737 MAX Grounding Will Cost Boeing $4.9 Billion

The financial costs associated with the ongoing Boeing 737 MAX grounding are starting to be revealed. Boeing has just announced that it is recording an after-tax charge of USD$4.9 billion in the second quarter of 2019 to account for costs associated with the grounding. That USD$4.9 billion translates to USD$8.74 per share.

The Boeing 737 MAX was grounded in March 2019 following the crash of an Ethiopian Airlines 737 MAX after take off from Addis Ababa. That crash followed a crash Lion Air crash in October 2018 in Indonesia. 

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Boeing’s 737-8 MAX rotating. Photo: Wikimedia Commons.

Despite some flurries of optimism in late May 2019 that the problems surrounding the 737 MAX would be solved, the 737 MAX remains firmly on the ground.

The grounding has been a logistical and financial headache for airlines around the world. For Boeing, it has been a financial and public relations disaster.

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Now, the 737 MAX’s grounding is really starting to bite into Boeing’s balance sheet.

What Boeing said

In a statement provided to Simple Flying, Boeing noted that the USD$4.9 billion charge will lead to a USD$5.6 billion reduction of pre-tax earnings and revenue in the second quarter of 2019. 

The aircraft manufacturer also expects to be paying “consideration and concessions” for years to come as a result of the 737 MAX grounding.

Previous financial guidance put out by Boeing has not reflected the impact of the grounding. This announcement, released by Boeing yesterday, highlights the impact the 737 MAX grounding is having on Boeing. 

And it is only for one quarter.

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Boeing 737-9 MAX. Photo: Wikimedia Commons.

Publically, Boeing is putting the best perspective it can on the situation.

In the statement provided to Simple Flying, Boeing Chairman, President and CEO Dennis Muilenburg said the grounding and how it was managed was a “defining moment” for Boeing;

“We remain focused on safely returning the 737 MAX to service. 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.”

Boeing is cautiously optimistic going forward

Boeing is cautiously optimistic that the 737 MAX aircraft will return to service in the fourth quarter of 2019. The current accounting and financial guidance are reflecting that.

The grounding has also meant that the production of the 737 MAX has slowed. This is also impacting on Boeing’s balance sheet. The impact of the slow down in production will be felt for some quarters to come.

But Boeing does expect production to pick up in 2020, assuming the 737 MAX is returned to service by then. Boeing is currently producing 42 of the aircraft per month. In their statement, Boeing said they expected this to increase to 57 per month in 2020.

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Production of the 737 MAX has slowed but is expected to pick up in 2020. Photo: Airbus 777 via Flickr.

That any manufacturer could survive the prolonged grounding of a key product, survive the negative publicity, and survive the financial impact, is a testament to Boeing’s financial position and reputation. But both are taking a hit as the airlines continue to adjust timetables to account for their grounded planes.

Public confidence in the 737 MAX is being seriously undermined. While some people are happy to step foot in the MAX once it is cleared to fly, many others say they will avoid flying on the aircraft altogether.

Boeing’s financial advice yesterday reflects the new reality for the manufacturer. 

Further costs can be expected when it releases third-quarter 2019 financial advice in a few months time.

4 comments
  1. And this amount probably doesn’t (try to) make allowance for judicial fines that are in the pipeline, as a result of the various lawsuits running against Boeing for the MAX crashes. Ask Bayer/Monsanto how punitive damages can cripple a company.

  2. What i really wonder about in this whole ‘MAX’-story is that United ordered used 737s to be delivered in December (where ever they may come from?), while the MAx offically (and not hopefully) will reenter service in November. Something’s not right here and doesn’t make any sense from we know. What does United know that is tried to be kept a secret from the public????

    1. Well, even if the MAX is re-certified in November — which I severely doubt — it will still take ages to process/deliver the huge backlog of currently parked planes. So United, and other airlines, will still be receiving their ordered planes much later than originally planned. In the meantime, they can generate some revenue with the second-hand 737-700s, which are much cheaper than wet leasing replacement aircraft.

  3. At this point after the billions of dollars the 737 Max disasters will cost Boeing it would have been less expensive for Boeing to develop a brand new, composite, modern, single aisle design based on 787 type tech with taller gear to suit modern engines and no MCAS. That was the original engineering plan at Boeing but sales and upper management killed that idea as well as 346 passengers. Instead they tried to update an ancient 60s design once again with fatal results.

    Airbus/Bombardier will likely develop such an aircraft the capacity of the 737 based on the new C series/A220 with geared turbofan engines which will be much more efficient and ground 737s permanently.

    Even if the 737 Max flies again it will have a short life as it’s far behind in maximizing efficiency with today’s tech. Airlines and passengers love the new C Series/A220 and it hasn’t killed anyone yet. Bonus.

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