- In this March 14, 2019, file photo, a worker
walks next to a Boeing 737 MAX 8 airplane parked
at Boeing Field in Seattle. Boeing said Thursday,
July 18, it will take a $4.9 billion charge to
cover possible compensation to airlines whose Max
jets remain grounded after two deadly accidents.
DALLAS — Boeing said
Thursday it is booking a $4.9 billion charge to cover
possible compensation to airlines that have canceled
thousands of flights since the 737 Max jet was grounded
after two deadly accidents.
The airplane builder also
said the Max-related fallout will cut $5.6 billion from
its revenue and pre-tax earnings in the
The Chicago-based company
said the calculations were based on an assumption that
regulatory approval for the plane's return to flying
will begin early in the fourth quarter.
That timing is earlier
than some analysts expected and may have contributed to
a rally in Boeing shares in after-hours trading. Boeing
is scheduled to report its quarterly results next week.
Boeing also raised its
estimate of Max production costs by $1.7 billion because
output will be curtailed longer than expected.
Boeing is still working
on fixing flight-control software that appeared to play
a role in crashes that killed 346 people off the coast
of Indonesia and in Ethiopia. In March, regulators
grounded the Boeing 737 Max and the company suspended
deliveries of new jets.
The $4.9 billion charge
does not include amounts that Boeing may pay in the
dozens of lawsuits filed by families of crash victims.
Boeing this week hired a victims-compensation expert to
oversee a $50 million relief fund for families, which
the company said was separate from the lawsuits.
The $5.6 billion hit to
pre-tax earnings is more than half of Boeing's $10.5
billion profit for all of 2018.
"The Max grounding
presents significant headwinds and the financial impact
recognized this quarter reflects the current challenges
and helps to address future financial risks,"
Chairman and CEO Dennis Muilenburg said in a statement.
CFRA Research analyst Jim
Corridore said putting a figure on airline compensation
and the potential return of the plane in the fourth
quarter provided important clarity around the damage
inflicted by the grounding.
"We expected a large
charge, and this is in the order of magnitude we were
expecting," he said. "In general, we are happy
to have some details."
The plane's return has
been pushed back several times, most recently after
Federal Aviation Administration pilots found a new flaw
while testing Boeing software changes in a flight
That discovery prompted
Boeing to say in late June that it expected to present
its proposed fix to the FAA "in the September
timeframe." It would likely take several more weeks
for the FAA and other regulators to approve Boeing's
work, give pilots additional training, and bring
long-parked jets up to flying condition.
Boeing says concessions
to airlines will be spread over several years but it is
taking the entire estimated expense as a charge in the
second quarter. Boeing did not specify what form the
compensation would take, but hinted that it would not be
entirely in cash.
Despite the grounding,
Boeing has kept building Max jets, although at a reduced
rate of 42 per month, down from 52, since April. The
company said Thursday that it assumed it can raise
production gradually to 57 per month in 2020.
Boeing has delivered
fewer than 400 Max planes but has unfilled orders for
Shares of Boeing Co. rose
$7.54, or 2.1%, to $368.65 during after-hours trading.
Before the announcement, they fell $8.41 to end regular
trading at $361.11.