Boeing lost 737 MAX or stopped production in the second quarter (Source:)
Two air crashes occurred in succession or the production of 737MAX was stopped.
On July 24, CNBC reported that Boeing, the US aircraft manufacturer, expected its troubled 737MAX aircraft to resume operation as early as the fourth quarter of this year, but Boeings CEO warned investors that if the resumption time was delayed again and again, production of 737MAX aircraft might be further reduced or stopped.
From October 2018 to March this year, Boeing 737MAX series aircraft crashed twice in five months, resulting in 346 deaths. Both crashes were related to the incorrect activation of the automatic stall prevention software on the aircraft. The aircraft was subsequently grounded worldwide.
On July 24, local time, Boeing released its second-quarter results for 2019. In the second quarter of this year, Boeings revenue was $15.751 billion, down 35% from the same period last year; its net loss was $2.942 billion, while its net income was $2.196 billion in the same period last year, down 23.97% from the same period last year. A loss of $5.21 per share and a loss of $5.82 per core share were recorded.
Boeing said the data reflected the additional cost of the 737MAX grounding announced by Boeing, which was $8.74 per share, resulting in a $5.6 billion drop in second-quarter revenue. In addition, the lower deliveries of commercial aircraft were partly offset by increased operations in defence and services.
According to CNBC, this is also the biggest quarterly loss in Boeings history. Boeing also warned that costs would increase if the grounding time exceeded expectations.
Dennis Muilenburg, Boeings chief executive, said in a conference call after the earnings release that Boeing had developed a software repair program designed to meet the requirements of the Federal Aviation Administration for the re-operation of aircraft for testing and certification by the Federal Aviation Administration in September.
Boeing reduced its 737MAX production by nearly 20% in April, from 52 to 42 a month. In response, Dennis Muilenburg told analysts on a conference call that it expects to maintain this production rate and increase production to 57 units per month by 2020 if 737MAX can resume service in the fourth quarter of this year, as expected. But if the recovery time is further delayed, Boeing may cut production again.
Dennis Muilenburg said, If the time we expect to restore services to 737MAX changes, we may need to consider further reducing production rates or other options, including temporary suspension of 737MAX production. He added that temporarily closing the 737MAX production line may be more effective than continually reducing production rates because it reduces storage requirements.
Following Dennis Muilenburgs comments, Boeing shares fell 3% and the Dow Jones Industrial Average fell nearly 80 points. Boeing shares fell 3.12% to $361.43 at the close of the day.
The grounding of 737MAX has annoyed customers of many airlines, which cancelled thousands of flights during the busy summer travel season. Airlines including United Airlines, Southwest Airlines and American Airlines have removed 737MAX from their schedules until early November. Further grounding of 737MAX in the future will also affect flight arrangements for Thanksgiving and Christmas.
When 737MAX was grounded worldwide in March, Boeing delivered about 400 737MAX to airlines. Boeing said at the time that it would stop delivering the model and store it in Texas and its Washington plant, including the employee parking lot.
In addition to Boeings share price, 737MAX suppliers share price also fell. Spirit Aero Systems Holdings, which makes the 737MAX fuselage, fell 2%, while materials suppliers Hexcel and Allegheny Technologies fell 0.4% and 2.3%, respectively.
Regulators have not yet indicated when 737MAX will be allowed to operate. In an interview with CNBC, U.S. Treasury Secretary Steven Mnuchin said the United States hopes 737MAX will be absolutely safe when it resumes operations. I think there is no doubt that Boeing has the ability to solve this problem, but I think we need to make sure that the aircraft has been repaired and we need to understand how Boeing competes with Airbus.
Boeing said in its earnings report that its previous financial guidelines for 2019 did not reflect the impact of 737MAX. Due to the uncertainty of time and conditions for 737MAX to restore services, new guidelines will be issued in the future.