Boeing said it is booking a $4.9 billion charge to cover possible compensation to airlines that have canceled thousands of flights since the aircraft was grounded after two deadly accidents. The costs are based on the assumption that the 737 Max will return to the air by year-end.
The costs could still rise, The New York Times, noting that the charges don't include the costs of litigation or the $100 million fund it created for the victims' families. The company released the guidance ahead of its second-quarter earnings announcement on July 24.
It also said the grounding of its 737 Max jet will cut $5.6 billion from its revenue and pre-tax earnings in the April-through-June quarter. Boeing also raised its estimate of Max production costs by $1.7 billion because output will be curtailed longer than expected.
That timing is earlier than some analysts expected and may have contributed to a rally in Boeing shares in after-hours trading. Boeing is scheduled to report its quarterly results next week. Boeing also said it plans to ramp up production of 737s from 42 per month to 57 per month in 2020, which Melius Research analyst Carter Copeland said was a "positive signal."
"Having details is a positive given rampant speculation," wrote analyst Carter Copeland at Melius Research. "BA's intention to get the MAX back in service in Q4, ramp from 42/month to 57/month in 2020, and largely clear the inventory of undelivered airplanes this year and next were all positive signals against the backdrop of negative speculation we've been observing over the last few weeks."
Boeing is still working on fixing flight-control software that appeared to play a role in crashes that killed 346 people off the coast of Indonesia and in Ethiopia. In March, regulators grounded the Boeing 737 Max and the company suspended deliveries of new jets.
The $4.9 billion charge does not include amounts that Boeing may pay in the dozens of lawsuits filed by families of crash victims. Boeing this week hired a victims-compensation expert to oversee a $50 million relief fund for families, which the company said was separate from the lawsuits.
The $5.6 billion hit to pre-tax earnings is more than half of Boeing's $10.5 billion profit for all of 2018.
"The Max grounding presents significant headwinds and the financial impact recognized this quarter reflects the current challenges and helps to address future financial risks," Chairman and CEO Dennis Muilenburg said in a statement.
CFRA Research analyst Jim Corridore said putting a figure on airline compensation and the potential return of the plane in the fourth quarter provided important clarity around the damage inflicted by the grounding.
"We expected a large charge, and this is in the order of magnitude we were expecting," he said. "In general, we are happy to have some details."
The plane's return has been pushed back several times, most recently after Federal Aviation Administration pilots found a new flaw while testing Boeing software changes in a flight simulator.
That discovery prompted Boeing to say in late June that it expected to present its proposed fix to the FAA "in the September timeframe." It would likely take several more weeks for the FAA and other regulators to approve Boeing's work, give pilots additional training, and bring long-parked jets up to flying condition.
Boeing says concessions to airlines will be spread over several years but it is taking the entire estimated expense as a charge in the second quarter. Boeing did not specify what form the compensation would take, but hinted that it would not be entirely in cash.
Boeing has delivered fewer than 400 Max planes but has unfilled orders for about 4,500.
Shares of Boeing Co. rose $7.54, or 2.1%, to $368.65 during after-hours trading. Before the announcement, they fell $8.41 to end regular trading at $361.11.