Boeing To Take $4.9 Billion Hit In Q2

Boeing will record an after-tax charge of $4.9 billion, or  $8.74 per share, in its second-quarter results due to the grounding of the 737 Max, the company recently announced. The charge, which Boeing bases on an estimate of potential concessions and “other considerations” to customers for disruptions to their operations, will result in a $5.6 billion reduction of revenue and pretax earnings in the quarter, the company added.

Separately, Boeing estimates that costs to produce the 737 in the second quarter increased by $1.7 billion due to a longer-than-expected reduction in the production rate. Boeing lowered production rates from 52 to 42 per month due to the grounding. 

The company said it based the charges on an assumption that the model would return to service in the U.S. and other jurisdictions in this year’s fourth quarter, but it noted that the actual timing could differ. The second-quarter financial results will further reflect the assumption that the 737 production rate will gradually increase from 42 to 57 per month in 2020 and that Boeing will deliver the airplanes produced during the grounding over “several quarters” following return to service.

“We remain focused on safely returning the 737 Max to service,” said Boeing CEO Dennis Muilenburg. “This is a defining moment for Boeing. Nothing is more important to us than the safety of the flight crews and passengers who fly on our airplanes. The MAX grounding presents significant headwinds and the financial impact recognized this quarter reflects the current challenges and helps to address future financial risks.”

The company said it would issue new earnings guidance for the year “at a future date” due to the uncertainty of the timing and conditions associated with the Max’s return to service.

“We are taking appropriate steps to manage our liquidity and increase our balance-sheet flexibility the best way possible as we are working through these challenges,” said Boeing CFO Greg Smith. “Our multi-year efforts on disciplined cash management and maintaining a strong balance sheet, in addition to our strong and broad portfolio offerings, are helping us navigate the current environment.”