Boeing Stalls, Posts Annual Net Loss for First Time in 22 Years Amid 737 Max Setbacks

[Image source=EPA Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Boeing, the American aircraft manufacturer that had its worst year due to the series of crashes and grounding of the 737 Max, recorded its first annual net loss in 22 years since 1997. Since the 737 Max was grounded in March last year, losses related to the 737 Max, including projected losses for this year, have reached 22 trillion won, and the burden on Boeing is expected to increase further.

According to the earnings report announced by Boeing on the 29th (local time), Boeing's net loss last year was $630 million (approximately 742.8 billion won). Considering that it posted a net profit of $10.46 billion in 2018, it experienced a drastic turnaround within a year. Boeing had previously recorded losses in 1997 due to production and delivery issues.

The return to losses after 22 years was decisively caused by the grounding of the 737 Max. Costs arising from the 737 Max crashes amounted to $14.6 billion last year alone, and are estimated to reach $19 billion by this year. The costs last year included compensation payments to airline customers affected by the grounding of the 737 Max.

On the other hand, revenue was not secured in time. Last year, Boeing delivered 380 commercial aircraft, less than half of the 806 units delivered in 2018. According to CNN and other media, about 400 737 Max passenger planes produced by Boeing are currently waiting at production facilities in Washington and Texas, USA. Since payment can only be made after aircraft delivery is completed, the situation where Boeing produces aircraft but does not receive payment is becoming prolonged.

The scale of Boeing's losses due to the 737 Max is expected to expand further. Settlement payments to the families of victims of the crashes are not included in the currently calculated costs. A total of 346 people died in crashes in Indonesia in 2018 and Ethiopia in March last year. David Calhoun, Boeing's CEO, said he has not yet estimated the compensation amount but predicted it would be a "big number."

CEO Calhoun said, "This is the most difficult moment for Boeing," and added, "We recognize that there is a lot of work to do. We are focusing on safely resuming service of the 737 Max." He continued, "We will focus on regaining trust, increasing transparency, and strengthening safety."

In response to concerns in the financial market about cash liquidity due to deteriorating earnings, Boeing announced plans to secure additional loans. According to The Wall Street Journal (WSJ), Boeing used $4.3 billion in cash last year but held $10 billion in liquidity as of the end of the same year. With additional funds secured from financial institutions, the debt level is expected to reach $27.3 billion by the end of this year.

Boeing also decided to reduce production of the 787 Dreamliner this year. WSJ reported that this reflects a decrease in orders from China, despite recent trade negotiations with the United States.

Concerns have also been raised that the spread of the novel coronavirus infection (Wuhan pneumonia) and the subsequent suspension of routes connecting China by airlines worldwide could become another negative factor for Boeing. Boeing CFO Greg Smith said, "The impact of the novel coronavirus on the aviation industry is one of the factors to watch this year."

This content was produced with the assistance of AI translation services.