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Boeing Earnings Slide After Two Deadly Crashes Boeing Reports Slide in Earnings and Admits Future Is Hazy
(about 7 hours later)
Boeing’s earnings slipped in the first quarter, and the aviation giant said it would suspend its full-year forecast, as it tries to bring its best-selling 737 Max jet back to service following two deadly crashes. The longer Boeing’s 737 Max plane sits idle, grounded indefinitely by regulators around the world after two deadly crashes, the more the company’s bottom line shrinks.
Boeing said on Wednesday that revenue for the period fell 2 percent after the plane was grounded worldwide last month. The company said fewer deliveries of the aircraft pushed revenue for its commercial airplanes segment down more than $1 billion, while 737 production costs increased by $1 billion. How much? Not even Boeing is ready to predict.
In late October, a 737 Max 8 operated by Lion Air crashed after leaving Jakarta, Indonesia, killing the plane’s 189 passengers and crew members. Five months later, on March 10, a 737 Max 8 jet operated by Ethiopian Airlines crashed minutes after takeoff, killing all 157 people aboard. The jets were grounded within a few days of the second crash, as similarities between the two incidents became apparent. The aviation giant was uncharacteristically uncertain about its financial future on Wednesday. While announcing its worst quarterly results in years, Boeing said that it would not provide its customary full-year sales and profit forecast. The company stopped its popular share buyback program weeks ago. It did not offer a date for when it would deliver its already delayed update to the anti-stall system in the 737 Max, which has been implicated in the accidents.
Boeing is also facing a barrage of lawsuits and investigations over the accidents, as well as reports of other production problems. On Wednesday, the company said it faced costs associated with pilot training as well as with its delayed software update to an anti-stall system in the 737 Max, known as MCAS. “The timing of return to service for the Max will continue to be paced by ongoing work with global regulators and our customers,” Dennis A. Muilenburg, Boeing’s chief executive, said in a conference call with analysts.
The company said that it was making “steady progress on the path to final certification” for the update, and had completed 135 test and production flights with the fix in place. Until the plane is cleared to fly again, a substantial chunk of Boeing’s business will remain at a standstill. As a result of the grounding, the company delivered roughly 50 fewer 737 aircraft than it originally planned this quarter, contributing to a decline of more than $1 billion in revenue for its commercial airplanes division.
Dennis Muilenburg, Boeing’s chief executive, said in a statement that the company was working through a “challenging time.” Boeing is now “making decisions on a day-to-day basis” and trying to plan for contingencies, Greg Smith, the company’s chief financial officer, said during the call.
“Across the company, we are focused on safety, returning the 737 Max to service and earning and re-earning the trust and confidence of customers, regulators and the flying public,” he said. “We’re running scenarios so we’re cleareyed about what we know and what we don’t know,” he said.
Core earnings per share for the quarter, which ended March 31, fell 13 percent, to $3.16 from $3.64 a year earlier. Adjusted profit slipped 10 percent, to $3.75 a share from $4.15 a share. The decision not to forecast too far ahead stood in sharp contrast to Boeing’s behavior at the beginning of the year, when executives announced ambitious earnings targets and plans for delivery growth. The previous quarter had produced record revenue and profit, despite the October crash of a 737 Max 8 plane in Indonesia that killed all 189 people on board.
Revenue sank to $22.9 billion from nearly $23.4 billion a year earlier. It had surged to a record high $28.3 billion in the previous quarter. Then, in early March, another 737 Max 8 jet crashed. The Ethiopian Airlines flight, which had 157 people on board, went down minutes after taking off, as was the case with the Indonesia flight.
“We deeply regret the impact this has created,” Mr. Muilenburg said during a conference call with analysts on Wednesday. The resulting furor caused Boeing’s stock price to plunge. Last month, the plane was grounded worldwide. The company now faces a number of lawsuits and investigations over the accidents.
