The plane is currently out of operation following two crashes, in Indonesia and Ethiopia. The charge, which also reflects associated delivery delays, will result in a $5.6 billion reduction of revenue and pre-tax earnings when Boeing reports quarterly earnings on July 24th.
While the entire estimated amount will be recognised as a charge in the second quarter, the company expects any potential concessions or other considerations to be provided over a number of years and take various forms of economic value.
“We remain focused on safely returning the 737 Max to service,” said Boeing chairman, Dennis Muilenburg.
“This is a defining moment for Boeing.
“Nothing is more important to us than the safety of the flight crews and passengers who fly on our airplanes.
“The Max grounding presents significant headwinds and the financial impact recognized this quarter reflects the current challenges and helps to address future financial risks.”
Additionally, Boeing’s estimated costs to produce the aircraft in the 737 accounting quantity increased by $1.7 billion in the second quarter, primarily due to higher costs associated with a longer than expected reduction in the production rate.
The increased 737 program costs will reduce the margin of the 737 program in the second quarter and in future quarters.
Boeing chief financial officer, Greg Smith, added: “We are taking appropriate steps to manage our liquidity and increase our balance sheet flexibility the best way possible as we are working through these challenges.
“Our multi-year efforts on disciplined cash management and maintaining a strong balance sheet, in addition to our strong and broad portfolio offerings, are helping us navigate the current environment.”
Boeing continues to work with civil aviation authorities to ensure the 737 Max’s safe return to service, and these authorities will determine the timing of return to service.
For purposes of the second-quarter financial results, the company has assumed that regulatory approval of 737 Max return to service in the Unites States and other jurisdictions begins early in the fourth quarter 2019.
However, this assumption reflects the company’s best estimate at this time, rather than a concrete deadline.
