Boeing reports biggest quarterly loss as 737 Max grounding drags on

Boeing reported a loss of US$2.9 billion for the second quarter, a huge drop from the US$2.2 billion profit posted in the same period of last year. PHOTO: EPA-EFE

NEW YORK (AFP) - Boeing reported its biggest loss on Wednesday (July 24) as the 737 Max crisis drags on, and the company warned that it could be forced to temporarily halt production of the plane if the grounding is extended much longer.

The aviation giant's troubles have been mounting since the Max was taken out of service worldwide in March following two deadly crashes that claimed 346 lives, and it already set aside nearly US$5 billion (S$6.8 billion) to compensate customers.

But the warning that it might have to suspend production of the aircraft jolted Wall Street, prompting losses to accelerate during a late-morning conference call with Boeing executives that reinforced the cloudiness surrounding the outlook.

Getting the Max back in the air is a "complex" multi-regulator process "that will take time to get done", Boeing chief executive Dennis Muilenburg said.

"We have a clear understanding of the work that has to be done but there is still uncertainty in the timeline."

Boeing reported a loss of US$2.9 billion for the second quarter, a huge drop from the US$2.2 billion profit posted in the same period of last year.

The loss was not surprising following last week's announcement the company had set aside US$4.9 billion after taxes to compensate airlines for cancelled flights and the delay in plane deliveries.

Meanwhile, revenues in the latest quarter tumbled 35.1 per cent to US$15.8 billion, reflecting the hit suffered due to halted deliveries of the 737 Max, a top-selling plane.

Analysts from Cowen, an investment bank, pointed to a "strong performance" in production of Boeing's 787, another big seller, but noted that the company pushed back first flight of the 777X, a new long-haul plane under development.

The company has blamed the delay on problems with the engine, which is being built by General Electric.

Adding to the confused outlook, Boeing has still not updated its full-year profit forecast after withdrawing its targets in April due to uncertainty about the Max.

However, at the same time, it boosted dividend payments in the second quarter. Compared with last year, Boeing spent US$1.2 billion on dividends, up 20 per cent from the year-ago period.


Temporarily halting output "is not something we want to do but it is an alternative we have to prepare for as a smart part of our thorough and disciplined process here to make sure we're covering all scenarios," Mr Muilenburg said.

Boeing in April cut production on the Max to 42 a month from 52, storing planes until the jet is cleared to fly. But it has not cut jobs at its Washington state factory.

The crisis already has rippled through the US economy, hitting manufacturing output as well as exports, which widens the politically sensitive trade deficit and could drag on growth.

Treasury Secretary Steven Mnuchin said on Wednesday the Max is a priority for the White House.

"We want to absolutely make sure that before the 737 Max flies that it's safe," Mr Mnuchin told CNBC. "We need to figure out how they continue to compete against Airbus because they are a leading US company."

Airlines have repeatedly pushed back the target date for returning the jets to service as the regulatory timeframe has dragged on.

The Federal Aviation Administration in June identified problems with microprocessors, which extended the timeline.

Boeing is developing a software fix to address a problem the "MCAS" flight-handling system linked to both crashes.

Mr Muilenburg said the company is in daily contact with the FAA and still expects to submit its software fix to regulators in September, with approval about a month later. However, that timeframe is "dynamic".

He also said the company also is in "the middle of working our way" through the FAA microprocessor issue.

"We know we're making progress," he said. "But until we complete all of the certification activities, there's always some risk of new items opening up."

Boeing shares have lost about 14 per cent since the Ethiopian Airlines crash in March, while the broader S&P 500 has gained about 10 per cent.

Boeing shares ended 3.1 per cent lower at US$361.43.

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