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Boeing takes $5bn hit over grounding of 737 Max

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Boeing takes $5bn hit over grounding of 737 Max

Boeing 737Image copyright Reuters

Boeing is taking a $4.9bn hit to cover the costs of the grounding of its 737 Max aircraft after two deadly crashes.

The charge is set to wipe out profits when the world's biggest planemaker posts quarterly results next week.

In a statement, Boeing also said its "best estimate at this time" is that 737 Max will return to service in the last three months of this year.

A crash in Indonesia in October, followed by another in Ethiopia in March, killed 346 people in total.

Boeing is facing one of the worst crises in its history after its best-selling aircraft was grounded worldwide after the disasters.

Crash investigators have concentrated their efforts on the aircraft's control system and Boeing has been working with regulators to roll out a software upgrade.

The manufacturer, facing intense scrutiny over the regulatory clearance for the aircraft to fly, has cut the monthly production rate from 52 to 42 as airlines hold off purchases.

Most of the $4.9bn charge will be used to compensate Boeing's customers for schedule disruptions and delays in aircraft deliveries."We are taking appropriate steps to manage our liquidity and increase our balance sheet flexibility the best way possible as we are working through these challenges," Boeing chief financial officer Greg Smith said in a statement.

Also in the same statement, Boeing chairman and chief executive Dennis Muilenburg, said: "This is a defining moment for Boeing. Nothing is more important to us than the safety of the flight crews and passengers who fly on our airplanes.

"The Max grounding presents significant headwinds and the financial impact recognised this quarter reflects the current challenges and helps to address future financial risks."

Cancelled flights

Boeing said it continues to work with aviation authorities to get the 737 Max back into the air, which it hopes will be in the fourth quarter of 2019.

Grounded Southwest Airlines Boeing 737 Max aircraft parked at the Southern California Logistics AirportImage copyright AFP Image caption Grounded Southwest Airlines Boeing 737 Max aircraft parked at the Southern California Logistics Airport

But the statement added: "This assumption reflects the company's best estimate at this time, but actual timing of return to service could differ from this estimate."

Boeing also warned that if this timetable slips, and its anticipated resumption of deliveries to customers is delayed, that this "could result in additional financial impact".

However, in a speech on Thursday, the US transportation secretary appeared less certain that the aircraft would be cleared to fly again this year.

Elaine L Chao said the Federal Aviation Administration, "is following a thorough process, rather than a prescribed timeline... the FAA will lift the aircraft's prohibition order when it is deemed safe to do so." She was not referring directly to Boeing's statement.

Analysts knew that Boeing faced a heavy financial cost following the disasters and had been awaiting clarity. Boeing's share price rose 2% in after-hours trading on Wall Street after the announcement, a sign that investors are comfortable with the charge.

In April, Boeing halted share buybacks. The planemaker said that lowered production due to the grounding of the 737 Max fleet globally had cost it an additional charge of at least $1bn so far.

On Thursday, Southwest Airlines, the biggest user of the 737 Max, joined its US rivals in cancelling more flights until early November.

The move also prompted the low-cost carrier to freeze new pilot hiring.

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Also in the same statement, Boeing chairman and chief executive Dennis Muilenburg, said: "This is a defining moment for Boeing. Nothing is more important to us than the safety of the flight crews and passengers who fly on our airplanes.

Hollow words based on the corporate decisions made by the company in it's development/rollout of the Max.  "We totally care about safety" says the company after it's been caught compromising safety.

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What did it cost to develop the C Series?  5 Billion sounds familiar.

 Perhaps developing a new aircraft might have been a better use of their money.

 

 "Good things not cheap, cheap things not good! "

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On 7/19/2019 at 4:38 AM, Tango Foxtrot said:

What did it cost to develop the C Series?  5 Billion sounds familiar.

 Perhaps developing a new aircraft might have been a better use of their money.

 

 "Good things not cheap, cheap things not good! "

hind sight is 20/20

with Boein track record for aircraft development we wouldnt see it until 2030 anyway.

 

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3 hours ago, boestar said:

hind sight is 20/20

with Boein track record for aircraft development we wouldnt see it until 2030 anyway. 

