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737 MAX crisis hangs over Boeing's Q2 results

737 MAX crisis hangs over Boeing's Q2 results

Dozens of grounded Boeing 737 MAX aircraft are seen parked in an aerial photo at Boeing Field in Seattle, Washington, US Jul 1, 2019. (Photo: Reuters/Lindsey Wasson)

NEW YORK: Boeing could report its biggest loss ever on Wednesday (Jul 24), sagging under the weight of US$5.6 billion in costs so far due to the crisis surrounding the 737 MAX aircraft.

The top-selling plane has been grounded worldwide since Mar 13 following a second devastating crash. The Ethiopian Airlines catastrophe that killed 157 passengers and crew, came on the heels of a Lion Air crash last fall killing 189 people.

How does the MAX crisis affect the bottom line?

Boeing's second-quarter results are likely to be ugly after the aerospace giant last week announced it would set aside US$5.6 billion (US$4.9 billion after taxes) to compensate airlines for cancelled flights and the delay in plane deliveries.

That move could result in a net loss of more than US$3 billion for the second quarter, judging from analyst estimates on S&P Capital IQ.

READ: Chinese carriers, Ethiopian Airlines suspend use of Boeing 737 MAX 8 aircraft after crash

READ: Boeing takes US$4.9 billion charge for prolonged grounding of 737 MAX planes

Boeing's revenues are projected to be US$19.2 billion, a drop of more than 25 per cent compared with the same period of last year, hit by the halt to deliveries of the MAX.

What is the total cost of MAX crisis?

Costs from the MAX crisis so far amount to about US$8 billion, but the total hit will not be known for some time.

The largest hit (US$5.6 billion) is for compensation to Boeing customers whose operations were impacted by the grounding of the planes, forcing the airlines to cancel flights into the fall.

Boeing said last week the compensation could come in "various forms of economic value", meaning it could pay airlines in rebates on future plane orders or for maintenance and not only in cash.

The manufacturer also has recognised US$2.7 billion in costs due to cutting its production of the 737 MAX to 42 a month from 52.

But the company has maintained employment levels in spite of the diminished output, resulting in lower profit margins.

Will there be other costs?

Certainly. Boeing faces numerous lawsuits filed by families of the victims of the two crashes. The company announced plans to donate US$100 million to victims and communities affected by the accidents, but that will not be the end of the story.

It also could potentially face regulatory penalties, including from a criminal investigation by the US Justice Department.

Ratings agencies Moody's and Fitch on Monday lowered the outlook on Boeing debt to "negative," citing the MAX situation, which Fitch said would make Boeing's reputational standing a "watch item for the next year or more."

What is the status of the investigations?

Aviation regulators in multiple countries continue to investigate the causes of the Ethiopian Airlines and Lion Air crashes.

US criminal investigators are probing Boeing's decisions about a flight handling system that has been linked to both crashes, known as the Maneuvering Characteristics Augmentation System or MCAS.

READ: Boeing says sorry for MAX 737 crashes, promises to learn lessons

READ: The big challenge of winning back trust in the Boeing 737 Max, a commentary

They are looking into why Boeing did not develop specific training for pilots on the MCAS, and why a "disagree light" system meant to signal a problem in the system was sold as a supplemental feature instead of an essential safety item, a source told AFP.

What is the status of the fix to the 737 MAX?

Boeing continues to work on modifications of the MCAS to get the planes back in the air.

The aerospace giant is also developing a training program for pilots and working to address problems with a microprocessor identified during US Federal Aviation Administration simulator testing in June.

Boeing is expected to present its fixes to regulators in September, according to industrial sources.

When will the 737 MAX fly again?

Boeing last week set a target date of early in the fourth quarter to begin receiving regulatory approval from the US and other authorities.

Analysts consider this timeframe very ambitious for the global fleet, although the United States and Canada could move more swiftly than other countries.

Will Boeing rename the 737 MAX?

Some marketing experts think a rebranding of the MAX could benefit Boeing. But so far, Boeing is not making any changes.

"Our immediate focus is the safe return of the 737 MAX to service and re-earning the trust of airlines and the traveling public," a company spokesman said, "but have no plans at this time to change the name of the 737 MAX."

Will the MAX crisis adversely affect Boeing's other programmes?

Boeing executives have blamed lags in the 777X plane on issues with the engine, which is being developed by General Electric. A flight test on the long-haul plane that had been planned for the summer was pushed back to the end of the year.

However, industrial sources said the FAA has also stepped up scrutiny of the 777X in light of the MAX.

Boeing also is developing a new model aircraft (NMA) for medium distances that has generated interest from major carriers, eager to see an alternative to a plane from rival Airbus.

"We continue to have some level of effort on NMA, including a team dedicated to the evaluation of the business case," a Boeing spokesman said, but safely returning the MAX to the air is the top priority.

Source: AFP/hs

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