Boeing to pay $443 million to airlines for Max 9 grounding as losses and problems mount

Boeing to pay $443 million to airlines for Max 9 grounding as losses and problems mount
  • PublishedApril 25, 2024

Boeing reported a slightly smaller loss in the first quarter compared to the same time a year ago, but said fixing the problems that got attention after the Alaska Air incident will push back its financial recovery and cost it $443 million in compensation to its airline customers.

Boeing reported a core operating loss of $388 million, or $1.13 a share, from the $440 million it lost on that basis a year earlier. That was significantly less than analysts’ forecast of $1.63 a share in the quarter. But the improvement came from outside its key commercial airplanes unit, where losses from operations nearly doubled to $1.1 billion.

Revenue tumbled $1.4 billion, or 8% to $16.6 billion, as the problems at the airplane maker resulted in a sharp drop in deliveries of jets to its airline customers. The company gets most of its money from sales of commercial planes only upon deliveries to customers.

The slightly better than expected financial results don’t make up for a company struggling with questions from Congressregulators and the traveling public about the quality and safety of its aircraft. It is not only scrambling to repair its badly damaged reputation but also to satisfy airline customers being hurt by not receiving the aircraft they had been promised. Boeing said it is taking the necessary steps to fix the quality issues. But those fixes will continue to cause additional losses and missed delivery targets in the months ahead.

Boeing said it would produce fewer 737 Max jets than it originally planned for the rest of this year as it tries to fix problems on its assembly lines. Production of its larger 787 Dreamliner will also be limited by supplier issues, it said.

“We will take the time necessary to strengthen our quality and safety management systems, and this work will position us for a stronger and more stable future,” said CEO Dave Calhoun, who announced during the quarter his plans to leave his post by the end of the year.

The company said the results were hurt by the compensation to airline customers for the three-week grounding of the 737 Max 9 jets, following a January 5 incident in which a door plug blew off of an Alaska Airlines flight leaving a gaping hole in the side of the plane shortly after take-off.

Plastic covers the exterior of the fuselage plug area of Alaska Airlines Boeing 737 Max 9 where a door plug on the plane blew off on a January 5 flight. The incident has sparked new focus on problems with the safety and quality controls at Boeing.

Plastic covers the exterior of the fuselage plug area of Alaska Airlines Boeing 737 Max 9 where a door plug on the plane blew off on a January 5 flight. The incident has sparked new focus on problems with the safety and quality controls at Boeing. NTSB/Handout/Getty Images

Alaska Air and United Airlines, the two carriers with the most 737 Max 9 planes in their fleets, have already announced they had reached compensation agreements with Boeing.

The incident has sparked a series of investigations into Boeing by the National Transportation Safety Board, the Federal Aviation Administration and the Justice Department, the latter of which could expose the company to criminal liability. It also focused attention on the safety and quality of its aircraft, and its way of treating employees who raise concerns about those issues, including congressional hearings.

Boeing has said it has made a new commitment to improving its quality and safety issues and that it wants employees with concerns to bring them forward.

Calhoun said he’s confident that Boeing will be able to make the changes it needs to return to profitability for the first time since 2018, but he said the changes it will be making will delay the timeline to be profitable once again.

“While this effort will slow our recovery timing, we are now seeing proof points that give us confidence that we’ll begin to stabilize and improve performance moving forward,” he said on the company’s investors call.

The company would not give any guidance for how much money it will lose this year or exactly when it expects to be profitable. Calhoun said the company is confident with its goal of producing positive cash flow of $10 billion a year, although he said it is now looking to do that later in the 2025 to 2026 window it had set as its goal.

“We are absolutely committed to doing everything that we can to make certain our regulators, our customers, and most importantly, our employees and the public are 100% confident in Boeing,” he said. “It is important that our people and our stakeholders understand how promising Boeing’s future looks. Demand across our portfolio remains incredibly strong. Our people are world class. There’s a lot of work in front of us, but I’m proud of our team and remain fully confident in our future.”

