Boeing to pay $443 million to airlines for Max 9 grounding as losses and problems mount

New York (CNN) — Boeing reported a slightly smaller loss in the first quarter compared to the same time a year ago, but said fixing the problems that got attention after the Alaska Air incident will push back its financial recovery and cost it $443 million in compensation to its airline customers.

Boeing reported a core operating loss of $388 million, or $1.13 a share, from the $440 million it lost on that basis a year earlier. That was significantly less than analysts’ forecast of $1.63 a share in the quarter. But the improvement came from outside its key commercial airplanes unit, where losses from operations nearly doubled to $1.1 billion.

Revenue tumbled $1.4 billion, or 8% to $16.6 billion, as the problems at the airplane maker resulted in a sharp drop in deliveries of jets to its airline customers. The company gets most of its money from sales of commercial planes only upon deliveries to customers.

The slightly better than expected financial results don’t make up for a company struggling with questions from Congress, regulators and the traveling public about the quality and safety of its aircraft. It is not only scrambling to repair its badly damaged reputation but also to satisfy airline customers being hurt by not receiving the aircraft they had been promised. Boeing said it is taking the necessary steps to fix the quality issues. But those fixes will continue to cause additional losses and missed delivery targets in the months ahead.

Boeing said it would produce fewer 737 Max jets than it originally planned for the rest of this year as it tries to fix problems on its assembly lines. Production of its larger 787 Dreamliner will also be limited by supplier issues, it said.

“We will take the time necessary to strengthen our quality and safety management systems, and this work will position us for a stronger and more stable future,” said CEO Dave Calhoun, who announced during the quarter his plans to leave his post by the end of the year.

The company said the results were hurt by the compensation to airline customers for the three-week grounding of the 737 Max 9 jets, following a January 5 incident in which a door plug blew off of an Alaska Airlines flight leaving a gaping hole in the side of the plane shortly after take-off.

Alaska Air and United Airlines, the two carriers with the most 737 Max 9 planes in their fleets, have already announced they had reached compensation agreements with Boeing.

The incident has sparked a series of investigations into Boeing by the National Transportation Safety Board, the Federal Aviation Administration and the Justice Department, the latter of which could expose the company to criminal liability. It also focused attention on the safety and quality of its aircraft, and its way of treating employees who raise concerns about those issues, including congressional hearings.

Boeing has said it has made a new commitment to improving its quality and safety issues and that it wants employees with concerns to bring them forward.

Calhoun said he’s confident that Boeing will be able to make the changes it needs to return to profitability for the first time since 2018, but he said the changes it will be making will delay the timeline to be profitable once again.

“While this effort will slow our recovery timing, we are now seeing proof points that give us confidence that we’ll begin to stabilize and improve performance moving forward,” he said on the company’s investors call.

The company would not give any guidance for how much money it will lose this year or exactly when it expects to be profitable. Calhoun said the company is confident with its goal of producing positive cash flow of $10 billion a year, although he said it is now looking to do that later in the 2025 to 2026 window it had set as its goal.

“We are absolutely committed to doing everything that we can to make certain our regulators, our customers, and most importantly, our employees and the public are 100% confident in Boeing,” he said. “It is important that our people and our stakeholders understand how promising Boeing’s future looks. Demand across our portfolio remains incredibly strong. Our people are world class. There’s a lot of work in front of us, but I’m proud of our team and remain fully confident in our future.”

But credit rating agency Moody’s doesn’t have as much confidence in Boeing’s outlook for turning things around. It downgraded the company’s credit rating to Baa2, just one step above junk bond status, and it gave it a negative outlook, suggesting another downgrade could be on the horizon.

Moody’s said it believes “the headwinds buffeting commercial airplanes will now persist at least through 2026.” And it said that the company’s projected annual cash flow will fall short of the $4.3 billion of debt coming due in 2025 and also the $8.0 billion coming due in 2026, and that Boeing will therefore have to issue new debt to fund those shortfalls.

Shares of Boeing (BA), which had lost 35% so far this year through Tuesday’s close, were down another 3% in afternoon trading following the investors call, after being up more than 3% in early trading on the smaller-than-forecast loss.

Boeing has had a string of losses and problems with its planes’ quality dating back at least five years. Two fatal crashes of the 737 Max in late 2018 and early 2019 that killed 346 people were tied to a design flaw in the plane and led to a 20-month grounding of Boeing’s best-selling model. It had subsequent problems with the quality of jets once the 737 Max was returned to service.

All told the company has reported core operating losses of $31.9 billion since the start of the grounding in 2019.

But it reported a record month for orders in December, capping what had been one of its best years ever in terms of commercial jet sales. Deliveries also reached a five-year high, and it even reported a rare core operating profit of $90 million for the fourth quarter of 2023. It also announced plans to increase production of the 737 Max throughout 2024 in order to return to sustained profitability.

But by the time it reported those better results for 2023, the incident aboard the Alaska Air flight had already occurred, dashing hopes that it was about to put its financial problems behind it.

While the NTSB has not determined who specifically is at fault for the accident, a preliminary investigation has found that the jet left a Boeing factory missing the four bolts needed to hold the door plug in place.

This story has been updated to reflect additional reporting and context.

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