Boeing Co. (BA - Get Report) shares traded firmly higher Friday after the world's biggest planemaker said it would book a $4.9 billion charge to its second quarter earnings linked to the extended grounding of its flagship 737 MAX aircraft.
Boeing said the charge would reduce its second quarter earnings and revenue, which the group will publish on July 24, by a collective 5.6 billion. Boeing said the charge was an estimate of "potential concessions and other considerations to customers" owing to the 737 MAX grounding, as well as production delays, following two deadly crashes over a six month period that killed 346 people.
Boeing also said 737 production costs had increased by around $1.7 billion in the second quarter, and could likely compress margins for the flagship carrier going forward, but sees regulatory approval for the aircraft's return to service in the U.S. and elsewhere early in the fourth quarter.
"We remain focused on safely returning the 737 MAX to service," said CEO Dennis Muilenburg. "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 recognized this quarter reflects the current challenges and helps to address future financial risks," Muilenburg added.
Boeing share were marked 3.75% higher in early Friday trading to change hands at $374.75, a move that would still leave the stock some 10% lower than levels it reached prior to the March 10 Ethiopian Airlines disaster that triggered groundings of the 737 MAX by regulators around the world.
Boeing also said it sees its 737 MAX production rising from 42 planes per month to around 57 per month by early next year, noting that "airplanes produced during the grounding and included within inventory will be delivered over several quarters following return to service."
"We believe these cost figures are below Street expectations, as we think buyside consensus for Boeing's impact from Max is between $10 billion and $20 billion," said Credit Suisse analyst Robert Spingarn, who said that figure should include "all incurred and future costs for re-engineering and production enhancements, absorption impact from the delay itself, and for compensation to the various parties involved, from accident victims to the customers affected by the delays."
Last week, American Airlines (AAL) has extended cancellations of the grounded 737 MAX for a fourth time, taking the troubled aircraft out of commission until at least November.
The biggest U.S. carrier said it would extend its 115 daily cancellations of the grounded 737 MAX until November 2, two months longer than its previous forecast, following similar moves by rivals such as Southwest Airlines (LUV - Get Report) and United Airlines (UAL - Get Report) . American has 24 737 MAX aircraft in its fleet, the second-largest in the U.S. market behind Southwest.
A Wall Street Journal report meanwhile, suggested the 737 MAX groundings could stretch into early next year.