NEW YORK (REUTERS) - Boeing on Wednesday (April 24) abandoned its 2019 financial outlook, halted share buybacks and said lowered production due to the grounding of its fastest-selling 737 Max jet after two fatal plane crashes in five months had cost it at least US$1 billion (S$1.3 billion) so far.
The world's largest planemaker is facing one of the biggest crises in its 103-year history following the disasters on Lion Air in Indonesia on Oct 29 and another on Ethiopian Airlines on March 10, which together killed all 346 on board.
Chicago-based Boeing is now reckoning with a blow to its reputation and the financial cost of getting the planes back in the air. It met sharply lowered Wall Street profit estimates, largely due to stopping deliveries of the 737 Max jets and a slowdown in production.
The production slowdown alone has cost it US$1 billion so far, the company said, because the lower rate means the planemaker has to pay more for parts, which are priced according to the volume Boeing buys.
Boeing also booked unspecified charges related to developing a Max software fix and pilot training. Chief executive officer Dennis Muilenburg told analysts on a conference call that Boeing has confidence in its software fix and expects a certification flight with the US Federal Aviation Administration in the "near term" after completing more than 135 test and production flights.
"The timing of return to service for that Max will continue to be paced by ongoing work with global regulators and our customers," Muilenburg said. "If there's something that we can do to make aeroplane development programs or the certification process better and safer, we will pursue it."
A fuller picture of how Boeing plans to repair its image with the flying public and stem further financial damage will not emerge until the end of the second-quarter as 737 production cuts did not begin until mid-April.
Muilenburg said the company did not see any changes to the underlying certification process for its all-new 777X twin-aisle jetliner in light of the Max reviews and said the program remained on track for delivery in 2020. Boeing also continues to work "in parallel" on plans for a new mid-sized plane, although Muilenburg stressed the 737's return was a higher priority.
He also defended his role as both CEO and chairman of Boeing after calls from some shareholders that the jobs be divided.
"We think that is the right, most effective structure for our company," he said. "And I think that's, again, showing it to be the case even in the midst of this challenging situation."
Boeing shares were up 1.3 per cent. They are still down about 10 per cent since the Ethiopian Airlines crash, wiping almost US$25 billion off the company's market value.
SOFTWARE UPGRADE COMING
The crashes caused regulators worldwide to ground the 737 Max and triggered investigations into the aircraft's development by federal transportation authorities and the US Department of Justice.
Although safety experts have raised some questions over crew performance in both crashes, attention has focused on anti-stall software known as MCAS, which Boeing has acknowledged was a common link in the separate chains of events leading to both crashes.
Muilenburg insisted on Wednesday that "there was no surprise or gap or unknown here or something that somehow slipped through the certification process" but added that a board committee would review the company's aircraft development processes.
"We know exactly how the aeroplane was designed. We know exactly how it was certified," he said. "We've taken the time to understand that. That has led to the software update that we've been implementing and testing and we're very confident that when the fleet comes back up, the Max will be one of the safest aeroplane ever to fly."
Boeing cut production of the jets following the Max grounding to 42 aircraft per month, down from 52, and its operating cash flow in the first quarter was around US$350 million lower than a year earlier.
Reuters reported on Tuesday that Boeing told some 737 Max owners it was targeting US Federal Aviation Administration approval of its software fix as early as the third week of May and the ending of the grounding of the aircraft around mid-July as it resumes building 52 aircraft per month.
Boeing also took an impairment charge at its Boeing Capital financing unit and removed 210 aircraft from its order backlog to reflect concerns about customer credit quality.
It did not disclose the name of the airline involved but the move came days after India's Jet Airways halted operations after lenders rejected a plea for emergency funds.
Boeing said it would issue a new financial forecast when it has more clarity around the issues surrounding the 737 Max. In January, it said it expected full-year revenue of US$109.5 billion to US$111.5 billion and core earnings per share between US$19.90 and US$20.10.
The company repurchased US$2.3 billion of its shares in the latest quarter, all of which occurred prior to mid-March. Boeing bought back US$9 billion of its stock last year.
First-quarter operating cash flow declined to US$2.79 billion, from US$3.14 billion, missing the Wall Street's average estimate of US$2.82 billion.
Revenue fell 2 per cent to US$22.92 billion, below analysts'average estimate of US$22.98 billion.
Excluding certain items, Boeing said its core earnings fell to US$3.16 per share, in the quarter from US$3.64 per share, a year earlier. That matched analysts' average estimate.