Boeing Takes $4.9 Billion Charge Over 737 MAX Grounding

Boeing will take a USD$4.9 billion second quarter after-tax charge on the estimated disruptions caused by the grounding of the 737 MAX.

The estimate includes potential concessions to MAX customers for the service disruptions and associated delivery delays to the aircraft. The charge will reduce revenue and pre-tax earnings by $5.6 billion in the quarter.

Boeing cautions that while the charge will be taken in the second quarter, it expects any potential concessions or considerations to be provided to customers over a number of years.

The longer than expected reduction in the MAX’s production rate from 52 to 42 per month will also push estimated costs up by $1.7 billion in the second quarter. The increased costs will reduce the 737’s margin in the second and future quarters, the company said.

Boeing chief executive Dennis Muilenburg called it a defining moment for the company. “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 has assumed that regulatory approval of the 737 MAX’s return to service will happen early in the fourth quarter, but said the actual timing of the return to service could differ.

It is also assuming a gradual increase in the 737 production rate from the temporary level of 42 per month to 57 next year. Aircraft produced during the period the MAX is grounded are expected to be delivered over several quarters following a return to service.