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Losses from Max grounding continue, as Boeing reports another dismal quarter

Jan 30. 2020
File Photo of 737 Max / Getty Images
File Photo of 737 Max / Getty Images
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By The Washington  Post · Aaron Gregg 

Boeing reached new financial lows in 2019 as the 737 Max ― a once-promising line of commercial jets whose flawed control systems played a role in two deadly crashes ― remains at the center of a historic safety crisis with no end in sight.

Boeing closed out the fourth quarter with $17.9 billion in revenue, the company announced Wednesday, a 37% decline from the fourth quarter of 2018.

The company's 2019 net losses of $636 million mark its first annual loss since 1997.

The losses stem from the continued worldwide grounding of Boeing's Max jets and a production halt this year in the wake of two fatal crashes. On Wednesday, the company incurred another $2.6 billion in costs related to the indefinite grounding, and it expects the grounding to cost it an estimated $4 billion throughout 2020, something that should put a drag on future results.

The company's stock price has lost about 13% of its value over the past year at a time when the market has surged.

"We recognize we have a lot of work to do," Boeing President and CEO David Calhoun said in a statement. "We are focused on returning the 737 MAX to service safely and restoring the long-standing trust that the Boeing brand represents with the flying public."

Once a cash-generating machine that was the envy of its competitors and a darling of Wall Street, Boeing has been forced to borrow billions of dollars to cover the cost of building airplanes it can't deliver to customers. (CNBC reported Monday that Boeing has secured more than $12 billion in loans from banks to provide cash for operations over the next two years.)

Boeing has been forced to compensate airlines for the cost of flight cancellations, taking a $5.6 billion charge in July. And a bruising congressional inquiry has pointed to deeper problems with the company's management culture, leading to the ouster of its two highest-ranking executives.

The 737 Max has been out of commission for more than 10 months as regulators remain unconvinced it is safe to fly. It was grounded in mid-March when the Federal Aviation Administration recognized similarities in a pair of deadly plane crashes in Indonesia and Ethiopia, both of them involving new 737 Max jets, that killed 346 people.

Boeing later admitted that a new flight-control program, interacting with bad data from the planes' external sensors, had in both cases pushed the jets into an uncontrollable nosedive.

The FAA has made the jets' return to the sky contingent on a set of software and display changes designed to prevent the same problems from occurring again. But the timeline for approval has continually shifted over the past year as regulators discovered more problems with the plane.

Throughout most of 2019, Boeing continued churning out new planes under the assumption regulations would soon clear them to fly. However, in December, the company announced it would indefinitely halt production of the embattled jets.

That production halt has rippled throughout the company's supply chain, resulting in about 2,800 layoffs at Spirit AeroSystems in Wichita, Kansas. About half of Spirit's revenue comes from supplying parts to the Max.

In addition to scrutiny over the Max jets, the company has faced wider criticism about its culture.

Internal messages between Boeing employees were recently disclosed to congressional investigators. The messages, made public last month as part of a long-running investigation into how the Max was designed and certified, could further damage the company's relationship with regulators and the flying public.

One Boeing employee said in 2018, "I still haven't been forgiven by god for the covering up I did last year." Another said, "This is what these regulators get when they try and get in the way." And in 2017, long before either of the crashes, a Boeing employee wrote, "This airplane is designed by clowns, who in turn are supervised by monkeys."

The crisis has raised questions about whether Boeing's top management understands the company's own production lines, analysts said. The Chicago-based corporate office has come under criticism for being too focused on Wall Street, at the expense of the company's Seattle-based production lines. 

Calhoun will be under intense pressure to navigate the company back to financial health. 

"Chicago has been a distant asset manager that's there to extract cash. That needs to change," said Richard Aboulafia, a longtime aerospace analyst with Teal Group. 

Aboulafia attributed Boeing's broader problems to a "combination of bad communication and very aggressive wage and conditions pressure in the midst of unprecedented prosperity," calling it a "mixture for a toxic soup."

Calhoun visited with workers at Boeing's Seattle production facilities last week and held an all-hands meeting with employees, during which he pledged to be more transparent about management's decisions and to work to rebuild their confidence.

In his statement Wednesday, Calhoun said the company was prepared for the challenges ahead.

"We are committed to transparency and excellence in everything we do. Safety will underwrite every decision, every action and every step we take as we move forward. Fortunately, the strength of our overall Boeing portfolio of businesses provides the financial liquidity to follow a thorough and disciplined recovery process."



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