Boeing will take a $5 billion charge for its 737 Max troubles

Posted at 3:37 PM, Jul 18, 2019
and last updated 2019-07-19 10:44:18-04

Boeing will take a roughly $5 billion hit this quarter because of the 737 Max crisis.

The company said Thursday that it will record a $4.9 billion after-tax charge in the second quarter “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.” The charge amounts to $8.47 a share.

Shares of Boeing rose about 2% in after-hours trading. The company reports second quarter earnings next week.

The reduction comes to about $5.6 billion in revenue and earnings before taxes. But that is only part of the cost of the crisis to the aircraft maker.

Boeing said its cost of building the plane increased by an estimated $1.7 billion, as it cut back on the pace of the production during the grounding. But that cost will be included in its operating results and not broken out as a special charge.

Thursday’s announcement also does not mention anything about potential costs related to litigation against the company. Boeing announced earlier this month that it will pay $100 million to help the families of the victims of the crashes. Boeing noted people who accept money from the compensation fund will not be required to give up the right to pursue legal action against the company.

In the past, Boeing has been reluctant to quantify the cost of compensation to its airline customers. It never broke out what it paid for the grounding of the 787 Dreamliner back in 2013.

Airlines have been telling their investors that they expected to reach an accommodation with Boeing on compensation about the 737 Max . That compensation could come in different forms, Boeing said on Thursday, and could be paid out over a number of years. Boeing could reduce the price of future purchases or services or spare parts that it provides to airlines.

The announcement represents the company’s fullest accounting to date of the cost of grounding its best-selling jet, which hasn’t been able to fly since March. That month, a 737 Max crashed in Ethiopia and killed everyone on board. It was the second fatal crash involving that type of plane in months.

It’s not clear when the plane will return to the air, and it’s possible that it could will be grounded into late 2019 or early 2020. Experts had expected the jets to be back in the air in August — but those efforts were delayed after another potential issue with the 737 Max was discovered during testing.

A Boeing official told CNN Business in June that the company does not expect to submit a new software fix to the US Federal Aviation Administration for testing until September.

On Thursday, the company said that its “best estimate” is that regulatory approval of the Max’s return to service will begin early in the fourth quarter. The actual timing could differ, the company added.