Seattle: Boeing Co. closed the financial books on a tragic and tumultuous 2019 by revealing that total costs for its grounded 737 Max will surpass $18 billion when the tab for restarting production later this year is included.
The planemaker is taking a $2.6 billion pretax writedown to compensate airlines for ballooning losses from a global flying ban that’s expected to stretch to midyear. Deferred production costs also grew by $2.6 billion, clipping the jet’s long-term profit potential, Boeing said in a presentation Wednesday. That’s on top of more than $9 billion in Max-related costs already disclosed.
Adding to the barrage of bad news, Boeing notched its first annual loss last year since 1997, when it shut down assembly lines amid a supplier meltdown. Looking ahead, the company expects “future abnormal costs” of about $4 billion as it slowly restarts Max production. That’s adding to the pressure on new Chief Executive Officer Dave Calhoun as he seeks to reset expectations and forge a recovery that in a best-case scenario will take years.
“I think he’s trying to grab all the bad news that he can, put it in the current period and then get on with life,” Bloomberg Intelligence analyst George Ferguson said before earnings were announced.
Boeing’s troubles went well beyond the Max in a quarterly earnings report that showed sales and profit plunging because of the crisis. In one small bright spot, however, the company burned $2.67 billion in free cash, which was less than expected by analysts.
“We recognise we have a lot of work to do,” Calhoun said in a statement. He said the planemaker had the financial liquidity to follow a “disciplined recovery process” and is committed to “restoring the long-standing trust that the Boeing brand represents with the flying public.”
The Chicago-based manufacturer confirmed a Bloomberg News report last week that it plans a further cut in production of the 787 Dreamliner, to 10 a month early next year. And Boeing set aside funds for an additional orbital flight in case Nasa requires the mission after the company’s Starliner spacecraft missed a rendezvous with the International Space Station last month.
Boeing climbed 1.9 per cent to $322.50 ahead of regular trading in New York. Through Tuesday, the shares had fallen 25 per cent since an Ethiopian Airlines jet slammed into a field March 10, killing all on board and plunging Boeing into one of the worst crises of the modern jet era. That crash came less than five months after a Lion Air jet went down off the coast of Indonesia.