I think that the record perhaps says otherwise as these investigations are showing.

Shortly after the 1997 McDonnell-Douglas buyout/merger there were observations made regarding the cultural shift imposed by the McD management. So it was "known" early by those working for (the old) Boeing as discussed in Emerging from Turbulence, (2010 & 2015). Until the MAX accidents, the B787, including the aircrafts' grounding, were the strongest indications of the issues that are showing up as organzational / cultural problems quite clearly now. There is history behind the MAX accidents as is now plainly seen in the numerous investigations including a criminal investigation all of which are far from over. I think it is reasonable to believe that they would appear to be hindsight only to those who weren't watching both the company and the FAA along the way.

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On 7/19/2019 at 4:38 AM, Tango Foxtrot said:

What did it cost to develop the C Series?  5 Billion sounds familiar.

 Perhaps developing a new aircraft might have been a better use of their money.

 

 "Good things not cheap, cheap things not good! "

Cost was certainly a factor but I believe the race against future A320Neo sales orders made ‘time’  the major consideration with the 737 Max redesign. They could have also resurrected the 757 airframe with 21st technology and weight saving parts. However, Southwest was not a 757 operator. 

Edited by blues deville

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So some KLM guys were here today and said Boeing wrote-off their final 737-800 without even leaving the assembly line...

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21 minutes ago, Super 80 said:

So some KLM guys were here today and said Boeing wrote-off their final 737-800 without even leaving the assembly line...

Why?

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1 hour ago, Super 80 said:

Something went disastrously wrong when they attached a wing or something.

Wow! 😲

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6 hours ago, Super 80 said:

So some KLM guys were here today and said Boeing wrote-off their final 737-800 without even leaving the assembly line...

With all the P-8's and wedgetails still to be delivered I'm confused as to how Boeing has announced that the last 737NG has been produced?

I'm betting they wish they had kept it going a bit longer...

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9 hours ago, Don Hudson said:

I think that the record perhaps says otherwise as these investigations are showing.

Shortly after the 1997 McDonnell-Douglas buyout/merger there were observations made regarding the cultural shift imposed by the McD management. So it was "known" early by those working for (the old) Boeing as discussed in Emerging from Turbulence, (2010 & 2015). Until the MAX accidents, the B787, including the aircrafts' grounding, were the strongest indications of the issues that are showing up as organzational / cultural problems quite clearly now. There is history behind the MAX accidents as is now plainly seen in the numerous investigations including a criminal investigation all of which are far from over. I think it is reasonable to believe that they would appear to be hindsight only to those who weren't watching both the company and the FAA along the way.

I agree Don

McDonnell Douglas was Bean counters in charge where Boeing was Engineers in charge.  The difference was highly visible in the DC-10 days.  The bean counters were running the show after the merger.  This is a hard example of money trumping safety.  

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Hi boestar;

Diane Vaughan examined NASA for something she called "amoral calculation" - the calculated willingness to intentionally cut corners knowing that risk increased. In fact, under economic & performance pressures, every organization does it; the key is resiliency when something breaks, like a 10A fuse and not a 50,000A fuse. Because sources of the change are not known and history is simply accepted, (assuming that "someone else" has done the risk work), what follows is a gradual process of the "normalization of deviance", a term introduced by Vaughan, now familiar to most flight safety people studying organizational failure, and not just in the aviation industry.

However, Vaughan gradually concluded that, while it certainly existed, such process of intentional wrongdoing was not a primary contributing factor in Challenger. What she found was that most people were highly intentioned and highly motivated, considering that what they were doing was exactly the right thing. This is a far more subtle, latent expression of the normalization of deviance. Risk is normalized; single points of failure are normalized and successful outcomes and operations reify actions, design and the approach taken. 

The latent risk in the MAX existed from first production airplane on, for thousands of unremarkable operations for about two years. The airplane was "just another 737", the very definition of "success".

Now the layers upon layers of decisions and actions by Boeing and the FAA are being peeled away like an onion and examined under both media and legal microscopes. The history of the B787 and even Douglas' DC10, (a terrible airplane in my view, rushed to compete with the L1011), are under examination. They have established a self-replicating "meme", gathering a life of its own, beyond the control of anyone now. The risks to the airplane and possibly even the company are gradually emerging into awareness.

