Published 13:18 IST, July 19th 2019

Boeing to take a $4.9 billion charge over grounded jet

Boeing said on July 18 it is booking a $4.9 billion charge to cover possible compensation to airlines that have canceled thousands of flights since the 737 Max jet was grounded after two deadly accidents.

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Boeing said on July 18 it is booking a $4.9 billion charge to cover possible compensation to airlines that have canceled thousands of flights since 737 Max jet was grounded after two dely accidents.

airplane builder also said Max-related fallout will cut $5.6 billion from its revenue and pre-tax earnings in April-through-June quarter.

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Chicago-based company said calculations were based on an assumption that regulatory approval for plane’s return to flying will begin early in fourth quarter.

That timing is earlier than some analysts expected and may have contributed to a rally in Boeing shares in after-hours tring. Boeing is scheduled to report its quarterly results next week.

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Boeing also raised its estimate of Max production costs by $1.7 billion because output will be curtailed longer than expected.

Boeing is still working on fixing flight-control software that appeared to play a role in crashes that killed 346 people off coast of Indonesia and in Ethiopia. In March, regulators grounded Boeing 737 Max and company suspended deliveries of new jets.

$4.9 billion charge does t include amounts that Boeing may pay in dozens of lawsuits filed by families of crash victims. Boeing this week hired a victims-compensation expert to oversee a $50 million relief fund for families, which company said was separate from lawsuits.

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$5.6 billion hit to pre-tax earnings is more than half of Boeing’s $10.5 billion profit for all of 2018.

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“ Max grounding presents significant hewinds and financial impact recognized this quarter reflects current challenges and helps to dress future financial risks,” Chairman and CEO Dennis Muilenburg said in a statement.

CFRA Research analyst Jim Corridore said putting a figure on airline compensation and potential return of plane in fourth quarter provided important clarity around dam inflicted by grounding.

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“We expected a large charge, and this is in order of magnitude we were expecting,” he said. “In general, we are happy to have some details.”

plane’s return has been pushed back several times, most recently after Federal Aviation ministration pilots found a new flaw while testing Boeing software changes in a flight simulator.

That discovery prompted Boeing to say in late June that it expected to present its proposed fix to FAA “in September timeframe.” It would likely take several more weeks for FAA and or regulators to approve Boeing’s work, give pilots ditional training, and bring long-parked jets up to flying condition.

Boeing says concessions to airlines will be spre over several years but it is taking entire estimated expense as a charge in second quarter. Boeing did t specify what form compensation would take, but hinted that it would t be entirely in cash.

Despite grounding, Boeing has kept building Max jets, although at a reduced rate of 42 per month, down from 52, since April. company said on July 18 that it assumed it can raise production grually to 57 per month in 2020.

Boeing has delivered fewer than 400 Max planes but has unfilled orders for about 4,500.

Shares of Boeing Co. rose $7.54, or 2.1%, to $368.65 during after-hours tring. Before anuncement, y fell $8.41 to end regular tring at $361.11.

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11:49 IST, July 19th 2019