BA Boeing Co

By Doug Cameron and Andrew Tangel 

Boeing Co. posted its first annual loss in more than two decades and said the costs from the 737 MAX crisis have climbed above $19 billion.

The MAX has been grounded world-wide since last March, after a pair of plane crashes within five months of each other killed 346 people. The crashes have drawn intense scrutiny of the plane maker's engineering culture, damaged the company's relationships with suppliers and customers, and led to the ouster of its chief executive last month.

Boeing doesn't expect regulators to approve the plane to fly again before midyear and has halted production, further disrupting airline schedules and suppliers' plans, and hurting its own finances.

"It's a very challenging moment for Boeing," new Chief Executive David Calhoun said Wednesday after the company reported a full-year loss of $636 million, compared with a profit of $10.46 billion in 2018. Sales fell 24% to $76.6 billion.

Mr. Calhoun has signaled a back-to-basics approach since starting the job earlier this month, and said he would focus on rebuilding trust, boosting transparency and shoring up engineering with a heavy emphasis on safety. He expressed confidence the MAX will re-enter service despite repeated delays in winning regulatory approval, and win the trust of pilots and passengers.

Mr. Calhoun, who served on Boeing's board for a decade before becoming CEO, pushed back against the notion he was an insider responsible for earlier management decisions about the MAX. He said he would address Boeing's broader cultural problems, but said cost or scheduling pressures weren't linked to Boeing's flawed design of a flight-control system implicated in both MAX crashes.

"I watched the same movie you did -- I think I was in the front-row seat, and I might come to exactly the same conclusions you do," Mr. Calhoun said in a call with reporters on Wednesday. "My leadership role here at Boeing is intended to make changes that correct a lot of those situations."

Boeing shares were up 2.3% at $325.88 on Wednesday afternoon.

Mr. Calhoun faces challenges that extend beyond the MAX crisis, one of the biggest in the company's 103-year history.

Boeing's MAX problems have derailed its overall product strategy and strained its balance sheet. The Chicago-based company on Wednesday announced a second cut in 787 Dreamliner production next year and booked more charges on its military-tanker and space-taxi programs.

Mr. Calhoun has shelved plans for a new plane seating 220 to 270 passengers -- intended to challenge a rival Airbus SE jet that has dominated sales -- in favor of a market study, though he said the company could move quickly once it had decided on a fresh option.

Boeing's 777X jet, which flew for the first time last weekend, is behind schedule, and deliveries aren't due to start until next year, potentially forcing a cut in output of the existing 777 model.

Boeing's $410 million charge on its CST-100 Starliner space capsule followed the failure of last month's debut mission to reach its planned orbit. That will likely require a second uncrewed launch before it can secure approval to fly with astronauts.

The defense unit is under pressure after design issues delayed its KC-46A refueling tanker, and quality problems led the U.S. Air Force to withhold some payments.

As for the MAX, Chief Financial Officer Greg Smith said Wednesday that it will take about two months to spool up production at Boeing's idled plant near Seattle, and about a year to deliver the 400 planes built and now in storage.

Boeing hasn't cut any staff, but some of its suppliers have laid off workers. Airlines that operate the MAX are losing hundreds of millions of dollars as its fleet remains grounded. Many carriers have removed the plane from schedules through June. Some, such as United Airlines Holdings Inc., have said they don't expect to fly it this summer.

The production halt and an expected move to low-level output this year will inflate future MAX production costs at Boeing, which has set aside $4 billion for additional expenses this year -- and some of those funds will be used to aid suppliers.

Costs could rise further still, depending on when the troubled jetliner is able to re-enter service.

The company settled $1.4 billion in customer compensation claims last year and expects a total bill of $8.8 billion, excluding potential payments to victims' families or the results of multiple probes being conducted by the authorities. Boeing has a mounting legal bill as it defends itself from civil lawsuits and probes by federal prosecutors, securities regulators and congressional investigators.

Mr. Calhoun said he didn't have an estimate for the legal fees, telling reporters: "It's probably a big number and it's one I can't wait to see go down."

Boeing said it burned through $4.3 billion in cash last year but ended 2019 with $10 billion in liquidity. It is raising more funding, and debt increased to $27.3 billion at the end of the year.

Its cash profile will be dented further by plans to cut 787 Dreamliner production to 12 from 14 later this year, and then again to 10 early next year before returning to 12 in 2023.

The move reflects the failure of expected orders from China to emerge, even with the recent U.S. trade agreement flagged as including aircraft deals. Boeing hasn't secured a new order from China since the fall of 2017. Mr. Calhoun said he didn't think new 787 deals would depend on the second phase of the U.S.-China trade pact.

For the fourth quarter, Boeing incurred a $1 billion loss, compared with a $3.4 billion profit a year earlier.

Write to Doug Cameron at doug.cameron@wsj.com and Andrew Tangel at Andrew.Tangel@wsj.com

(END) Dow Jones Newswires

January 29, 2020 16:14 ET (21:14 GMT)

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