Boeing Co shares rose 2% in after-hours trading on Thursday in the wake of the airline maker revealing the 737 MAX groundings across the world will cost it $US5.6 billion (A8 billion) in the second quarter, with as yet unquantified billions of dollars in lower profits on the airline in coming years.
That is more than five times the March quarter estimates of the cost of the grounding – and still growing.
Boeing is facing one of the worst crises in its history with the 737 MAX grounded since March after crashes in Ethiopia and Indonesia that together killed 346 people in the span of five months.
The Chicago-based planemaker is now battling with the cost of to its reputation from the debacle and growing the financial cost of getting the planes back in the air.
Boeing said in the filing that it will record an after-tax charge of $US4.9 billion in the June quarter 737 Max groundings. Boeing is due to release its full June quarter figures next Wednesday.
Boeing said the charge will result in a $US5.6 billion dent in revenue and pre-tax earnings in the quarter, Boeing said.
In addition, it warned that the estimated costs to produce the aircraft increased by $US1.7 billion in the second quarter, thanks to the higher costs associated with a longer-than-expected reduction in the production rate.
Boeing also warned that higher costs cut profit margins on the 737 program in the second quarter and in future quarters.
The company is certainly getting worried judging by this comment from the chief financial officer, Greg Smith in Thursday’s statement:
“We are taking appropriate steps to manage our liquidity and increase our balance sheet flexibility the best way possible as we are working through these challenges,” he said.
That can only mean Boeing is starting to see pressures on cash flow and its level of debt and is having to start to juggle its accounting and cash management operations to help keep debt under control.
Boeing cut its production from 52 to 42 a month in March following the second crash in Ethiopia while suspending deliveries of the aircraft to airlines.
That has meant a fall in cash as airline customers have stopped making payments.
Boeing abandoned its 2019 guidance with the March quarter results delivered in April – the estimated financial impact at that time was $US1 billion.