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Boeing's quarterly report will give first look at financial impact of MAX crisis

Paul Roberts, The Seattle Times on

Published in Business News

Even as Boeing inches closer to a fix for its grounded 737 MAX, industry analysts say the aircraft may not fly until October, a delay that could cost the company nearly three fifths of the cash it expected to generate in 2019.

On Wednesday morning, investors and analysts will get their first look at the financial impacts of the grounding when Boeing releases its first-quarter results -- the first such report since a second fatal crash of a MAX aircraft on March 10 led to its worldwide grounding.

Boeing still can't say how long it will take to fully implement a fix for the automatic flight control software implicated in the crashes, or to get the fix approved by regulators around the world. Also unclear are the potential costs from civil lawsuits and potentially criminal charges resulting from the crashes, which caused 346 deaths.

But analysts say the aircraft is unlikely to return to service before Oct. 1.

That would be a huge problem for Boeing, which is counting on the MAX for a large fraction of the company's cash flow, which is the money Boeing generates from operations after subtracting capital investments.

In just the first quarter of 2019, which ended March 31, the MAX grounding could cost Boeing about $1 billion in cash flow, according to a JP Morgan estimate -- and that's from just a few weeks of lost MAX deliveries in March. Starting in April, each full month the MAX remains grounded will bring another $1.5 billion to $1.75 billion in lost cash flow, according to various analysts' estimates.

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If the grounding lasts through September, Boeing could lose $10 billion in cash flow, or nearly 60 percent of the $17 billion Boeing itself anticipated for 2019 across all company operations. With the grounding, some analysts expect Boeing may barely break even on cash flow in both the second and third quarters.

Cash flow is a key metric that Boeing -- and Wall Street -- use to judge the financial health of the aerospace giant. For that reason, cash flow affects everything from the price of Boeing's shares to the size of its executive pay packages.

Analysts at Credit Suisse say the grounding could lead to a 20 percent drop in Boeing's earnings per share for the first quarter alone quarter. That's not good news for Boeing's once high-flying share price, which has already fallen nearly 16 percent from a high of $446, shortly before the March 10 crash of an Ethiopian Airlines MAX, to $375 by Monday's close.

The MAX crisis is hammering Boeing's bottom line in two ways. Even while the company forgoes around $550 million a month in cash earnings from MAX aircraft that it can't deliver, it is spending around $1.1 billion each month to produce the aircraft, according to JP Morgan.

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