Despite Boeing 737 Max jets being grounded worldwide, the company has continued to build its planes. The 737 Max is Boeing’s bestselling jet, and there are more than 6,000 unfulfilled orders on the books today.
While Boeing hopes to have its planes recertified before the fourth quarter, there are many industry analysts who believe that groundings could continue into 2020. Now the company has warned investors that it could stop production altogether.
Two fatal 737 Max crashes killed more than 300 people in separate incidents. The company is currently working to fix software flaws that contributed to both crashes.
Production Could Cease if Certification is Delayed
CEO Dennis Muilenburg told investors this week that the company could either slow or completely cease production on 737 Max jets.
The company is hopeful that it will develop software fixes by September, and that a certification flight will be carried out in October. If testing meets FAA requirements, then regulators could recertify the 737 Max by December.
However, if there are further delays in software development, or if regulators aren’t happy with the changes that Boeing makes, then the recertification process will take much longer. In the case that groundings will continue throughout 2019 and beyond, Boeing will have no other choice but to cease production temporarily.
Huge Financial Hit for Boeing
The second quarter of this year was the worst in Boeing’s history. The company reported an adjusted loss of $3.7 billion. It has already slowed production on 737 Max jets, which has cost it $2.7 billion this year. The company will also be responsible for up to $4.9 billion in customer compensation.
If groundings are extended into 2020, the losses will be significant.
The only real upside for Boeing here is the fact that it has thousands of 737 Max orders to fulfil, and payments will be received as those deliveries are made. Investors can expect earnings to rebound as soon as recertification is complete. While it could take two or even three more quarters, analysts are confident that the company and its stock will recover.
Boeing (NYSE: BA) stock is down -3.56% over the last five days. The 737 Max fiasco has cost the company most of its gains. Year to date the stock is up 7.98%, trailing the wider market and all major indexes.
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