News / Economy

Boeing expects cost of 737 Max crisis to exceed $18 billion

Thursday, 30 January 2020 1:23 PM [ Last Update: Thursday, 30 January 2020 2:54 PM ]

A Boeing 737 MAX 9 airplane sits on the tarmac at the Boeing Renton Factory in Renton, Washington, on March 12, 2019. (AFP photo)

US aerospace company Boeing said on Wednesday it expects the total cost of the 737 Max grounding to exceed $18 billion, more than double its previous estimate, following a year of intense scrutiny and industrial setbacks set off by twin fatal crashes of its flagship jetliner.

New Boeing CEO David Calhoun reported a loss of $636 million on $76.6 billion in revenue for all of 2019, its first annual loss in more than two decades.

Boeing added another $9.2 billion to charges for concessions to airlines that have canceled thousands of Max flights and higher costs related to compensation, doubling its estimate of the total financial hit from the crisis to $18.6 billion.

Boeing also indicated it would cut production of its bigger 787 Dreamliner aircraft.

The Max was grounded last March, after two crashes within five months killed 346 people in Indonesia and Ethiopia.

The crisis torpedoed sales and deliveries of new jetliners, leaving Boeing far behind rival Airbus. It caused a shutdown in Max production, layoffs at suppliers, and led to the firing of CEO Dennis Muilenburg.

US airlines that own Maxes – Southwest, American and United – don’t expect it back until after the peak of the summer travel season.

Boeing has also been embarrassed in recent weeks by the disclosure of years-old internal messages in which test pilots and other key employees raised safety concerns about the Max, even saying they wouldn't put their families on it, while the plane was in development and testing.

Calhoun called the messages “horrible” and criticized company leaders who didn't disclose the messages right away. He said board members were kept in the dark.

The economic damage has rippled beyond Boeing to its suppliers. General Electric on Wednesday forecast jet engine shipments for the Max would fall by half in 2020 compared with 2019 as a result of the production freeze, and it forecast lower revenue growth and profits this year, partly as a result.

Credit rating agencies have downgraded the aerospace manufacturer’s debt, though it remains investment grade. The company, which recently secured a $12 billion loan, reported $27.3 billion in debt at the end of the fourth quarter.

(Source: Agencies)

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