The lessons are obvious in hindsight but they are not new. What we think should have been done decades ago, does not explain their behaviour and any explanations will be in terms of the present culture which, as we know, cannot fix the problem.

Like any ideological approach to process vs. thinking about things then acting rationally upon actual data, ideology demands that adherents blindly conform. Dissent and questioning is discouraged. The outcomes are always the same. That's why, in the 90's, the aviation industry created CRM: Cockpit (or Crew) Resource Management to stop otherwise-preventable accidents whether in the moment, or over months or years.

 

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I am in 100% agreement and this is gone over in the Human Factors training we all receive.

When you look at the company(s) timeline you can see that Boeing was always an "Engineering First" company.  They built the best aircraft going (debatable) for a very long time.  Time after time the aircraft exceeded design expectations.  Costs were controlled, relatively speaking and all of the work was done under a single roof.

Now in comes a different executive team from a different corporate culture.  one based on profit.  

Boeing started outsourcing work to different companies and subsidiaries in order to speed production and lower costs.  Now we all know that familiarity breeds contempt and these smaller contractors had to meet difficult contractual obligations for delivery.  Experience tells me that this causes issues no matter what the company name is (Airbus, Boeing, Bombardier, etc.) in order to meet contractual obligations and prevent losing money the deviations creep in and this is where the normalization of deviance starts to creep in.

In my own experience in Manufacturing we would routinely see components arrive that were incomplete or incorrect in some way.  Oddly this actually led to delays and higher costs to rectify the deviations (Non conformities).  Now some bean counter in a corner office in the ivory tower says "look what we are saving on labour and look at our good production rates" All the while not realizing (or caring) that it's actually all a lie and a paperwork exercise in order to look good on paper.

I once (actually more than once) received an aircraft from final assembly that was "Complete".  All of the build was signed off and according to the paperwork it was a complete aircraft ready for functional testing.  It took 3 weeks to finish the aircraft before we could even fuel it.  Now imagine if I was working on the components far from the watchful eye of the parent company.  That deviance will come on pretty quick if its not readily corrected.  This is the cancer that is currently affecting Boeing.  These 3rd parties are the lowest bidder and need to keep costs down and MUST meet contracts to make any money at all.  Corners are cut, safety is affected and people die.  It isn't rocket science what is going on.  I have seen it first hand.

Increasing the complexity of the manufacturing process increases the risk inherently.

 

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https://www.cnbc.com/2019/07/24/boeing-uncertainty-still-surrounds-the-737-maxs-return.html

Quote

Boeing expects its troubled 737 Max jets to return to the skies by early in the fourth quarter but its CEO warned investors on Wednesday that it could further cut or suspend production of its bestselling planes altogether if delays get worse.

 

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Regarding the DC-10.  There was an excellent book in the '80s called Destination Disaster. Despite the overly dramatic title, I think it was a well researched examination of the development of the DC-10.  For example, before the fuselage was built, the subcontractor challenged Douglas on the design of the control runs, predicting that a lower lobe depressurization would jam the flight controls.  They were told to build it as drawn.  The first test article was pressure tested outside the factory.  A lower cargo door blew open and the floor collapsed on the flight controls.  It got certified ...

They had other items which made you never want to leave the earth on one of those things.  And then we get to some of the stability issues with the MD-11.

I also commend Airbus for not commenting on these issues, despite all the criticism they got from Boeing while developing the A-380.

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There isn't a manufacturer,  or airline on earth,  that is not thanking God, and crossing their fingers.

Nobody would wish this on anyone.  And everybody knows that "there by the grace of God go I". 🤞

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I can’t find it now, but somewhere in these threads it was suggested that Boeing would receive a bailout in the form of a big contract to replace America’s nuclear missile fleet.  Boeing has now backed out of the competition.

https://www.ndtv.com/world-news/boeing-drops-out-of-giant-pentagon-programme-to-replace-nuclear-missiles-2075559

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