As 737 Max Grounding Drags On, Boeing's Bottom Line Takes A Hit

Jul 24, 2019
Originally published on July 25, 2019 1:40 pm

Updated at 1:10 p.m. ET

Four months after its top-selling 737 Max airliner was grounded worldwide, Boeing on Wednesday announced a 35% drop in revenues and a loss of $2.9 billion in the second quarter. Last week, the company announced a $4.9 billion charge due to costs tied to the grounding.

Boeing said that because of continued uncertainty about when the 737 Max will return to service, it's delaying any new financial forecasts.

The company's $15.8 billion in revenues for three months that ended June 30 was down sharply from the $24.3 billion it reported a year earlier. Boeing's $2.9 billion loss for the latest quarter marked a reversal from the same period in 2018, when it recorded a $2.2 billion profit.

Boeing said its deliveries of commercial planes sank 54% — to 90 in the second quarter from 194 a year earlier.

Aviation regulators around the world grounded Boeing's top-selling plane in March after a pair of crashes in Indonesia and Ethiopia killed a total of 346 people.

Investigators looking into the cause of the crashes have focused on computer software installed after a plane redesign. The software was intended to stabilize the aircraft, but something went wrong, forcing the planes into repeated nosedives.

The Federal Aviation Administration found a new problem in Boeing's Max plane in June, meaning it could be several more months before the plane is certified to fly passengers again.

Boeing has already said it expects the plane to return to service by the end of this year. But on Wednesday the company said it's working with regulators to determine when the plane can fly again.

"We are confident that when the 737 Max returns to service it will be one of the safest airplanes ever to fly," Chief Executive Officer Dennis Muilenburg said during a conference call with analysts Wednesday. "That is the most important thing here. We're going to take the time necessary to ensure it's safe."

But he also warned that if Boeing can't resume delivery of the aircraft when it expects to, the company could be forced to reduce or even temporarily stop production of the planes. Despite the grounding in March, Boeing continues to manufacture the 737 Max, albeit at a slower pace than before, and store the planes in Texas and Washington state.

In the aftermath of the crashes, Boeing has been criticized for failing to train pilots adequately in how the new system worked.

With the 737 Max grounded, airlines around the world have had to cut flights and rearrange schedules. American Airlines said earlier this month that it canceled 7,800 flights during the second quarter of this year because the planes couldn't fly, while European budget carrier Ryanair has had to delay expansion plans and expects to fly 5 million fewer passengers next year.

"We are at the mercy of Boeing and the regulators," Ryanair CEO Michael O'Leary said in a conference call with analysts this month.

Boeing is one of the largest U.S. companies, with tentacles stretching throughout the economy, and economists expect the grounding of the plane to affect overall growth.

"We're already showing some signs of slowing momentum in the U.S. economy and slowing business investment overall, and this latest saga pertaining to the 737 Max is likely to continue to weigh on business investment," says Gregory Daco, chief U.S. economist at Oxford Economics.

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MARY LOUISE KELLY, HOST:

Boeing says it is hoping its troubled 737 MAX plane will fly again this year. But if that doesn't happen, the company is preparing to slow or even stop production of the aircraft. It has been four months now since regulators around the world grounded the jets after a pair of crashes killed nearly 350 people. NPR's Jim Zarroli has the latest.

JIM ZARROLI, BYLINE: The 737 MAX is Boeing's best-selling plane by far, and the company took a huge financial hit when regulators around the world ordered the planes grounded. Today Boeing said its revenues were down 35% compared to the same time last year. It's still building the planes but at a slower pace. And they're sitting idle in Texas and Washington state. But it can't deliver the finished planes to its customers - the airlines. Speaking to investors today, Boeing's CEO Dennis Muilenburg called the grounding of the plane a defining moment for the company, and he predicted that Boeing would emerge from the fiasco stronger and better.

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DENNIS MUILENBURG: We are confident that when the 737 MAX returns to service, it will be one of the safest airplanes ever to fly. That is the most important thing here. We're going to take the time necessary to ensure it's safe.

ZARROLI: But Muilenburg also said regulators around the world will decide when the plane will fly again. And if they don't clear the 737 MAX to fly by the end of the year, Boeing could stop producing the planes altogether, at least temporarily. That could have ramifications for airlines, for passengers and even for the U.S. economy as a whole. Boeing is, by far, the country's biggest exporter. And its aircraft contain parts made all over the country, so any slowdown in production could have an impact on growth. Even the country's treasury secretary, Steve Mnuchin, weighed in on the company's troubles today.

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STEVEN MNUCHIN: Boeing's a very strong company. They got a lot of cash flow. They've got to fix this issue so that we are sure that it is safe.

ZARROLI: Meanwhile, as the planes sit in storage waiting for permission to fly, airlines everywhere are having to cut flights and rearrange schedules. American Airlines says it's canceled 7,800 flights during April, May and June. The European budget carrier Ryanair says it will fly 5 million fewer passengers next year because it can't get the planes it needs. If Boeing can't get the 737 MAX flying again, it risks losing credibility with a lot of the airlines that buy its planes - not to mention the flying public as a whole.

Jim Zarroli, NPR News. Transcript provided by NPR, Copyright NPR.