Costs for Boeing Start to Pile Up as 737 Max Remains Grounded
In the 22 months that Boeing’s 737 Max flew commercially before it was grounded, the jet became the company’s flagship as well as an integral part of the global aviation system, and the American economy.Airlines around the world sped the plane into service, eager to capitalize on its efficient engines. Some low-cost carriers built new routes around the Max, which could travel farther on less fuel than its predecessor. Boeing’s stock soared thanks to strong demand for the jet.But with the Max grounded following two deadly crashes in five months, Boeing and the airlines that rely on its planes are scrambling to adjust, and the costs are mounting.Major airlines, including Southwest, American and United, have canceled thousands of flights. Boeing has slowed production of the Max and stopped deliveries, stockpiling the finished planes in Seattle. And with no timetable for the return of the Max, Boeing is facing escalating bills, numerous legal threats and a crisis of confidence.
“Having two crashes in rapid succession with no survivors is really unprecedented in modern aviation industry,” said Chesley B. Sullenberger III, the retired pilot who landed a jet in the Hudson River. “This is going to be a huge hit to Boeing. What they need to do now is to behave in a way that proves themselves worthy of the public’s trust.”An aerospace behemoth with more than 140,000 employees, Boeing has annual sales of some $101 billion. It is the largest manufacturing exporter in the United States and is the largest component of the Dow Jones industrial average. When Boeing does well, it can lift the fortunes of American industry and thousands of staff. But when the company hits turbulence, the effects quickly ripple across the globe.American Airlines, which operates 24 Max planes and has 76 more on order, canceled about 1,200 flights in March. With no sign that the Max will be flying again anytime soon, American said it was extending cancellations through June 5. The airline also said it was lowering its estimated quarterly revenues, in part owing to the grounding of the Max.Boeing, which will report earnings this month, will undoubtedly take a financial hit this quarter, and most likely for the rest of the year.“Boeing revenue, profit and margins for 2019 are in jeopardy after the grounding of its 737 Max,” according to a report by Bloomberg Intelligence, which estimated that the cost of lawsuits and reimbursements could total $1.9 billion in just six months.
And while Boeing has already taken orders for more than 4,600 additional Max jets, representing the vast majority of its total backlog and billions of dollars in future sales, it may find new orders in short supply. On Tuesday, it said there were just 32 new orders for the jet in the first three months of the year, compared with 122 a year earlier. Boeing this week slowed its production of 737 planes to 42 a month, from 52, with most of those being the Max model.