Boeing says suffering $1 bn hit from 737 MAX crisis

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Aviation giant Boeing has suffered a $1 billion hit to its bottom line amid the crisis over its 737 MAX aircraft after two deadly crashes that grounded the plane and halted deliveries, the company said Wednesday.

Boeing also withdrew its 2019 profit forecast due to continued uncertainty about when the grounded jets will fly again, in its first quarterly earnings report since entering crisis mode.

The March 10 crash of an Ethiopian Airlines jet, which along with an October Lion Air crash claimed 346 lives. Regulators grounded the plane worldwide following the second crash, a move that also forced the company to halt new deliveries of its most-ordered plane, denting revenues.

Company executives sketched out the steps they need to take to return the 737 MAX to service, but offered no timetable, and also stressed the need to win back the trust of consumers, focusing pilots as key to reassuring anxious customers.

“This is a place where Boeing is going to make an investment,” Chief Executive Dennis Muilenburg said in a conference call. “We have to earn and re-earn the trust of the flying public, and that’s work ahead of us, and we take that very seriously.”

Boeing will “leverage the pilot voice,” he said. “That bond between the passenger and the pilot is one that is critical.”

The company’s share price climbed following the earnings report, reflecting relief that the financial damage from the 737 MAX crisis thus far was not worse.

“We have increased faith that Boeing will get the planes back into service and that they will be safe,” said Jim Corridore, an analyst at CFRA Research, who has a “Buy” recommendation on Boeing.

“We think it will not be until early summer at least, but no timetable has been released.”

– Higher costs –

The US aerospace giant gained $2.1 billion in profits in the first quarter, a decline of 13.2 percent from same period a year ago due in part to the $1 billion hit from the 737 program. Revenues dipped 2.0 percent to $22.9 billion.

Boeing also pulled its full-year profit forecast, citing “uncertainty of the timing and conditions surrounding return to service of the 737 MAX fleet.” The company in January projected higher earnings per share compared with last year, based on an expected revenue jump of as much as 10 percent.

The $1 billion hit in the quarter is the result of higher costs associated with maintaining the 737 building program and its staffing after Boeing cut production of the planes.

The company also spent additional funds in the quarter on a software fix to address problems in the anti-stall system believed to be a factor in both crashes, and for training associated with the fix.

The estimates do not include other expected costs, such as compensation to airlines for canceled flights, executives said on a conference call.

The company could also face costs from government probes and settlements with victims’ families.

“We expect our financial results to continue to be adversely impacted until we safely return the 737 MAX to service, ramp up production and resume deliveries,” said Chief Financial Officer Greg Smith.

Muilenburg said advance payments from customers for new 737 MAX, which represent a small portion of the overall price-tag, are “for the most part coming in per schedule.”

– Numerous government probes –

Boeing said it is “making steady progress” on the software fix and has conducted more than 135 test flights as it works with global regulators and airlines on the system.

But as of Tuesday night, the company still had not submitted a request a formal certification to the US Federal Aviation Administration, a source said.

After submitting the request, the next step will be to conduct a certification flight with the US Federal Aviation Administration, and then the company will need to win approval from international regulators, Muilenburg said.

Boeing is hoping to finalize regulatory approval by the end of May for its fix and to have the planes cleared to fly in July, according to a source familiar with the situation.

Despite the crisis, many analysts are optimistic about Boeing’s long-term prospects, given robust global aerospace demand. They expect Boeing will be successful in addressing the 737 MAX’s problems allowing the plane to return to service and continue to command the interest of airlines.

However, some caution that Boeing’s reputation has been damaged by the crisis that could deteriorate further with any additional missteps.

Boeing shares rose 0.5 percent to $375.82 in afternoon trading.