The ongoing 737 MAX debacle is weighing heavily on Boeing (NYSE: BA) as the airline manufacturer continues to try and solve this problem.
Boeing to pay $5 billion to compensation 737 MAX customers
Having its public image heavily damaged among both investors, shareholders, and customers, the company is now planning to pay a substantial amount to compensate the families of the 346 people who died in the two plane crashes caused by defective equipment on the MAXs.
The company went on to say on Thursday that they will be taking a $4.9 billion after-tax hit in the second quarter “in connection with an estimate of potential concessions and other considerations to customers for disruptions related to the 737 Max grounding and associated delivery delays,” which comes down to $8.47 per share.
This charge will end up being a significant hit to their upcoming earnings report, as Boeing is expected to report sales of around $20 billion for the second quarter with a profit of $1.2 billion. As such, Boeing will likely have a red quarter due to this hefty $4.9 billion sum to be paid out.
At the same time, Boeing expects to pay concessions to airlines over a number of years for the inconvenience that the grounding of these aircraft has caused. These airlines will end up being compensated in a mix of cash and other concessions such as delivery timing, discounts, as well as extra features and services from the manufacturer.
Boeing expects future costs to manufacturer the 737 model would go up by an extra $1.7 billion due to the production slowdown. Additionally, this cost increase comes on top of another $1 billion in extra production costs that were announced in Q1 2019.
As for the airlines who purchased these planes, they have gone on to say that getting these aircraft to operating safely again is more important than any specific compensation negotiations. So far, airlines have canceled thousands of flights that the 737 MAX planes were expected to make.
The $4.9 billion expected to be paid from the airplane manufacturer comes on the wake of over 100 lawsuits filed against the company in the U.S. brought by the families of the victims of the crashes in Indonesia and Ethiopia.
Some plaintiff attorneys are pushing for a jury trial to air all the details of the accident rather than accept a deal, with mediation talks affiliated with the October Indonesia crash scheduled to begin sometime this week. Aside from this sum, Boeing has pledged $100 million to support the families affected by the two crashes.
Shares of Boeing dipped down by 2.3 percent through Thursday’s trading session, but gained back 1.7 percent in after-hours trading, mostly eradicating all of this day’s losses. The first couple of months saw the company’s stock surge, but since then has been steadily falling.
Boeing Company Profile
Boeing manufactures commercial airplanes, provides defense equipment, and maintains a small captive finance division. With headquarters in Chicago, the firm competes with Airbus in commercial aviation and with Lockheed, Northrop, and several other firms in defense. Sales are split about 70% and 30% between the commercial aircraft and defense end markets. In 2018, Boeing generated over $100 billion in sales. – Warrior Trading News