737 MAX Crisis Could Cost Boeing Over $20bln as the Company Takes Billions in Loans

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Chicago, Illinois, United States – The US aerospace giant Boeing’s costs are projected to rise substantially, analysts say, as airlines continue to push back MAX 737’s from their schedules. The company’s best-selling planes have now been grounded for 11 months. The worldwide grounding saw airlines lose more than $1 billion in revenue, and Boeing more than $7 billion.

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The company, which took a $5.6 billion pretax charge in July to compensate airlines and other customers for the grounding, is to report full-year and fourth-quarter earnings on January 29. Some Wall Street analysts expect it to take additional charges related to the troubled airplane.

“They’re going to have to pay more,” Ron Epstein, aerospace analyst at Bank of America Merrill Lynch, told CNBC.

According to his estimates, the total cost of the grounding could reach $20 billion (excluding any settlements from lawsuits from crash victims’ families) if the planes return by June or July. Epstein estimates that about 40 percent of the company’s profits last year came from the MAX 737.

An aerospace and defense analyst at Jefferies, Sheila Kahyaoglu stated this week that the charges for aircraft customers’ compensation are likely to rise to $11 billion. She assumed that the planes will return to service in April. Boeing announced earlier it would tap the debt markets for more cash to cover the costs of the crisis.

Thus, the company has taken $6 billion in loans and is in talks to secure a total of $10 billion or more, according to a report. CNBC reported on Monday that officials familiar with the company’s finances say that it is in talks with banks including Merrill Lynch, Bank of America and J.P. Morgan to secure a loan of $10 billion or more and had already accepted $6 billion.

Boeing has reportedly halted production on the planes and agreed to allow pilots to undergo simulator training before the jets return to service, a time-consuming process that is expected to further delay their return to service. Boeing officials originally hoped that the 737 Max fleets would return to commercial service last year.

The Federal Aviation Administration (FAA) and all other major flight authorities around the world moved to ground the planes after the two crashes, and Boeing has since faced questions from federal regulators over how much the company knew of issues thought to have caused the crashes before they occurred.

Company employees were revealed earlier this month to have discussed hiding issues from FAA regulators in internal communications while expressing concern about the 737 Max’s safety.

“I still haven’t been forgiven by God for the covering up I did last year,” one employee stated in a newly revealed message sent in 2018.

Boeing told Congress in a statement that the messages “contain provocative language, and, in certain instances, raise questions about Boeing’s interactions with the FAA in connection with the simulator qualification process”, but added that it is “confident that all of Boeing’s Max simulators are functioning effectively”.

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