The 737 Max crisis slashed Boeing's third-quarter profit in half compared with a year earlier, but the company absorbed the financial hit without any additional write-offs to cover the expenses of compensating customers and continuing to build 737 jets that it cannot deliver.
However, Boeing added $900 million to its estimated costs for producing the 737, due to the extended reduction in the production rate during the grounding. That will reduce the 737's profitability and cash flow in future quarters and brings Boeing's estimated cost of the Max grounding so far to $9.2 billion.
Boeing also announced other negative news affecting the larger widebody jets built at its Everett plant: because of a rapidly shrinking order backlog on the 787 Dreamliner, Boeing will cut production of that jet at the end of 2020 from 14 to 12 jets per month.
And after delays in development of the new 777X airplane, first delivery is pushed out from next year into "early 2021."
In a statement early Wednesday announcing its earnings figures, Boeing said it assumes that it will get regulatory approval for the 737 Max's return to service by the end of the year and that it will gradually increase the 737 production rate next year, from 42 to 57 jets per month by late 2020.
Ahead of a teleconference with analysts and the press, Boeing CEO Dennis Muilenburg said in a statement that "our top priority remains the safe return to service of the 737 Max, and we're making steady progress."
"We've also taken action to further sharpen our company's focus on product and services safety," he said.
Although Muilenburg three months ago spoke of the possibility of shutting down for a period the 737 final assembly factory in Renton if there was a further delay in getting the Max back in service, the company is holding off on such a drastic action, which is not expected unless regulatory approval slips again into next year.
Revenue plunges
Boeing's financial results show a profit of $1.2 billion, or $2.05 per share, on revenue of $20 billion in the third quarter.
That's compared with a profit in the same quarter a year ago of $2.4 billion, or $4.07 per share, on revenue of $25 billion.
The Commercial Airplanes division showed a net reduction in revenue of $5.8 billion compared to a year ago as it delivered just five 737s in the quarter, all military variants, compared to 138 deliveries a year ago.
Commercial Airplanes showed an overall loss of $40 million compared to a profit a year ago of $2 billion.
Before the Max crisis, Boeing had been gushing cash from increasing jet production, and cash flow had become the metric by which investors judged the company's performance. But with 737 Max deliveries at zero, Boeing's operating cash flow for the quarter was negative, at minus $2.4 billion, compared to positive cash flow a year earlier of $4.6 billion.
The addition of $900 million to the projected future manufacturing costs for the 737 follows previous increases to that projection of $2.7 billion since March. The total increase of $3.6 billion will be spread over the entire 737 remaining production run, which for accounting purposes is assumed to be just over 3,000 aircraft.
That's an increase of about $1.2 million in the cost to produce each jet and a correspondingly lower profit per aircraft.
Although Boeing added no further Max-related financial write-offs, its total debt swelled by $5.5 billion during the quarter.
Overall, the results came in even lower than the reduced expectations on Wall Street. Boeing's core profit figure, adjusted to exclude certain pension items, was $1.45 per share, well below the consensus projection from analysts of $2.09 per share.
The one figure in the financial results that looked good was the reduction in the cumulative cost of the 787 Dreamliner that has been deferred into the future. Total deferred costs now stand at $22 billion, which is $1.2 billion lower than last quarter. With 35 Dreamliners delivered in the quarter, that means Boeing recouped about $37 million per airplane.
Despite the financial impact of the Max crisis, Boeing has maintained payments to shareholders at a high level. During the quarter, the company paid out $1.2 billion in dividends, reflecting a 20% increase in dividends per share compared to the same period of the prior year.
Boeing has been working for months to win regulators' approval for the software fix it developed to address flaws in the flight-control system that went haywire on the two planes that crashed in Indonesia and Ethiopia, as well as the updates it prepared for pilot-training procedures and manuals.
It indicated Wednesday that foreign regulators will likely provide that approval later than the Federal Aviation Administration (FAA) in the U.S.
"These regulatory authorities will determine the timing and conditions of return to service in each relevant jurisdiction," Boeing said.
The news that the 787 production will be cut next year is not a surprise. The plane has an order backlog of over 550 airplanes, which is three years of production at the rate of 14 jets per month.
Boeing said it will maintain that lower rate for approximately two years. Bank of America analyst Ron Epstein in an interview said that seems optimistic given the slow order rate and that he expects production will be cut further.
Boeing has said it anticipates an upswing in orders in the widebody jet sector starting next year. But widebody orders remain depressed, with no sign of that changing.
