No one in their right mind could have imagined that Boeing’s second quarter 2019 financial performance would be anything other than appalling. In respect of losses, the Q2 2019 figures reported by Boeing today represent the worst ever set of figures ever reported by the company.
Bad as the Q2 figures are, all credit to the President of the Boeing Company, Dennis Muilenburg and his team, ensuring that no stone has been left unturned in order to get to the bottom of why erroneous AOA data that fed the 737-MAX aircraft anti-stall system known as the Manoeuvring Characteristics Augmentation System (MCAS) to fail or indeed, whether in combination with software issues pilots of the plane received insufficient training. It is not for me to judge but with pilot training becoming a very serious issue in terms of shortages, I fear that insufficient training on a brand-new plane design may also lie at the heart of the issue.
Who understood or perhaps I might better say, why was so much in the cockpit of this plane misunderstood by pilots is perhaps for another day? Whether or not Boeing acted quickly enough to sort whatever the issue was out quickly enough may sadly never be known.
However, what is known is that the two very separate and tragic Ethiopian Air and Lion Air 737 MAX incidents last year led to the deaths of all 346 passengers and crew on board. Such was the gravity of these two separate crashes that airline regulators across the world grounded the aircraft type almost immediately. This in turn has forced Boeing to substantial cut back production of the 737 MAX type.
Together with compensation to families of those who lost their lives as well as that paid to the airlines concerned and for which Boeing has taken a near $5 billion exceptional charge in the results just reported, all that I can suggest is that this is unlikely to be the end of the financial misery that Boeing is suffering yet. There remain many unknowns particularly in respect of payments and timing, that will also include not only requirements to pay airlines that have been forced to ground the 737 MAX planes already delivered but also to those hurt by the substantial delay in the delivery of planes ordered. Order cancellations are another potential issue.
So, sad though it is to say, the term ‘Annus Horribilis’ may be the best to describe the dreadful year that Boeing is going through. For the record Boeings earnings declined on those of last year by a whopping 275% which translates into a loss of $5.82 per share on revenue of $15.8 billion, itself much lower that had been expected by analysts, being recorded in the Q2 results.
It was not all bad news though and one bright piece of news on offer today was confirmation of improved revenue and profit performance in the Defense and Services related divisions.
Worth noting as well that the grounding and reduction of 737 MAX plane production led to an operating margin decline of over 100%. Commercial aircraft deliveries during the quarter declined for 194 in the equivalent period of 2018 to just 90 in the second quarter results being reported today.
Boeing says that it remains unclear how long it will be before the additional 737 MAX certification process is signed off in order to allow and ‘ungrounding’ of the planes. However, if the various new certification elements are submitted by the company in September 2019 then I would suggest that if all goes well the 737 MAX could be allowed to start flying again during the final quarter of this year.
That is my own speculation of course, but no one should be under any illusion that Boeing has learned much from these tragic incidents meaning that it isn’t just passenger safety that comes before anything else including ensuring that the various software issues that are believed to be behind both 737 MAX crashes have been fully sorted but also that pilot training issues that later became apparent from some of those flying the plane have also been sufficiently improved. Bottom line is that Boeing will take as long as it takes to get it right and ensure that safety remains the absolute number one priority, the logic being of course that without safety there is no business!
It is expected that Boeing will also provide an update of the 777X schedule to analysts in the afternoon meeting today. I have no details of this yet but suspect that Boeing will probably announce that the first flight of the 777-9 aircraft will take place in early next year and that subject to no worsening in relation to the GE9X engine issues that has added significantly to the build and delivery schedule delay issues, the first delivery of a 777-9 aircraft is quite likely to occur sometime in 2020.
For all that, Boeing remains a strong and very well managed company albeit one that has been humbled by the two tragic 737 MAX crashes. Suffice to say that Boeing will come through this quite dreadful period better equipped and with even greater understanding and knowledge. Despite the probability of there being further bad news to come as the year progresses, I am in little doubt that Boeing will emerge from this crisis later this year as a better company that the one that entered it.
CHW (London – 24th July 2019)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785