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Boeing scraps guidance for 2019 as 737 MAX crisis sends costs soaring

The aircraft maker reported a 21% drop in earnings for the first quarter, while the grounding of its bestselling aircraft and a stoppage of deliveries racked up US$1bn in extra costs
Boeing 737 MAX
Boeing’s problems began in March when a litany of countries began grounding the 737 MAX following fatal crashes in Ethiopia and Indonesia

Boeing Co (NYSE:BA) has scrapped its outlook for 2019 after the grounding of its 737 MAX range of aircraft in March sent costs soaring.

The aircraft maker reported a 21% drop in earnings in its results for the first quarter, while the grounding of its bestselling aircraft and a stoppage of deliveries racked up US$1bn in extra costs. Revenues dipped 2% to US$22.92bn, lower than analysts had predicted.

The company has also cut production of the 737 MAX to 42 aircraft each month from 52 previously and halted its share buybacks, adding that it would issue new earnings forecasts when it had more clarity around the issues facing the aircraft model and the potential costs of fixing them.

READ: Boeing bows to pressure and grounds all 737 MAX’s after US bars aircraft

Boeing’s problems began when a litany of countries began grounding the aircraft following two fatal crashes less than six months apart in Ethiopia and Indonesia.

While the company had been initially reluctant to ground its own planes, it finally bowed to pressure in mid-March after the US aviation regulator barred the plane from American airspace after new information had shown “some similarities” between the crashes.

The causes of the two accidents have not yet been confirmed, however there is speculation that it may be due to a fault in the stability computer that helps keep the plane in the air.
Boeing’s share price has also taken a hammering in the wake of the groundings, falling around 14% since the start of March.

The issues are also causing a headache for airlines like TUI AG (LON:TUI), which has been forced to ground the 15 737 MAX aircraft in its fleet, while budget carrier Ryanair Holdings PLC (LON:RYA) could face issues with the 110 MAX planes it currently has on order to expand its fleet.

Record breaking 2019 “increasingly unlikely”, says analyst

Michael Hewson, chief market analyst at spread-better CMC Markets UK, said that while Boeing’s commercial aircraft business had been expected to surpass its record of 806 aircraft deliveries last year and hit 900 in 2019, that target now looked “increasingly unlikely”.

He added that the MAX, which currently makes up around 30% of Boeing’s profits, was likely to see its contribution to the firm’s income “significantly reduced” as a result of the incident.

“The likelihood of the plane getting back in the air anytime soon has diminished in recent weeks, due to the enormous brand damage recent events have done”.

However, traders on Wall Street seemed in a more positive mood in early trading, with Boeing’s shares up 1% at US$378.

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Boeing Timeline

Newswire
October 29 2015

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