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Due to 737 Max

Boeing takes a charge of 5 billion dollars

The aircraft manufacturer Boeing sets aside a large provision because it has to compensate 737 Max customers.

Boeing remains optimistic. The aircraft manufacturer is working closely with the world’s civil aviation authorities to end the grounding of the 737 Max. According to current estimates, it is expected that regulatory approval for recommissioning in the United States and other countries will be achieved at the beginning of the fourth quarter of 2019, the company announced on Thursday evening ( July 18th).

Others think early 2020 is more probable as a date of re-entry into service. However long it takes, one thing is clear: the longer the grounding takes, the more concerned customers will be. Various current and future operators of the 737 Max have already stated that they are seeking compensation from Boeing. They are losing revenue due to missing aircraft, and have to pay high costs for leasing and hiring replacement aircraft and crews.

Payments over several years

The aircraft manufacturer’s management is aware that there is no way around responding to the demands. Boeing has therefore made a charge of 4.9 billion US dollars, which will be charged to the income statement for the second quarter. This was announced by Boeing on Thursday evening. The money will be used to pay compensation to customers, the company said. The measure will probably absorb the entire profit generated throughout the three months. Boeing points out, however, that although the entire amount will be charged to second quarter results, the payment will be made over several years.

Boeing does not only have to make high provisions for customer compensation. The aircraft manufacturer also suffers from higher costs as a result of lower output of 737 Max planes. This includes, for example, expenses for rented parking space for aircraft that cannot be delivered. According to Boeing, this amounts to another 1.7 billion dollars and reduces the margin in the second quarter and subsequent quarters.

Delivery lasting months

Boeing expects a gradual increase in the production rate as of 2020. From today’s 42 737 Max per month, it is expected to rise again to 57. According to Boeing, the delivery of the aircraft produced since grounding in mid-March will take «several quarters» after the flight ban has been lifted.

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