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Boeing's 'worst crisis' in its 103-year history

Boeing remains the world's largest aerospace company by revenue, but its lead over number two Airbus shrank further on 23 October with a third quarter financial report riddled with challenges, among them tumbling revenue, the 737 Max crisis, 777X delays, a 787 production rate cut and unresolved KC-46A quality issues.

Those challenges come as the company faces the added test of balancing a heightened focus on safety and quality with Wall Street's ever-present profitability expectations.

"Boeing is facing the worst crisis in its 103-year history," says Scott Hamilton, an aerospace consultant who founded Leeham News and Analysis. "The 2013 grounding of the 787 was peanuts compared to the Max in terms of scope, length and cost."

The company insists stock market expectations are secondary to safety. “Our focus on quality and safety are and always have been our highest priority,” Chief Financial Officer Greg Smith says during Boeing's earnings call. “We do not compromise these values for cost or schedule. Returning the Max safely to flight continues to be priority one for us.”

Boeing chief executive, Dennis Muilenburg

Boeing chief executive Dennis Muilenburg declines to say future aircraft development and certification will cost more money. “We are taking a hard look at our safety review board processes, our certification processes. We are going to take a look at flight deck designs of the future,” he says.

“All of those things will factor into our future development programmes." Additional spending on safety and quality initiatives are not likely significantly impact Boeing’s profitability in the near term, says Ken Herbert, managing director of equity research with Canaccord Genuity. If more issues are found with the 737 Max or the aircraft doesn’t sell well after re-certification Boeing’s leadership might have to speed up plans to replace the aircraft, however, he says. That could mean a surge in research and development spending, which would hurt the company’s bottom line.

In the first nine months of 2019, Boeing generated $58.7 billion in revenue, down 19% year-on-year. It's third quarter revenue slumped 21% year-on-year to $20 billion, equating to a $1.2 billion profit, down about half. On the bright side, Boeing's defense business earned a $755 million third quarter profit, up from a $247 million loss one year earlier, and its services profit jumped 23% to $673 million. But the commercial airplane division lost $40 million in the quarter, with revenue tumbling 41% to $8.2 billion thanks to the Max grounding. Boeing says it still expects regulators will certificate the Max by year-end, even though some US airlines peg return to service in February.

Costs for recertification of the 737 Max appear to have taken funds and focus away from other Boeing development efforts. The company now says the first 777X flight has slipped from 2020 to 2021 due to issues with the aircraft's GE Aviation GE9X turbofans.

Muilenburg says the company has not decided if it will develop a New Mid-market Airplane (NMA). Delaying the entry into service date of the 777X or NMA development could give up market share or profits to chief rival Airbus.