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737 Max crisis plunges Boeing into record loss

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American commercial jet manufacturer, Boeing, has recorded its first annual loss in 22 years over the embattled 737 Max aircraft model. The manufacturer now expects nearly $19 billion in costs related to the grounding of Max jets, and indicated it would again cut production of its bigger 787 Dreamliner aircraft.

The Dreamliner widebody is the main source of cash for Boeing as it battles the global grounding of the smaller 737 Max following two crashes that killed 346 people.

The Max grounding forced the planemaker to freeze production of the aircraft and let to the ouster of former Chief Executive Officer Dennis Muilenburg.“We recognize we have a lot of work to do,” Boeing President and CEO, David Calhoun, said in a statement yesterday.Boeing shares rose three per cent in premarket trading, as some analysts had expected an even larger charge for 737 Max costs.

The charge includes $8.3 billion to compensate airline customers that are canceling flights and scaling back growth plans in a hit to profits while their Max jets remain grounded and $6.3 billion for production costs in 2019.

Boeing said it estimated another $4 billion charge in 2020 as it gradually resumes 737 Max production at low rates.Core operating loss was $2.53 billion, or $2.33 per share, compared with a profit of $3.87 billion, or $5.48 per share, a year earlier.

Analysts on average expected Boeing to post earnings per share of $1.47 in the quarter, though several had predicted a loss amid a wide range of forecasts due to uncertainties over the cost of the 737 Max crisis.

Adding to Boeing’s pain, demand for its bigger and more profitable jet — the 787 Dreamliner — has waned in the face of the U.S.-China trade war, prompting the company to cut production, hurting cash flow at a time when its debt is mounting.Boeing, which is producing the 787 Dreamliner at 14 aircraft per month, said in October it expects to lower the production in late 2020 to 12 per month, amid a drought of orders from China.

The company now expects to further lower 787 Dreamliner production to 10 per month in early 2021. Boeing said last week it did not expect the plane will be approved to fly again until the middle of this year, although the Federal Aviation Administration subsequently said its approval could come before that time.

The airlines have been adjusting their schedules, with United Airlines (UAL) executives saying last week that they don’t expect to be able to use the plane during the upcoming summer travel season.

Calhoun said he was confident that the Max would eventually be able to safely return to service.“If we didn’t believe we were going to field a plane that is safer than the safest demonstrated aircraft that is out there today, we wouldn’t do it,” he said in an interview.He said that airline customers remain supportive of Boeing, although he said, “I would never describe our discussions today as cordial. They just want us to get back on track,” he added.

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