Boeing swung to its first annual loss since 1997 on mounting 737 MAX costs and indicated it would again cut production of its bigger 787 Dreamliner aircraft, currently its main source of cash.
The aircraft manufacturer also braced for the impact of China’s deadly coronavirus, as airlines were being forced to issue refunds and cancel flights.
Costs related to the global grounding of Boeing’s once fast-selling 737 MAX reached $14.6 billion in 2019 and the aircraft maker warned of another $4 billion in charges in 2020 due to the expense of freezing and slowly restarting the jets’ production.
The MAX grounding in March after two crashes that killed 346 people forced the jet manufacturer to freeze production of the aircraft model this month and led to the ouster of former Chief Executive Officer Dennis Muilenburg.
Boeing reports its first annual loss since 1997 on mounting 737 MAX (pictured) costs and indicated it would again cut production of its bigger 787 Dreamliner aircraft, currently its main source of cash
The MAX grounding in March after two crashes that killed 346 people forced the jet manufacturer to freeze production of the aircraft model this month and led to the ouster of former Chief Executive Officer Dennis Muilenburg (pictured)
Dozens of grounded Boeing 737 MAX aircraft are seen parked in an aerial photo at Boeing Field in Seattle, Washington, last year. ‘We recognize we have a lot of work to do,’ Boeing’s new President and CEO David Calhoun said in a statement
‘We recognize we have a lot of work to do,’ Boeing’s new President and CEO David Calhoun said in a statement.
The aircraft manufacturer had previously estimated an $8 billion price tag for the MAX fallout.
Boeing shares rose 3% in premarket trading, as some analysts had expected an even larger charge for 737 MAX costs. The stock has lost about a quarter of its value since early March 2019.
Chicago-based Boeing has been updating the 737 MAX flight control system and software to address issues believed to have played a role in both crashes.
The US Federal Aviation Administration has suggested that it could approve the MAX to fly again before mid-year, longer than Boeing had initially expected.
Calhoun told CNBC on Wednesday he believes the company can meet the certification timeline.
People stand near collected debris at the crash site of a 737 MAX jet near Bishoftu, a town some 60 kilometres southeast of Addis Ababa, Ethiopia, on March 11, 2019. The plane flown by Ethiopian Airlines crashed a day earlier, with 149 passengers and eight crew on board
People stand near collected debris at the crash site of a 737 MAX jet which had been flown Ethiopia Airlines when it crashed on March 10 en route from Addis Ababa to Nairobi
Chinese tourists wearing protective masks wait in line at Don Mueang airport in Bangkok, Thailand, 29 January 2020. Boeing and the rest of the airline industry is braced for the disease’s impact on air travel
Boeing’s 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.
The company also booked more charges on its military tanker and space programs.
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.
A 737 MAX production line inside the Boeing factory is pictured in Renton, Washington, in December
Boeing reported negative free cash flow of $2.67 billion for the fourth quarter ended Dec. 31, compared with a positive free cash flow of $2.45 billion a year earlier.
The MAX charges include $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.
‘The largest positive here is that the charges booked in the quarter came in well below our expectations,’ Credit Suisse analyst Robert Spingarn wrote in a note.
Southwest Airlines Boeing 737 MAX aircraft are parked on the tarmac after being grounded at the Southern California Logistics Airport in Victorville, California