The Boeing 737 Max crisis is a tragedy that has cost 346 lives. On Tuesday, investors will start to find out what it means for Boeing’s bottom line.
Boeing is set to report the number of planes it delivered during the quarter. The company didn’t deliver any of its bestselling 737 Max planes in the last two weeks of the quarter, because it halted those deliveries following the global grounding of the 737 Max planes on March 13.
Investors will be waiting to see if Boeing (BA) forecasts the costs of the grounding and halt of deliveries. Boeing (BA) doesn’t normally give any dollar figures as part of its deliveries report, but this is not a normal time. It is one of the greatest crises in the company’s history.
Boeing is scheduled to report first quarter results on April 24, and then meet with shareholders April 29. But Tuesday’s report is an early look at the financial costs of its 737 problem.
The company could also provide some details on whether the grounding hurt orders for the plane, although the first quarter report generally focuses only on deliveries, not orders. So far only one airline, Indonesia’s Garuda, has disclosed that it has canceled an order for 50 of the jets. Although that order was worth $4.9 billion, it’s a fraction of the backlog of 5,000 737 Max orders that Boeing has on its books.
The 737 problem will extend far beyond first-quarter results.
Boeing is scrambling to come up with a software fix for the automatic safety system, which is the focus of investigations into two fatal crashes. Boeing also announced last week that it was scaling back production of the 737 Max.
“The 737 delay could last longer than previously expected,” wrote Bank of America analyst Ronald Epstein in a note to investors Monday, in which he downgraded his recommendation on the stock.
Epstein estimates the disruption to Boeing’s business could last between six and nine months. He had previously forecast three to six months of disruption. He said he now predicts it will take Boeing until 2021 to catch up on promised aircraft deliveries.
That’s a big deal: The 737, which is Boeing’s most profitable program, accounts for about 40% of the company’s operating profit. While there are plenty of traditional 737 models in service, nearly all of the new planes that Boeing is selling as part of the program are Max models.
Over the weekend American Airlines (AAL), which has 24 of the Max planes, announced it was canceling flights through June because of the grounding. Cowen aerospace analyst Cai von Rumohr said he now believes Boeing won’t be able to make deliveries to US airlines — American, Southwest Airlines (LUV) and United Airlines (UAL) — until June.
And he said that foreign aviation regulators, who were quicker to ground the planes than the US Federal Aviation Administration, may take longer to allow those deliveries to resume. He projects the foreign carriers won’t start getting the planes until the third or possibly even the fourth quarter.
Overall, he expects Boeing to deliver just 500 737 planes in 2019. Before the crisis, he believed Boeing would deliver 630. But he admits his best guess could be way off if Boeing’s problems deepen.
“It comes at a sizable, albeit still hard to quantify, financial penalty to 2019 results,” wrote von Rumohr.