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Boeing profits weighed down by costs from 737 Max crisis

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Via Financial Times

Boeing profits and revenues took a hit in the third quarter from the costs of the crisis surrounding the 737 Max aircraft, which has been grounded by the world’s aviation authorities since March after two fatal crashes in just over five months.

The US aerospace giant announced a 43 per cent drop in third-quarter earnings from operations to $1.3bn, on revenues down by 21 per cent in the third quarter to $19.98bn.

To the surprise of many analysts it did not add to the $5bn charge taken in the second quarter to cover the costs of the global grounding of its fastest selling jet. Still, many expect further costs to emerge, with Boeing potentially facing cancellations the longer the grounding continues, while victims’ families and airlines have launched lawsuits.

The crisis has delivered a severe blow to cash flow, with the group recording an outflow of $2.4bn against a positive inflow of $4.6bn in the same period last year.

Boeing said it had developed software and training updates for the 737 MAX and “continues to work with the Federal Aviation Authority and global civil aviation authorities to complete remaining steps toward certification and readiness for return to service”. While regulatory authorities would determine the timing and conditions of return to service, Boeing said it had assumed this would happen in the fourth quarter of 2019.

Offering a sign of confidence despite intensifying controversy over the group’s handling of the crisis, Boeing said it expected to gradually increase the 737 production rate from 42 per month to 57 per month by late 2020.

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“Our top priority remains the safe return to service of the 737 MAX, and we’re making steady progress,” said Boeing President and Chief Executive Officer Dennis Muilenburg. “We’ve also taken action to further sharpen our company’s focus on product and services safety, and we continue to deliver on customer commitments and capture new opportunities with our values of safety, quality and integrity always at the forefront.”

If the recertification of the aircraft is delayed, however, analysts said there was a risk that Boeing would have to further reduce production of the aircraft, which has already been cut from 52 a month. That could mean job losses, Boeing executives have indicated.

The latest hit to profits comes a day after Boeing announced the biggest executive reshuffle since the crashes. Kevin McAllister, an outside hire in 2016 to head the $60bn a year commercial aircraft division, has been replaced by 33-year Boeing veteran Stan Deal.

The company has also come under fire in recent days over disclosures on information relating to the automated software system.

A series of text messages sent in 2016 by two Boeing technical pilots — who prepare training simulators and manuals — were leaked last Friday. These appeared to suggest that Boeing had long been aware of problems with the aircraft’s anti-stall system, known as the manoeuvring characteristics augmentation system, or MCAS. However, Boeing has argued that these texts had been handed over to the Department of Justice after the first crash in October 2017 and were not about problems with the software but with the simulator.

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Nevertheless, the head of the FAA last week publicly reprimanded Boeing for failing to hand the texts to the regulator, casting fresh doubt on when the company might get the jet back in the air.

On Wednesday victims’ families were briefed by Indonesian safety authorities about the conclusions of their investigation into the crash of the Lion Air jet in October 2018, which resulted in the death of 189 people. They cited design flaws in the MCAS and a lack of information for pilots on the behaviour of the system, according to Bloomberg.

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