The troublesome Boeing 737 Max is probably the company's most expensive mistake
The troublesome Boeing 737 Max is probably the company's most expensive mistake

The troublesome Boeing 737 Max is probably the company’s most expensive mistake

Financially, Boeing continues to pay high wages to ensure the safety of 737 Max passengers in the future.

Boeing details direct costs from the base of about $ 20 billion: $ 8.6 billion in compensation for customers with flight plans, $ 5 billion for defective production costs, and $ 6.3 billion for increased costs of the 737 Max project.

The company also spent nearly $ 600 million on aircraft maintenance, test training and software upgrades that were not included in the company’s cost estimates. It has also set up a $ 100 million victim compensation fund, which is not yet included in Boeing’s estimated $ 20 billion.

So the cost of landing land released by Boeing includes $ 20.7 billion.

Boeing’s legal obligations almost add to that cost. Published report The families of the first 11 victims who settled with Boeing received at least $ 1.2 million. That means the total cost could be as high as $ 500 million.
Interest rates have also risen. Boeing has borrowed billions of dollars at about 5% interest to keep the 737 Max undeliverable. The company built the 450 Max during the landing, but it did not send a single 737 Max for nearly two years.

Only about half will be delivered in the fall, and some shipments will last until 2023. Boeing does not receive most of its sales until the aircraft is delivered to the airline, so interest is likely to rise – perhaps Chris Denicolo, an aviation credit analyst with Standard & Poor’s, said $ 3 billion.

What is clear is that the $ 20.7 billion cost that Boeing details is just the beginning. Bank of America put the cost at more than $ 25 billion.

“It will be worth more than $ 20 billion. But it is difficult to say how much it will cost,” Denicolo said.

Loss of sales

If the financial damage from 737 Max remained in the $ 20 billion range, it would not have made the company the most expensive mistake. Volkswagen has paid $ 32 billion, or $ 38 billion, to emissions embezzlement. The most expensive mistake to date was the $ 68 billion BP ombus of explosive ordnance in 2010.
But did BP lose little sales because of Deepwater Horizon, and VW only suffered? Minimal, short-term loss of sales From emissions threads. By contrast, it is clear that Boeing suffered significant sales losses when the 737 Max crashed.

Due to the groundbreaking, Boeing lost the cancellation fee listed on the sales contract for the 737 Max. As the Covid-19 virus has sent down air demand, airlines have begun to take advantage of the free cancellation policy, anticipating that they will not need aircraft for many years.

Boeing has released a waiver order for 448 Max Max cars this year, compared to just nine for other models. In addition, it dropped another 782 orders from 737 Max orders because it believed those orders were unreliable. In some cases, uncertain airline orders have the airline’s customers say they no longer need.

The 737 Max typically sells for about $ 55 million, or half the stated price, so the worst-case scenario for a Boeing is that it could lose as much as $ 67 billion in revenue from a drop in sales.

But experts say it is likely that Boeing will eventually sell those planes, albeit at a reduced price, in some cases to the same customers who are now canceling orders.

S&P’s Denicolo and other industry experts agree that the high price cuts, which may not have been fundamental, are a real financial risk for Boeing.

“Say you are an airline. If there are no more penalties, why not cancel my order altogether, and can I repurchase it cheaper?” Industry experts, who spoke on condition of anonymity.

Boeing will not comment on the price paid for its aircraft or any discounts. But experts say that could be as much as $ 20 million per aircraft, or about $ 25 billion in total – more than double the actual cost of landing.

The multiple price reductions of the other 3,300 orders still in the book could increase the overall cost of the Boeing aircraft, perhaps as much as the $ 68 billion Deepwater Horizon.