statement. “We are focused on returning the 737 Max to service safely and restoring the long-standing trust that the Boeing brand represents with the flying public. We are committed to transparency and excellence in everything we do.”
There is still no precise timeline for the return of the Max. Last week, Boeing said it did not expect regulators to approve the plane to fly until June or July, though that estimate was conservative. If regulators do not find any additional problems with the plane, the Max could return to service before then, though new issues cropped up earlier in the process.
The company has enjoyed rare bits of good news in recent weeks. It successfully completed the first flight test of the 777X, its new wide-body jet. And the trade deal that the White House struck with China included a commitment for the sale of new American aircraft to Chinese customers.
Yet Boeing still faces enormous challenges. The grounding of the Max is costing the company many billions of dollars, and costs are still rising. The fatal crashes and a cascade of damning revelations have badly damaged Boeing’s reputation, and the company’s own research shows 40 percent of regular travelers are unwilling to fly the Max. Other Boeing programs, including its work for NASA and the United States military, are behind schedule.
The Max is Boeing’s most important product, representing hundreds of billions of dollars in expected future sales. But just over a year after it was introduced in 2017, a Max crashed off the coast of Indonesia, after a new automated system triggered based on data from a faulty sensor. Less than five months later, a second Max crashed in Ethiopia under similar circumstances, leading to the worldwide grounding.
That has thrust Boeing into the biggest crisis in its history and led to the temporary shuttering of its 737 factory in Renton, Wash. Boeing has developed a software update and has been working with regulators to win approval to return the plane to service. But the grounding is now likely to last a year.
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