Boeing to recognize 737 MAX costs in Q2
Boeing announced it will recognize an impact to earnings relating to the 737 MAX grounding when it releases second-quarter 2019 results on July 24. Boeing states it will record an after-tax charge of $4.9 billion ($8.74 per share) in connection with an estimate of potential concessions and other considerations to customers for disruptions related to the 737 MAX grounding and associated delivery delays. This charge, according to the company, will result in a US$5.6 billion reduction of revenue and pre-tax earnings in the quarter.
While the entire estimated amount will be recognized as a charge in the second quarter, the company continued to explain that it expects other considerations related to the 737 MAX to be provided over a number of years.
Additionally, Boeing states estimated costs to produce the aircraft in the 737 accounting quantity increased by US$1.7 billion in the second quarter, primarily due to higher costs associated with a longer than expected reduction in the production rate. The increased 737 program costs, explains Boeing, will reduce the margin of the 737 program in the second quarter and in future quarters.
For purposes of the second-quarter financial results, Boeing has assumed that regulatory approval of 737 MAX return to service in the U.S. and other jurisdictions begins early in the fourth quarter 2019. This assumption reflects what the company describes as its best estimate at the present time.
The second-quarter financial results will also assume a gradual increase in the 737 production rate from 42 per month to 57 per month in 2020. “We remain focused on safely returning the 737 MAX to service,” said Boeing chairman, president and CEO Dennis Muilenburg. “This is a defining moment for Boeing. Nothing is more important to us than the safety of the flight crews and passengers who fly on our airplanes. The MAX grounding presents significant headwinds and the financial impact recognized this quarter reflects the current challenges and helps to address future financial risks.”