In the commercial airplanes division, operating earnings plunged 17 percent, to $1.17 billion. Revenue fell 9 percent, or more than $1.1 billion, to $11.8 billion. Boeing delivered 50 fewer 737 aircraft in the quarter, resulting in lower payments from customers and storage costs for the idle planes, said Greg Smith, the chief financial officer, on Wednesday’s call. There have also been questions about whether competitive pressure to finish the Max planes led Boeing to overlook safety risks in the plane’s designs, like the anti-stall system, and whether the jets were scrutinized closely enough by regulators before being allowed to fly.
Boeing’s stock rose in morning trading on Wednesday. Adjusted for dividends, it is up from a year ago, although it has slumped nearly 15 percent since hitting a new high last month. Mr. Muilenburg said on Wednesday that “both accidents were a series of events.” He added, in an apparent reference to the pilots of both planes, “Ultimately, there were action or actions not taken that contributed to the final outcome.”
Sales increases in its defense and services divisions buffered the effects of the 737 Max grounding. But the company paused its share buyback program, which has helped boost its popularity with investors, in mid-March. “There was no surprise or gap or unknown here, or something that somehow slipped through a certification process,” he said.
And some analysts, like Jim Corridore of the investment research firm CFRA, remain optimistic about the company. In a research note, he said that the 737 Max could resume service in the summer. Preliminary findings from the Ethiopian Airlines crash suggest that the pilots on the flight initially followed the emergency protocol after the anti-stall system malfunctioned.
“Overall, these earnings paint a picture of a company with strong fundamental demand going about its business and not in any danger of a liquidity or financial crisis,” he said. Boeing has a backlog of 5,600 commercial planes worth $399 billion. But in the first quarter, which ended on March 31, Boeing generated just 32 new orders for 737 aircraft, compared with 122 in the same period in 2018.
Still, the impact from the grounding could linger. The company collects a part of customers’ payments for its planes upon delivery. It provided only 89 of its 737 jets in the first quarter, down from 132 a year earlier. It also said it was scaling back production on the 737 line to 42 planes a month from 52.
The company has a backlog of thousands of orders for 737 Max jets, worth billions of dollars in future sales. But in the first three months of the year, it collected just 32 new orders for the plane, compared with 122 in the same period in 2018. But Boeing said it wanted to be ready to ramp up manufacturing once the 737 Max was allowed to return to flight. The number of factory employees working on the plane has remained the same, even though fewer planes are being produced. Some suppliers are still operating as if Boeing were pushing out 52 of the planes a month.
Boeing said this month that it had delivered 89 737 jets in the first quarter, down from 132 a year earlier. It also said it was scaling back production. Without a clear schedule, Boeing said it was taking on $1 billion in additional costs related to the grounded 737, as well as other expenses associated with pilot training and the software update.
The company said it was making “steady progress on the path to final certification” for the fix, and had completed 135 test and production flights. Mr. Muilenburg said he had asked Boeing’s board to create a committee, led by the board member and retired Navy admiral Edmund P. Giambastiani Jr., to examine how the company certified its planes. Some have said Boeing has too much power in the certification process.
On Wednesday, the company said core earnings per share in its first quarter had fallen 13 percent, to $3.16 from $3.64 a year earlier. Revenue sank 2 percent to $22.9 billion from nearly $23.4 billion a year earlier. Boeing’s stock closed up nearly 0.4 percent on Wednesday.
The results got a boost from sales increases in Boeing’s defense and services divisions, even after concerns about loose tools and debris inside completed KC-46 tankers disrupted delivery of the planes to the Air Force. The New York Times also recently reported about shoddy production and weak oversight at a Boeing plant in South Carolina, which makes the 787 Dreamliner plane.
Still, some analysts remain optimistic about the company. Jim Corridore of the investment research firm CFRA said in a research note that the 737 Max could resume service in the summer, although he added that Boeing most likely faced “substantial” costs related to lawsuits and the software fix.
“Over all, these earnings paint a picture of a company with strong fundamental demand going about its business and not in any danger of a liquidity or financial crisis,” he said.