Abu Dhabi, UAEFriday 6 December 2019

Boeing suffers $4.9 billion loss from 737 Max grounding

The plane maker estimates its beleaguered jet will be approved to return to service early in the fourth quarter, but the FAA said it has no timeline

Grounded Southwest Airlines Boeing 737 Max jets in Victorville, California. Reuters
Grounded Southwest Airlines Boeing 737 Max jets in Victorville, California. Reuters

Boeing will report an after-tax charge of $4.9 billion (Dh17.9bn) with its second-quarter results next week, in connection with its 737 Max grounding following two fatal crashes.

The loss is based on “potential concessions and other considerations to customers for disruptions related to the 737 Max grounding and associated delivery delays,” Boeing said in a statement on Thursday.

“Nothing is more important to us than the safety of the flight crews and passengers who fly on our airplanes,” chief executive Dennis Muilenburg said in the statement. “The Max grounding presents significant headwinds and the financial impact recognised this quarter reflects the current challenges and helps to address future financial risks.”

The costs of the crisis have led to a $5.6bn reduction of revenue and pre-tax earnings in the quarter. The second-quarter results, due out on July 24, assume a gradual increase in the 737 production rate from 42 per month to 57 per month in 2020.

The company estimated that regulatory approval for the jet to return to service would begin early in the fourth quarter of this year, but acknowledged that the “actual timing of return to service could differ from this estimate”. US operators United Airlines, American Airlines and Southwest Airlines have removed the plane from their schedules until early November.

Global aviation regulators grounded the 737 Max after the jet was involved in two deadly crashes in October and March that together killed 346 people. Boeing is fixing the flight-control software that caused the plane noses to lurch downwards.

The US Federal Aviation Administration has said it will return the jet to service when it is confident all safety issues have been resolved. The country’s top transportation official emphasised no date has been set.

“The FAA will lift the aircraft’s prohibition order when it is deemed safe to do so,” Transportation Secretary Elaine Chao said in a speech Thursday in Washington to the Air Line Pilots Association’s Air Safety Forum. “That is the bottom line: There is no timeline.”

Boeing also said this week it is dedicating $50 million of a previously announced $100m fund specifically to families of the victims of the Lion Air Flight 610 in Indonesia and Ethiopian Airlines Flight 302 accidents. It has hired the attorney Kenneth Feinberg, who is an expert in overseeing victims’ compensation funds, including the US government’s September 11th victim compensation fund and the BP oil spill fund.

The $50m distributed in the “near-term” by Mr Feinberg and associate Camille Biros will be independent from any litigation, Boeing said.

The company is the target of a US Department of Justice criminal investigation and victims’ families have put forward more than 100 lawsuits.

Updated: July 19, 2019 11:50 AM