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Boeing sees billions more in MAX costs as grounding drags on

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Boeing announced billions of dollars of additional costs as the 737 MAX grounding drags on. AFP

Boeing sees billions more in MAX costs as grounding drags on

Boeing announced on Thursday some $6.6 billion in additional costs because of the 737 MAX crisis, further pressuring profitability as the global grounding of the plane following two deadly crashes drags on.

Boeing said second-quarter earnings would be hit by $4.9 billion in one-time after-tax costs to compensate airlines for disruptions and plane delivery delays due to the MAX grounding.

Profits will also be weighed down by another $1.7 billion in costs due to the 737 MAX’s lower production rate, the company said in a statement after the stock market closed.

The MAX has been grounded since mid-March following two crashes that killed 346 people, dual disasters that have tarnished Boeing’s reputation and sparked numerous lawsuits from the families of victims.

There is still no firm timetable to bring the planes back into service.

“We remain focused on safely returning the 737 MAX to service,” said Boeing CEO Dennis Muilenburg. “This is a defining moment for Boeing.

“The MAX grounding presents significant headwinds and the financial impact recognised this quarter reflects the current challenges and helps to address future financial risks.”

Foggy timeline

Boeing also said on Thursday it hopes to receive regulatory approval to return the aircraft to service early in the fourth quarter.

But this timeline was only the company’s “best estimate” and actual timing could differ, Boeing said.

The company is due to report second-quarter earnings on Wednesday.

Earlier on Thursday, Southwest Airlines pushed back its target date for the returning the MAX to service by about a month to November 2, saying the timeframe was “still uncertain”.

The US Federal Aviation Administration (FAA) late last month identified a fresh problem with the 737 MAX during simulator testing, further clouding the outlook for the plane’s return to service.

The FAA “is following a thorough process, not a prescribed timeline, for returning the Boeing 737 MAX to passenger service”, an agency spokesman said. “The FAA will lift the aircraft’s prohibition order when we deem it is safe to do so.”

Michel Merluzeau, an analyst at AIR Insight Research, said it would be “good news” for Boeing if the planes do return to service in the first quarter of next year.

The latest costs add to the overall financial hit from the crisis. In April, Boeing disclosed $1 billion in additional costs due to lowering the production level of the 737 MAX.

The company last month announced it would give $100 million to communities and families affected by the 737 MAX disasters.

But those donations have not silenced critics of the company, including from Paul Njoroge who castigated the company as greedy and reckless before a congressional panel on Wednesday.

“Boeing should not be allowed to act like a mere investment company extracting wealth to super-charge shareholder returns at the expense of safety and quality,” said Njoroge, whose wife, three children and mother-in-law died in the March 10 Ethiopian Airlines disaster.

Boeing has been widely criticised over its development of the 737 MAX, which included a flight handling system called the Manoeuvring Characteristics Augmentation System (MCAS) that has been seen as a factor in both crashes.

In both crashes, the MCAS pointed the plane sharply downward based on faulty sensor readings, hindering pilot control after takeoff, according to preliminary results from crash investigations.

Pilots have said they were not adequately trained on the MCAS system and that it was not disclosed to them. The FAA has said it was kept in the dark for more than a year about a problem with a sensor linked to the system.

Shares of Boeing rose 2.5 per cent in after-hours trading to $370.00. Shares had fallen 2.3 per cent during the trading session.

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