Boeing Reports First Annual Loss In 22 Years, Amid 737 Max Crisis
(CNN) -- Boeing reported its first annual loss since 1997 as the cost of the 737 Max crisis continued to climb.
The company reported a net loss of $636 million last year, compared to a $10.5 billion profit it made in 2018.
But its core commercial aircraft operation lost $6.7 billion last year, almost entirely because of Boeing's continued problems with the 737 Max. Revenue for the year plunged 24% because Boeing stopped deliveries of the 737 Max in March.
Boeing said it will pay an additional $2.6 billion to airline customers to compensate them for the grounding, which followed two fatal crashes that killed 346 people.
"We recognize we have a lot of work to do," said Boeing CEO Dave Calhoun 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. Fortunately, the strength of our overall Boeing portfolio of businesses provides the financial liquidity to follow a thorough and disciplined recovery process."
Massive costs
But the grounding will cost more than the amount Boeing owes airlines. The cost of producing the jet increased by $2.6 billion during 2019. Boeing had continued to build the Max throughout the year despite not being able to complete the deliveries and get most of the money for the plane from airline customers. It has about 400 completed jets parked in Washington state and Texas awaiting delivery.
Boeing also expects a cost increase of $4 billion in 2020 because of at temporarily shutdown of production earlier this month. Calhoun said last week it expects to restart the line in two or three months even without final approval for the plane to fly again.
All told, Boeing has detailed nearly $19 billion in costs associated with the 737 Max crisis. And those costs could increase significantly.
Boeing cost estimates do not include any litigation expense for the families of victims of the crashes, although it does include $100 million set aside for a victims compensation fund. In response to a media question about the possible legal cost exposure, Calhoun said he doesn't have an estimate yet, but "it's probably a big number."
Although Boeing says its estimate for airline compensation is based on the grounding extending into the middle of 2020, even Calhoun said Wednesday hitting that new target date will not be easy to accomplish.
When is the 737 Max coming back?
Boeing said last week it did not expect the plane will be approved to fly again until the middle of this year, although the Federal Aviation Administration subsequently said its approval could come before that time. The airlines have been adjusting their schedules, with United Airlines executives saying last week that they don't expect to be able to use the plane during the upcoming summer travel season.
"It's a very challenging moment for Boeing. We got a lot of work to do," said Calhoun on his call with analysts. "But I'm confident that we'll manage this situation in the right way, and I'm optimistic about the company's future."
Calhoun said he's confident that the Max will eventually be able to safely return to service.
"I'm confident in this airplane," he said. "The Max is a sound airplane. We believe we're going to deliver the safest airplane in the sky. And we're committed to do just that, and I know our regulator is as well."
He said that airline customers still want the plane due to the cost savings it provides compared to previous models of the 737. In an interview on CNBC Wednesday, he said that airline customers remain supportive of Boeing, although he said, "I would never describe our discussions today as cordial."
"They just want us to get back on track," he added.
Don't expect a name change
He admitted that Boeing's reputation was hurt by the crisis, and by some of internal company communications made public earlier this month. In one an unidentified Boeing employee described the Max as "designed by clowns, who in turn are supervised by monkeys." Other Boeing employees agreed in a separate exchange that they would not allow their families to fly on the Max.
"My stomach turned, just like yours would, just like anyone's would," he said when asked his reaction when he first read the communications.
But Calhoun reiterated that despite some suggestions that it do so that Boeing will not change the name of the plane.
"I'm not going to market my way out of this," he said.
Boeing burned through about $2.4 billion in cash during the year, with most of that coming in the fourth quarter. It expects to have a negative cash flow again in 2020. It has received commitments from a syndicate of banks to borrowing another $12 billion, and Chief Financial Officer Greg Smith said Boeing may end up borrowing even more, given on the strong demand for its debt.
Although the 737 Max crisis is Boeing's biggest problem, other issues are dogging the company.
Slides it prepared for an investor call later Wednesday show it plans to record a charge for the Starliner space capsule it is developing for NASA. Starliner will need an additional uncrewed mission after it failed to reach the International Space Station as planned on its most recent flight. The amount of the charge was not indicated.
It said the slowdown in production of the 787 Dreamliner widebody will stretch through at least 2023. And it also said that global trade tension is putting pressure on the widebody commercial jet market, Boeing's most profitable product.
But Boeing executives said they have hopes that the initial trade deal recently reached with China will open the door for orders for the plane. While China is the largest market for planes, Boeing has not gotten any orders for China since 2017.
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