Boeing might halt 737 MAX production if grounding drags on

  • Business
  • Thursday, 25 Jul 2019

BOEING Co. said it might slow or halt production of its 737 MAX jetliner if regulators don’t approve its return to service by the end of this year.

The warning came as the aerospace giant on Wednesday reported its biggest quarterly loss to date, after taking an initial $7 billion hit on the grounding and slowed production of the MAX.

Chief Executive Dennis Muilenburg said on a call with analysts that while Boeing plans to continue producing 42 of its 737 jets a month and boost that rate to 57 next year, any slippage in the timeline for the return of the MAX could oblige the company to lower output.

“We might need to consider possible further rate reductions or other options including a temporary shutdown of the MAX production,” Mr. Muilenburg said.

Boeing has said it hopes to restart MAX deliveries in the fourth quarter, but some government and industry officials don’t expect it to fly again until next year. The MAX has been barred by regulators from commercial flight since March after two fatal crashes.

Boeing executives said questions remain about the process by which regulators and airlines will work to get the MAX back into passenger service. The U.S. Senate on Wednesday confirmed former airline executive Steve Dickson as head of the Federal Aviation Administration, the body that will sign off on the MAX’s safe return in the U.S.

Shares in Boeing were lower amid Mr. Muilenburg’s comments. The stock was off 2.8% on Wednesday afternoon.

Boeing posted a loss of $2.94 billion for the June quarter, compared with a profit of $2.2 billion a year earlier, a slightly smaller loss than analysts expected. Sales dropped 35% to $15.75 billion as the company delivered only 90 jetliners with MAX shipments on hold. Boeing didn’t reinstate the financial guidance it suspended in April.

A $5.6 billion charge in the quarter to compensate MAX customers marked Boeing’s latest effort to guide investors on the mounting cost of the crisis that has engulfed its best-selling jetliner. The MAX grounding is already rippling into the broader U.S. economy. Airlines have canceled thousands of flights they planned to fly with MAX planes, disrupting passenger schedules and in some cases eating into flight crews’ earnings.

Boeing also said the first flight of its new 777X jetliner would be delayed until early next year because of problems with the new engines General Electric Co. is making for it.

The halt in MAX deliveries since April hurt Boeing’s closely watched free cash flow, which turned negative for the first time in more than four years, draining $1 billion from its balance sheet, though recent debt issuance boosted its liquidity to $9.6 billion at the end of the quarter.

The cash outflow was less than analysts expected, though, as a result of higher defense sales and shipments of the 787 Dreamliner.

Boeing said last week that it would take the $5.6 billion pretax charge in the June quarter to cover potential compensation to MAX customers, which could include discounts and services, as well as cash payments. The charge is expected to cost $4.4 billion after tax.

Two crashes and the global grounding of Boeing’s 737 MAX commercial airliner led to extensive disruption in the international aerospace industry. WSJ’s Robert Wall explains the continuing effects of the plane’s grounding. Photo: Getty Images

The compensation charge left Boeing’s commercial-airplanes unit with a $4.95 billion operating loss for the quarter, mitigated by increased production of the 787 Dreamliner.

The company also estimated the costs to manufacture the MAX would increase by $2.7 billion because of a production slowdown that has lasted longer than expected, set against an undelivered block of 3,100 MAX jets.

Boeing’s defense unit reported a profit of $975 million, and the two-year-old services business added $687 million.

Overall, Boeing reported a per-share loss of $5.21, the first deficit since a $234 million deficit in the second quarter of 2016, when the company booked charges on the 787, 747-8 and KC-46A Pegasus military tanker. - WSJ

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