But credit rating agency Moody’s doesn’t have as much confidence in Boeing’s outlook for turning things around. It downgraded the company’s credit rating to Baa2, just one step above junk bond status, and it gave it a negative outlook, suggesting another downgrade could be on the horizon.

Moody’s said it believes “the headwinds buffeting commercial airplanes will now persist at least through 2026.” And it said that the company’s projected annual cash flow will fall short of the $4.3 billion of debt coming due in 2025 and also the $8.0 billion coming due in 2026, and that Boeing will therefore have to issue new debt to fund those shortfalls.

Shares of Boeing (BA), which had lost 35% so far this year through Tuesday’s close, were down another 3% in afternoon trading following the investors call, after being up more than 3% in early trading on the smaller-than-forecast loss.

Boeing has had a string of losses and problems with its planes’ quality dating back at least five years. Two fatal crashes of the 737 Max in late 2018 and early 2019 that killed 346 people were tied to a design flaw in the plane and led to a 20-month grounding of Boeing’s best-selling model. It had subsequent problems with the quality of jets once the 737 Max was returned to service.

All told the company has reported core operating losses of $31.9 billion since the start of the grounding in 2019.

But it reported a record month for orders in December, capping what had been one of its best years ever in terms of commercial jet sales. Deliveries also reached a five-year high, and it even reported a rare core operating profit of $90 million for the fourth quarter of 2023. It also announced plans to increase production of the 737 Max throughout 2024 in order to return to sustained profitability.

But by the time it reported those better results for 2023, the incident aboard the Alaska Air flight had already occurred, dashing hopes that it was about to put its financial problems behind it.

While the NTSB has not determined who specifically is at fault for the accident, a preliminary investigation has found that the jet left a Boeing factory missing the four bolts needed to hold the door plug in place.

Key moments in Boeing’s recent history

OCTOBER 29, 2018

Lion Air Flight 610 crashes into the Java Sea soon after taking off from Jakarta, Indonesia, killing all 189 people on board.

Members of a rescue team collect personal items at the port in Tanjung Priok, North Jakarta on October 29, 2018, after they were recovered from the sea where Lion Air Flight 610 crashed. Resmi Malau/AFP/Getty Images

Photo gallery: Lion Air plane crashes off Indonesia

JANUARY 30, 2019

Boeing reports record earnings, revenue tops $100 billion for the first time and the company forecasts better times ahead.

MARCH 10, 2019

Ethiopian Airlines Flight 302 crashes soon after taking off from Addis Ababa, Ethiopia, bound for Nairobi, Kenya, killing all 157 people on board.

People watch workers at the crash site of a Nairobi-bound Ethiopian Airlines flight on March 10, 2019, near Bishoftu, Ethiopia. Michael Tewelde/AFP/Getty Images

Photo gallery: Ethiopian Airlines plane crash

MARCH 11, 2019

China grounds all of its 737 Max planes in wake of second crash. Many countries follow with their own groundings in the days ahead.

A view of four Boeing 737 Max 8 passenger planes of Shanghai Airlines on March 11, 2019, at Hongqiao Airport in Shanghai, China. FeatureChina/AP

MARCH 15, 2019

The US Federal Aviation Administration orders a grounding of all 737 Max jets, making it one of the last aviation authorities in the world to do so. Its grounding will stay in effect for 20 months.

An aerial photo shows Boeing 737 MAX airplanes on March 21, 2019, parked on the tarmac at the Boeing Factory in Renton, Washington. Lindsey Wasson/Reuters

APRIL 4, 2019

Boeing for first time acknowledges that a feature on the 737 Max put in place to prevent the plane from climbing too fast and stalling “played a role” in the two fatal crashes. Investigators later attribute the two crashes to the feature, known as MCAS.

