Boeing on Wednesday said the costs associated with the grounding of the 737 Max were likely to surpass $18 billion, a significant increase over earlier forecasts.
The estimate, announced during Boeing's quarterly earnings report, is the company's most recent approximation of just how expensive it will be to return the Max to service, compensate airline customers and restart the 737 factory.
Boeing continues to grapple with the fallout from the crashes of two Max jets in 2018 and 2019, which killed 346 people and led to the worldwide grounding of the plane in March. In addition to the rising costs, the company has a new chief executive and is dealing with the temporary shutdown of the 737 factory and a variety of challenges in other parts of the business.
Boeing on Wednesday said the costs associated with shutting down and restarting the factory would amount to about $4 billion. The decision to temporarily halt production of the Max was made last month, and Boeing had not previously given guidance on what the move would cost.
The company also said the cost of compensating airlines that have lost sales as a result of the grounding of the Max was now expected to reach $8.3 billion, up from a previous estimate of $5.6 billion. That figure represents a mixture of cash payments to airlines and discounts on future sales.
And Boeing said that as a result of the grounding, which has lasted nearly a year now, it expected the overall cost to produce the 737 Max to rise to $6.3 billion in the years ahead, up from an earlier estimate of $3.6 billion.
In total, the anticipated costs now equal more than $18.6 billion, or nearly 20% of Boeing's annual sales before the Max was grounded. For the full year, Boeing reported revenue of $76.6 billion, a 24% decline from the previous year.
The Max crisis continued to weigh on the company's financial results. Revenue for the quarter was $17.9 billion, down 37% from the same time a year earlier, before the jet was grounded.
Boeing also said it would incur a charge of $410 million as a result of a botched rocket launch late last year, when a space capsule it designed for NASA failed to reach the correct orbit.
Wall Street analysts and traders viewed the results favorably, sending Boeing shares up 1.7% in New York trading.
"Taken together, the 737 items are a bit less than we feared," said Jonathan Raviv, an analyst at Citi. "But we acknowledge they're both moving numbers lacking regulator clarity."
This was the company's first quarterly earnings report with David Calhoun at the helm, after the ouster of the previous chief executive, Dennis Muilenburg.
Since taking over this month, Calhoun has tried to set himself apart from Muilenburg, who was pushed out after alienating airline customers and the Federal Aviation Administration with overly optimistic projections about when the Max would return to service.
"We recognize we have a lot of work to do," Calhoun said in a statement. "We are focused on returning the 737 Max to service safely and restoring the long-standing trust that the Boeing brand represents with the flying public. We are committed to transparency and excellence in everything we do."
There is still no precise timeline for the return of the Max. Last week, Boeing said that it did not expect regulators to approve the plane to fly until June or July, though that estimate was conservative. If regulators do not find any additional problems with the plane, the Max could return to service before then, though new issues cropped up earlier in the process.
The company has enjoyed rare bits of good news in recent weeks. It successfully completed the first flight test of the 777X, its new wide-body jet. And the trade deal the White House struck with China included a commitment for the sale of new U.S. aircraft to Chinese customers.
Yet Boeing still faces big challenges. The grounding of the Max is costing the company many billions of dollars. The fatal crashes have damaged Boeing's reputation, and the company's research shows that 40% of regular travelers are unwilling to fly the Max. Other Boeing programs, including its work for NASA and the U.S. military, are behind schedule.
On a conference call with the news media, Calhoun, who was chairman of the company before becoming chief executive, said he was working to change Boeing's culture. "I see things clearly that have to change," he said. "My job is to get on with it and make the changes that we always thought were necessary."
The Max is Boeing's most important product, representing hundreds of billions of dollars in expected sales. But just over a year after it was introduced in 2017, a Max crashed off the coast of Indonesia when an automated flight-control system was triggered based on data from a faulty sensor. Less than five months later, a second Max crashed in Ethiopia under similar circumstances, leading to the worldwide grounding.
That has thrust Boeing into the biggest crisis in its history and led to the temporary shutdown of its 737 factory in Renton, Wash. Boeing has halted deliveries of the Max during the grounding, and it now has about 400 completed planes in storage. It will take well over a year to deliver those to customers.
Boeing has developed a software update and has been working with regulators to win approval to return the plane to service. But the grounding is now likely to last at least a year.
Business on 01/30/2020