Boeing Sees Initial Costs of 737 Max Grounding

 - April 24, 2019, 12:59 PM
With a group of international regulators reviewing 737 Max accidents and airworthiness, the type is unlikely to be flying again until at least August.

Boeing says it cannot yet put an estimate on the cost of the 737 Max grounding or the cost of recertification but in its outlook statement, contained in the Q1 earnings report issued April 24, the company stated, “The previously issued 2019 financial guidance does not reflect 737 Max impacts.” However, it added, “Due to the uncertainty of the timing and conditions surrounding return to service of the 737 Max fleet, new guidance will be issued at a future date.”

The company’s first-quarter revenue was $22.91 billion (down from $23.38 billion last year) and its Commercial Airplanes division’s first-quarter revenue was $11.82 billion (down from $12.94 billion last year). Boeing blamed all of declines on “lower 737 deliveries.” It added that a decreased operating margin “also reflects increased costs associated with the recent 737 production rate adjustment.”

The U.S. airframer reported it had delivered eighty-nine 737s in the quarter compared with 132 in the first quarter of 2018.

According to the Boeing statement, it is “making steady progress on the path to final certification for a software update for the 737 Max, with over 135 test and production flights of the software update complete.”

“Across the company, we are focused on safety, returning the 737 Max to service, and earning and re-earning the trust and confidence of customers, regulators, and the flying public," said Boeing chairman, president, and CEO Dennis Muilenburg. 

Meanwhile in the lessor market the Max had been having a tough time before the grounding, according to London-based consultancy Ascend. Head of valuations George Dimitroff said there were already 150 unplaced lessor slots for Max aircraft "before the grounding" and that the Max lease rate has "fallen below the 737-800 of the same vintage." Partly as a result of this, lease rates were down "significantly" (12-13 percent). Ascend's published rates assume the aircraft is airworthy.

In terms of monthly lease rates the Airbus A320neo enjoys a $25,000 premium over Max 8s, he said, adding that Neos have also been affected by engine reliability issues.