Boeing 737 Max. Picture: REUTERS / WILLY KURNIAWAN
Boeing 737 Max. Picture: REUTERS / WILLY KURNIAWAN

New York — Boeing could report its biggest loss on Wednesday, sagging under the weight of $5.6bn in costs so far due to the crisis surrounding the 737 MAX aircraft.

The top-selling plane has been grounded worldwide since March 13, following a second devastating crash. The Ethiopian Airlines catastrophe that killed 157 passengers and crew, came on the heels of a Lion Air crash that killed 189 people in 2018.

Boeing’s second-quarter results are likely to be ugly after the aerospace companylast week announced it would set aside $5.6bn ($4.9bn after taxes) to compensate airlines for cancelled flights and the delay in plane deliveries.

That move could result in a net loss of more than $3bn for the second quarter, judging from analyst estimates on S&P Capital IQ.

Boeing’s revenues are projected to be $19.2bn, a drop of more than 25%, compared with the same period of 2018, hit by the halt to deliveries of the MAX.

Costs from the MAX crisis so far amount to about $8bn, but the total hit will not be known for some time.

The largest hit ($5.6bn) is for compensation to Boeing customers whose operations were disrupted by the grounding of the planes, forcing the airlines to cancel flights.

Boeing said last week the compensation could come in “various forms of economic value”, meaning it could pay airlines in rebates on future plane orders or for maintenance, and not only in cash.

The manufacturer also has recognised $2.7bn in costs due to cutting its production of the 737 MAX to 42 a month from 52.

But the company has maintained employment levels in spite of the diminished output, resulting in lower profit margins.

Boeing faces numerous lawsuits filed by families of the victims of the two crashes. The company announced plans to donate $100m to victims and communities affected by the crashes, but that will not be the end of the story. It also could potentially face regulatory penalties, including from a criminal investigation by the US justice department.

Ratings agencies Moody’s and Fitch on Monday lowered the outlook on Boeing debt to “negative,” citing the MAX situation, which Fitch said would make Boeing’s reputational standing a “watch item for the next year or more”.

Aviation regulators in multiple countries continue to investigate the causes of the Ethiopian Airlines and Lion Air crashes.

US criminal investigators are probing Boeing’s decisions about a flight-handling system that has been linked to both crashes, known as the manoeuvring characteristics augmentation system or MCAS.

They are looking into why Boeing did not develop specific training for pilots on the MCAS, and why a “disagree light” system meant to signal a problem in the system was sold as a supplementry feature instead of an essential safety item, a source said.

Boeing continues to work on modifications of the MCAS to get the planes back in the air.

The aerospace company is also developing a training programme for pilots and working to address problems with a microprocessor identified during US federal aviation administration simulator testing in June.

Boeing is expected to present its fixes to regulators in September, according to industrial sources.

Boeing last week set a target date of early in the fourth quarter to begin receiving regulatory approval from the US and other authorities. Analysts consider this timeframe very ambitious for the global fleet, although the US and Canada could move more swiftly than other countries.

Some marketing experts think a rebranding of the MAX could benefit Boeing. But so far, Boeing is not making any changes.

“Our immediate focus is the safe return of the 737 MAX to service and re-earning the trust of airlines and the travelling public,” a company spokesman said, “but we have no plans at this time to change the name of the 737 MAX.”

Boeing executives have blamed lags in the 777X plane on issues with the engine, which is being developed by General Electric. A flight test on the long-haul plane that had been planned for the summer was pushed back to the end of 2019. 

Boeing is also developing a new model aircraft (NMA) for medium distances, that has generated interest from major carriers eager to see an alternative to a plane from rival Airbus.

“We continue to have some level of effort on NMA, including a team dedicated to the evaluation of the business case,” a Boeing spokesman said. But safely returning the MAX to the air is the top priority.

AFP