Abu Dhabi, UAETuesday 22 October 2019

Boeing's profit tumbles 21 per cent in first quarter

Plane maker feels strain of global grounding of 737s after two fatal accidents

Southwest Airlines' grounded Boeing 737 Max aircraft .The US plane maker's profits have fallen. AFP
Southwest Airlines' grounded Boeing 737 Max aircraft .The US plane maker's profits have fallen. AFP

Boeing reported a 21 per cent fall in first-quarter profit on Wednesday and suspended its 2019 outlook as the world's largest plane maker worked to get its 737 Max jets back in the air after two deadly accidents.

The company said it would be issuing a new forecast in the future when it has more clarity around the issues surrounding the 737 Max, according to Reuters.

Excluding certain items, Boeing said its core earnings fell to $1.99 billion, or $3.16 per share, in the quarter ended March 31 from $2.51bn, or $3.64 per share, a year earlier.

Boeing said it faced $1bn in increased costs in the first-quarter ended March 31, related to the 737 aircraft as it halted deliveries of the grounded planes to customers around the globe.

First-quarter operating cash flow declined to $2.79bn, from $3.14bn, missing the Wall Street's average estimate of $2.82bn.

Revenue fell 2 percent to $22.92bn, below analysts' average estimate of $22.98bn.

The company also said it was halting share buybacks.

For nearly two decades, Boeing’s mass-produced 737 jetliner has doubled as its cash machine.

The single-aisle plane, a favourite of budget carriers, bankrolled a decade of losses for the 787 Dreamliner and a more recent stock-buyback spree of $38bn - an amount equivalent to Ford Motor’s market value. The newest version of the aircraft, the Max, was poised to become Boeing’s largest source of revenue and profit this year, according to Bloomberg.

But since regulators grounded the best-selling 737 model indefinitely following two deadly crashes, the largest US industrial company is in an unfamiliar position: conserving cash. That puts Boeing’s share repurchases at risk while threatening financial repercussions into 2020 and beyond if the 737 brand proves to be irreparably damaged.

Given the strain on its production resources, shoveling billions to investors “wouldn’t sit well”, said Nick Cunningham, managing partner with London-based Agency Partners. “The logical thing is to preserve cash because you might need it.”

A Boeing spokesman declined to comment on the cash plans.

“The 737 Max crisis represents a pivotal point on this journey and could materially shape the views of the investment community on BA long after the earnings implications are well understood,” Carter Copeland, an analyst with Melius Research wrote in a note to clients this week, referring to Boeing by its ticker symbol.

Updated: April 24, 2019 04:37 PM

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