JULY 24, 2019

Boeing reports a $3.7 billion loss in the second quarter, its first loss following the Max grounding and what, at that point, was a record loss for the company. Its adjusted losses would reach $31.5 billion through the end of 2023, with no end to the losses in sight.

OCTOBER 29, 2019

On the anniversary of the first fatal crash, Boeing CEO Dennis Muilenburg testifies before a Senate committee, apologizing to the families and saying the company “understands and deserves” the scrutiny it had received. He meets with family members after the hearing.

Former Boeing Company President and Chief Executive Officer Dennis Muilenburg, right foreground, watches as family members hold up photographs of those killed in the Ethiopian Airlines Flight 302 and Lion Air Flight 610 crashes during a US Senate committee hearing on October 29, 2019. Andrew Harnik/AP

DECEMBER 20, 2019

An uncrewed test flight by Boeing’s Starliner spacecraft is unable to reach the International Space Station as planned and is forced to return to earth. It is the latest in a series of delays and setbacks that forced it to fall far behind SpaceX in its effort to carry astronauts for NASA.

A protective tent is placed over the Boeing CST-100 Starliner spacecraft, which had been launched on a United Launch Alliance Atlas V rocket, after its descent by parachute following an abbreviated Orbital Flight Test for NASA’s Commercial Crew programs on December 22, 2019, in White Sands, New Mexico. Bill Ingalls/NASA/Reuters

DECEMBER 23, 2019

CEO Dennis Muilenburg is fired at the end of a disastrous year for Boeing. He is replaced by David Calhoun, who had been serving as chairman of the company. Muilenburg leaves the company with stock options and other assets valued at $80 million at that time, but with no severance.

JANUARY 9, 2020

Boeing releases a flood of internal communication between its employees showing many expressing doubts about the safety of the 737 Max before it is certified to fly passengers. In one famous April 2017 message, an employee described the plane as “designed by clowns, who in turn are supervised by monkeys.”

JANUARY 21, 2020

Boeing, which continued to build the 737 Max during the grounding in hopes flights would resume soon, halts production of the plane, an acknowledgement that the fix would not come as soon as hoped.

A 737 Max aircraft is pictured on March 27, 2019, at the Boeing factory in Renton, Washington. Lindsey Wasson/Reuters

MARCH 4, 2020

United Airlines and JetBlue Airways become the first US airlines to slash their flight schedules as the outbreak of the Covid-19 pandemic prompts passengers to stop flying. By the middle of the month US air travel would be down 96% compared to a year earlier, and US airlines will have cut scheduled flights by 71%. Deep financial losses by airlines around the world would cause massive order cancellations for the 737 Max. Normally canceling orders come with heavy penalties but the prolonged grounding of the jet allowed the orders to be canceled without penalty, further hitting Boeing.

An empty check-in area is seen on March 5, 2020, at the United Airlines check-in area inside San Francisco International Airport. David Paul Morris/Bloomberg/Getty Images

MAY 27, 2020

Boeing announces it is laying off nearly 7,000 workers, after only just 5,500 employees took voluntary buyout packages. The 16,000 job cuts caused by the sharp drop in demand for planes during the pandemic is followed by another 7,000-job reduction announced later in the year.

A worker walks outside of a Boeing Co. facility on May 27, 2020, in Everett, Washington. David Ryder/Bloomberg/Getty Images

AUGUST 28, 2020

The FAA orders the grounding of eight 787 Dreamliners due to questions about its manufacturing process. While the grounding is brief, it is the start of a series of delivery halts over two years due to questions about whether work was done to specifications.

NOVEMBER 18, 2020

The FAA announces it is ending the 20-month grounding of the 737 Max, clearing the way for it to again carry passengers. But the grounding has cost Boeing an estimated $20 billion to date, a cost that would creep higher in the following years.

Boeing 737 Max airplanes sit parked at Boeing Field on November 18, 2020, in Seattle, Washington. David Ryder/Getty Images

SEPTEMBER 20, 2021

Boeing discloses it found empty tequila bottles inside one of the two 747 jets being refurbished for use as the next generation of Air Force One.

