Boeing’s latest 737 Max woes could come at huge cost
For Boeing, a very bad 2019 keeps getting worse. And potentially much more expensive.
Boeing is already on record that it is counting on getting approval for its grounded 737 Max to fly again by the end of this year. But that apparently became more difficult Friday after the FAA demanded that the aircraft maker explain why it did not disclose that some of its employees had concerns about the safety of the plane during the certification process in 2016.
Boeing said it “will continue to cooperate” with investigations of the Max and its certification process. If this latest news causes delays in the approval for the plane to return to service, it will be more than another black eye for Boeing. It will be a huge financial hit that could cause it to temporarily halt production of its bestselling plane, drastically increasing the costs and losses from the crisis.
Shares of Boeing fell about 6% in trading Friday on the news.
Even during the grounding, Boeing has continued to build 42 of the jets each month. It is too costly to let the factory where the plane is built in Washington State sit empty, and it would cause financial problems for its suppliers to shut down production.
In July CEO Dennis Muilenburg told investors the company might have to slow or temporarily halt production of the plane if the approval to have it fly again extends past the end of this year.
Such a shutdown is “not something we want to do, but an alternative that we have to prepare for,” he told investors.
Boeing has a backlog of more than 400 planes that have been built but not delivered since the grounding, and it would take several quarters deliver them all to waiting customers once the 737 Max receives approval to fly again. Airlines don’t want to take possession of too many planes at one time, and Boeing gets the bulk of revenue from the jets only after they are delivered.
The company has orders for about 4,00 jets.
Last week, Boeing’s board stripped Muilenberg of his role as chairman, although he remains the company’s CEO and president. The company’s board said the move was an effort to strengthen “safety management.”
Further delay getting the 737 Max back into the air could also increase the cost of compensation that Boeing will have to give to its airline customers for not being able to fly the planes they already own, and for delays in delivering the planes they were promised. In July Boeing took a $5 billion hit to earnings to account for the estimated cost of that compensation.
Friday’s news was that messages between two Boeing employees now suggest they knew of problems with the MCAS system during the original 2016 certification process but didn’t disclose it to the regulators. Boeing discovered the internal communication earlier this year but only notified the FAA of those earlier concerns this week, the agency said.
“The FAA finds the substance of the document concerning. The FAA is also disappointed that Boeing did not bring this document to our attention immediately upon its discovery. The FAA is reviewing this information to determine what action is appropriate,” said the agency’s statement.
It’s not clear that the new investigation into the certification process will affect the separate question of when the FAA will lift its grounding of the 737 Max. But the agency’s statement was not encouraging in terms of meeting Boeing’s preferred target date of having the plane back in the air this year.
“The FAA is following a thorough process, not a prescribed timeline, for returning the Boeing 737 Max to passenger service. The agency will lift the grounding order only after we have determined the aircraft is safe,” said its statement.
Friday’s news comes just ahead of Boeing’s third-quarter earnings report Wednesday.
After reporting a $3.7 billion loss second quarter loss due to the charge related to the grounding of the 737 Max, the company is forecast to return to profitability.
Adding to its woes is the discovery of cracks in structural supports on an earlier version of the 737. That has forced the grounding of at least 38 of the jets. Thousands more of the jets are due to be inspected under an order from the FAA.
— CNN’s Gregory Wallace and Rene Marsh contributed to this report.