Boeing is profitable again. But the 737 Max crisis is still a major problem for the company’s financial results.
The aircraft maker earned $895 million in the third quarter, bouncing back from a $3.7 billion loss in the previous quarter. That loss was because of a $5 billion charge related to the grounding of the 737 Max in March. Boeing’s most important plane was grounded after two fatal crashes that killed 346 people.
But earnings in the third quarter fell by more than half from the $1.9 billion it earned a year earlier. And revenue tumbled 21% because of the lack of 737 Max deliveries. The 737 Max is Boeing’s bestselling plane.
Boeing’s profits came primarily from its defense and space business. The commercial airplanes unit posted another loss.
The 737 Max isn’t the only production problem Boeing faces. The company warned Wednesday it would cut its 787 production rate to about 12 a month by late next year because of diminished demand from the trade war. It had just boosted the monthly production rate for the 787 to 14 earlier this year. It said the slower build pace for that widebody jet would last about two years.
“I think the recent trade discussions have been productive, they’re moving in a good direction,” said Boeing CEO Dennis Muilenburg. “But given the timeline and the fact that we don’t have firm orders from China at this point … we have to make the decision [to slow output] on the 787 line.”
The company also warned that it is now targeting early 2021 for its first delivery of the 777X, a new version of that jet that it had previously said it still hoped to deliver by late next year.
Boeing has continued to build the 737 Max during the grounding, though at a slower pace of only 42 planes a month, down from the 52 it was building before the crisis. And Boeing said Wednesday that the slower production rate for a longer than previously anticipated time frame would add an additional $900 million in costs during the life of 737 Max program, on top of the $2.7 billion in increased costs it had previously booked.
Boeing said it’s still working under the assumption that the 737 Max will get its first approval to return to service before the end of the year, and it should be able to build 57 of the planes a month by the end of 2020. But Boeing executives reiterated their earlier statement that the company could be forced to further slow, or even suspend, production of planes if the approval to fly again doesn’t go as now planned.
“Should our estimate of the anticipated return to service change, we might need to consider possible further rate reductions for other options including a temporary shutdown of the Max production line,” said Muilenburg.
Muilenburg insisted that Boeing continues to make progress on getting the plane back into service but acknowledges there is still more work to do.
“In the near term, we’re marching through the technical steps … and that includes finalizing the software,” he said. But three months ago Muilenburg promised that Boeing’s software fix would be to the FAA by September.
“The review cycles have taken a little longer than originally planned,” he said. “We’re diving deeper into the documents while answering all the questions. And the FAA has taken the time to make sure we get it right, so I think that level of scrutiny is good.”
He gave some details about steps that will still need to be taken before Boeing’s proposed fix to the problem is approved, including a series of flights and evaluation of the training materials by a set of pilots from various airlines. Then there would be a yet-to-be scheduled certification flight by the FAA.
Boeing said it is working the US Federal Aviation Administration and with aviation regulators around the globe. Although the company at one time hoped that approval by the FAA would lead to quick approval worldwide, it is now expecting that approval elsewhere to be phased in throughout early 2020.
But just as previous target dates have been missed, the timeline to have FAA approval before the end of this year and other regulators early next year seems optimistic.
The FAA, which issued harsh criticism of Boeing just last week over some internal communications that has been discovered between Boeing employees concerned about the handling of the plane during its original certification process. The regulator said there is no time line for approval. The airlines that have the planes in their fleets have canceled flights that would have used the planes into next year.
One piece of good news for Boeing is it appears to have enough to ride out the current crisis.
While it Boeing burned through $2.4 billion in cash in the quarter, its cash on hand rose by about $1.3 billion to $10.9 billion, thanks to the company’s decision to increase debt by more than $5 billion during the period.