APRIL 27, 2022

Boeing announces it is delaying the launch of its next generation jet, the 777X, as well as taking a $660 million charge related to increased costs to deliver the two new jets that are to be used as Air Force One. The losses for the Air Force One jets will eventually top $2 billion.

The Boeing 777X test aircraft on the tarmac on February 13, 2022, at Changi Airport in Singapore. Bryan van der Beek/Bloomberg/Getty Images

APRIL 14, 2023

Boeing announces that the use of a “non-standard manufacturing process” by one of its suppliers, Spirit AeroSystems, meant its production and delivery of the 737 Max would be disrupted, although the planes that had been delivered were allowed to continue to fly.

Boeing 737 Max fuselages sit on a tarmac outside of the Spirit AeroSystems’ factory in Wichita, Kansas in 2019. Travis Heying/The Wichita Eagle/AP

JANUARY 5, 2024

An Alaska Airlines 737 Max 9 flight has a door plug blow out minutes into the flight, causing a gaping hole in the side of the plane. Clothing and phones rip away from passengers and are sent hurtling out of the plane. Fortunately, what could have been a catastrophic accident was avoided with no one sitting next to the hole, and no one was seriously injured.

An opening is seen in the fuselage of Alaska Airlines Flight 1282 in Portland, Oregon, on January 7, 2024. National Transportation Safety Board handout/Getty Images

FEBRUARY 6, 2024

preliminary investigation by the National Transportation Safety Board finds that the Alaska Air plane left a Boeing factory in October missing the four bolts needed to secure the door.

FEBRUARY 26, 2024

The FAA issues a report sharply critical of the culture at Boeing, citing “gaps in Boeing’s safety journey.” The next day it announces it is giving Boeing 90 days to come up with a plan to fix problems. Subsequent FAA reports find multiple problems with Boeing’s production practices following a six-week audit.

Boeing CEO Dave Calhoun leaves a January 25 meeting at the US Capitol in Washington, DC. Graeme Sloan/Sipa USA/AP

MARCH 1, 2024

The FAA flags more potential safety issues with the engines of the 737 Max and 787 Dreamliner, although it does not ground either aircraft. Also on March 1 the State Department fines Boeing $51 million for violating the arms export control act, allowing employees in China and other countries to download sensitive data from numerous defense aircraft and missiles.

MARCH 11, 2024

A LATAM Airlines Boeing 787 flight from Sydney, Australia to Auckland, New Zealand experiences a sharp drop in altitude, sending several passengers flying to the ceiling of the cabin, injuring dozens. A few days after the incident Boeing sent a notice to airlines with the 787 warning them to look at a switch on pilots’ seats that, if accidentally triggered, can throw a pilot forward into the controls of the plane, which could possibly cause a nose dive. But it would not comment on whether that was the cause of this incident. Fortunately, the plane was able to land without any further incident.

The LATAM Airlines Boeing 787 Dreamliner that suddenly lost altitude mid-flight a day earlier is seen on the tarmac of Auckland International Airport on March 12. Brett Phibbs/AFP/Getty Images

MARCH 25, 2024

Boeing announces that CEO Dave Calhoun will leave the company at the end of the year as it begins a search for his successor. Stan Deal, CEO of the Boeing Commercial Airplane unit, also announces his retirement, effective immediately.

APRIL 9, 2024

The FAA announced an investigation into a whistleblower’s complaint that the company took shortcuts when manufacturing its 777 and 787 Dreamliner jets, and that those risks could become catastrophic as the airplanes age. In a statement, the company disputed the complaint and said the engineer’s concerns don’t “represent the comprehensive work Boeing has done to ensure the quality and long-term safety of the aircraft.”

SOURCE: CNNNEWS

Leave a Reply

Your email address will not be published. Required fields are marked *