Boeing reports biggest-ever loss as 737 MAX grounding drags on

Boeing reports biggest-ever loss as 737 MAX grounding drags on

Boeing's global fleet of 737 MAX planes has been grounded since mid-March following two deadly
Boeing's global fleet of 737 MAX planes has been grounded since mid-March following two deadly crashes. (File photo: AFP/Jason Redmond)

NEW YORK: Boeing reported its biggest loss ever on Wednesday (Jul 24) as the 737 MAX crisis drags on, and the company warned it could be forced to temporarily halt production of the plane if the grounding is extended much longer.

The aviation giant's troubles have been mounting since the MAX was taken out of service worldwide in March following two deadly crashes that claimed 346 lives, and it already set aside nearly US$5 billion to compensate customers.

But the warning it might have to suspend production of the aircraft jolted Wall Street, prompting losses to accelerate during a late-morning conference call with Boeing executives that reinforced the cloudiness surrounding the outlook.

Getting the MAX back in the air is a "complex" multi-regulator process "that will take time to get done," Boeing chief executive Dennis Muilenburg said.

"We have a clear understanding of the work that has to be done but there is still uncertainty in the timeline."

Boeing reported a loss of US$2.9 billion for the second quarter, a huge drop from the US$2.2 billion profit posted in the same period of last year.

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

The loss was not surprising following last week's announcement the company had set aside US$4.9 billion after taxes to compensate airlines for canceled flights and the delay in plane deliveries.

Meanwhile, revenues in the latest quarter tumbled 35.1 percent to $15.8 billion, reflecting the hit suffered due to halted deliveries of the 737 MAX, a top-selling plane.

READ: Boeing to make US$50 million in payments to 737 MAX crash victims' families

Analysts from Cowen, an investment bank, pointed to a "strong performance" in production of Boeing's 787, another big seller, but noted the company pushed back first flight of the 777X, a new long-haul plane under development.

The company has blamed the delay on problems with the engine, which is being built by General Electric.

Adding to the confused outlook, Boeing has still not updated its full-year profit forecast after withdrawing its targets in April due to uncertainty about the MAX.

However, at the same time it boosted dividend payments in the second quarter. Compared with last year, Boeing spent US$1.2 billion on dividends, up 20 per cent from the year-ago period.

SCENARIO PLANNING

Temporarily halting output "is not something we want to do but it is an alternative we have to prepare for as a smart part of our thorough and disciplined process here to make sure we're covering all scenarios," Muilenburg said.

Boeing in April cut production on the MAX to 42 a month from 52, storing planes until the jet is cleared to fly. But it has not cut jobs at its Washington state factory.

The crisis already has rippled through the US economy, hitting manufacturing output as well as exports, which widens the politically-sensitive trade deficit and could drag on growth.

Treasury Secretary Steven Mnuchin said on Wednesday the MAX is a priority for the White House.

"We want to absolutely make sure that before the 737 MAX flies that it's safe," Mnuchin told CNBC. "We need to figure out how they continue to compete against Airbus because they are a leading US company."

Airlines have repeatedly pushed back the target date for returning the jets to service as the regulatory timeframe has dragged on.

The Federal Aviation Administration in June identified problems with microprocessor which extended the timeline.

Boeing is developing a software fix to address a problem the "MCAS" flight handling system linked to both crashes.

Muilenburg said the company is in daily contact with the FAA and still expects to submit its software fix to regulators in September, with approval about a month later. However, that timeframe is "dynamic."

He also said the company also is in "the middle of working our way" through the FAA microprocessor issue.

"We know we're making progress," he said. "But until we complete all of the certification activities, there's always some risk of new items opening up."

Boeing shares have lost about 14 per cent since the Ethiopian Airlines crash in March, while the broader S&P 500 has gained about 10 per cent.

Boeing shares ended 3.1 per cent lower at US$361.43.

Source: AFP/aj/de

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