Boeing is bracing for a significant financial setback in the first quarter, primarily attributed to the alarming incident involving an Alaska Airlines flight on January 5, revealed Chief Financial Officer Brian West during an investor conference held on Wednesday.
The aerospace giant anticipates a substantial drop in operating profit margin, plunging to approximately -20% within its commercial aeroplane unit. This would mark the unit’s most substantial loss margin in two years, reminiscent of the challenges faced during the grounding of its 787 Dreamliner due to quality concerns.
The recent setback stems from a door plug blowout incident on a 737 Max 9 operated by Alaska Air shortly after takeoff, resulting in a gaping hole in the aircraft’s side. Consequently, Boeing’s production of the 737 Max has been impeded.
In response to these developments, Boeing’s stock experienced a decline of approximately 2% in premarket trading.
Compensating airlines affected by the Max 9 grounding, including Alaska Air, will contribute to the anticipated losses. Alaska Air CEO Ben Minicucci estimated the incident cost his airline around $150 million, with expectations of compensation from Boeing.
Brian West acknowledged that adjustments are necessary for Boeing’s manufacturing processes, emphasizing a deliberate approach to ensure quality. Production rates of the Max will be reduced below the previously planned 38 per month, as the company addresses the concerns raised by the Federal Aviation Administration’s audit.
Despite the immediate challenges, West remains optimistic about the company’s long-term prospects, projecting a return to historical profit margins by 2025-2026. This optimism is fueled by anticipated improvements in production efficiency and the streamlining of operations, including the closure of “shadow factories.”
The financial strain on Boeing’s commercial aeroplane unit is not new, as evidenced by its recent struggles, exacerbated by the prolonged grounding of the 737 Max following fatal crashes. However, West remains confident in Boeing’s ability to navigate these challenges and restore profitability in the coming years.
