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Boeing Abandons Outlook, Stops Buybacks After 737 MAX Woes

Boeing Abandons Outlook, Stops Buybacks After 737 MAX Woes

Wednesday, 24 April 2019 10:53 AM

Boeing Co. on Wednesday abandoned its 2019 financial outlook, halted share buybacks and announced $1 billion in increased costs due to the grounding of its fastest-selling 737 MAX jet after two fatal plane crashes in five months.

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.

During a conference call later on Wednesday, investors will look for answers on how Boeing plans to repair its image with the flying public and stem further financial damage. A fuller picture will not emerge until the end of the second-quarter as 737 production cuts did not begin until mid-April.

Investors will also look for details on how the MAX crisis will hit development of Boeing’s all-new 777X twin-aisle jetliner and a potential new mid-market airplane, which is central to its fight with arch-rival Airbus SE in the lucrative longer-haul market and also expected to lay the industrial foundation for an eventual 737 replacement.

Boeing said on Wednesday it sped up production of its 787 Dreamliner to 14 aircraft per month from 12 in the first quarter, while the 777X remained on track for flight testing this year with delivery in 2020.

Boeing shares (BA) rose 1.1 percent in early trading.


The crashes caused regulators worldwide to ground the 737 MAX and triggered investigations into the aircraft’s development by federal transportation authorities and the U.S. 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.

Boeing said it booked unspecified charges related to developing a fix for MCAS and pilot training, and was making steady progress toward certification of the software after completing more than 135 test and production flights.

Boeing cut production of the jets following the grounding of the planes to 42 aircraft per month, down from 52, and its operating cash flow in the first quarter was around $350 million lower than a year earlier.

The production slowdown cost Boeing $1 billion, 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.

Reuters reported on Tuesday that Boeing told some 737 MAX owners it was targeting U.S. 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.

“The most important issue for the company now is the timing of when deliveries can restart,” Sanford C. Bernstein & Co analyst Douglas Harned wrote in a note to clients after the results.

Boeing said it would be issuing 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 $109.5 billion to $111.5 billion and core earnings per share between $19.90 and $20.10.

The company said it repurchased $2.3 billion of its shares in the latest quarter, all of which occurred prior to mid-March. Boeing bought back $9 billion of its stock last year,

First-quarter operating cash flow declined to $2.79 billion, from $3.14 billion, missing the Wall Street’s average estimate of $2.82 billion.

Revenue fell 2 percent to $22.92 billion, below analysts’ average estimate of $22.98 billion.

Excluding certain items, Boeing said its core earnings fell to $3.16 per share, in the quarter from $3.64 per share, a year earlier. That matched analysts’ average estimate.

© 2019 Thomson/Reuters. All rights reserved.

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Boeing Co. on Wednesday abandoned its 2019 financial outlook, said it halted share buybacks in mid-March, and announced $1 billion in increased costs due to the grounding of its 737 MAX jets.
boeing, outlook, 737 max
Wednesday, 24 April 2019 10:53 AM
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