is no denying anymore: 2019 is shaping up to become an extraordinary year for Boeing, but not the way the almost 103-year old OEM would have liked it to be. The grounding of the 737 MAX since March and the resultant slump in deliveries are showing in the Q1 results presented on April 24.

Before talking numbers, Boeing President and CEO Dennis Muilenburg took a humble position by apologizing again for the grief and pain that the two fatal crashes of his MAX 8s have caused since last October. It’s the same attitude he showed in his two video messages after the Ethiopian Airlines disaster on March 10. It has earned Muilenburg respect, although some find it difficult to believe his honesty when he calls Boeing a company that commits to designing, building, and supporting the safest in the world.

In Q1, revenues were down 2 percent from $23.382bln to $22.917bln. Defense and Space were up 2 percent and Global Services even 17 percent, but Commercial down 19 percent from $12.945bln to $11.822bln. Group net core earnings were down 21 percent from $2.510bln to $1.986bln, Commercial Aircraft minus 17 percent from $1.412 to $ 1.173bln.

MAX grounding so far has cost $1bln
The sole reason: lower earnings and income from deliveries after the MAX grounding. Q1 saw 149 deliveries (89 737/MAX) compared to last year’s 184 (132 737/MAX). CFO Greg Smith said that the grounding resulted in 50 fewer deliveries than calculated.
It also has cost Boeing some $1bln in extra costs, coming from reducing production from 52 to 42 737/MAX a month, headcount costs, facility and tooling costs, and storage of aircraft. Not included are costs associated with the MCAS-software update and training. While Boeing hopes to find benefits by streamlining procedures and improve workers’ training during the lower rate period, the longer the grounding lasts the higher the costs will get.

The first Boeing 737 MAX 8 prototype. (Richard Schuurman)

Muilenburg and Smith weren’t drawn into remarks about how long they expect the grounding to last, after media reports that Boeing is ready to offer the final software to the FAA for certification in May and get the MAX airborne in the somewhere in July. “Our top priority is getting the MAX back in service again, then to ramp-up production. We will apply whatever resources are needed to return the MAX into service”, Muilenburg said.
Asked if Boeing had made mistakes during the MAX design phase and FAA certification, Muilenburg said: “ was nothing that had slipped Boeing’s attention”. He admitted Boeing has taken time to understand the chain of events that have led to the two fatal accidents, but never self-reflected deeper than that.

He confessed it would take some effort to restore confidence in the MAX, especially after many customers promised they would never fly on the type again after what has happened. “My long-term view on the MAX is that I see no change in confidence. Airline customers tell me they are eager to return them into service as soon as we can. (…) A key-voice in restoring confidence is with the pilots. We have work to do to earn and re-earn confidence”.

787 is doing well
While the focus was on the MAX, during the Q1 conference call Muilenburg spoke happily about the 777 and 787 programs. The Dreamliner has been the best-selling widebody in Q1 with 38 sales, while ramp-up to 14 a month has been successful. The 777 is doing well at 3.5 a month, expected to go slightly up next year as the 777X enters full production. Two test frames are prepared for their first flight later this year, while 4 and 5 are in assembly.

As Boeing has established a committee to review the design and development processes of all models, Muilenburg was asked if this would affect the 777X or decision-making on the New Mid-market Aircraft (NMA). He repeated the focus is on the MAX and most resources will go into this program, but unless the committee finds something wrong with the 777X the CEO thinks will be no direct impact on flight testing and certification. As for the NMA, “a potential opportunity for entry into service in 2025”, the aim is still to have authority to offer to customers this year. He didn’t specify when but indicated this could well be in the final quarter of the year.

Which brings us back to where this story started: 2019 will be an extraordinary year for Boeing. To such an extent, that the company has deferred and full-year guidance until a later date. First, it needs to have a better picture of the MAX situation, which without question will hurt Q2.
Then are other circumstances that affect results, like the situation as with Jet Airways. Boeing has removed all 210 aircraft (75 MAX through Boeing Capital, 125 MAX on direct order and 10 787-9s) worth $3bln from its order book as the Indian airline is unlikely to return to service.

The MAX affair reduced operating cash flow to $2.8bln from $3.1bln in Q1 2018, while cash and marketable securities totaled $7.7bln (down from $8.6bln). The debt was up from $13.8bln in Q4 last year to $14.7bln in Q1. Commercial backlog is at $399.371bln, down from $408.140bln. Yet every cloud has a silver lining, as Smith outlined. Boeing’s cash position is in much better shape than during the previous calamity during the 787 groundings.

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