From Boeing financials page 53-54
https://s2.q4cdn.com/661678649/files/do ... 9-10-Q.pdf
In the preparation of our financial statements, we have made assumptions regarding outcomes of accident investigations, timing and conditions of
return to service, timing of future 737 production rate increases, supplier readiness to support production rate changes, timing and sequence of
future customer deliveries as well as outcomes of negotiations with customers impacted by the grounding. These assumptions are highly uncertain
and significantly affect the estimates inherent in our financial statements.
The 737 MAX grounding also affects projected revenues and costs associated with the 737 program accounting quantity. As a result of the
grounding, we have reduced the 737 production rate from 52 per month to 42 per month and continue to evaluate further reductions in production
rate, including a temporary shutdown in 737 production. Prior to the grounding, we had planned to increase the production rate to 57 per month in
2019. The FAA and other civil aviation authorities will determine the timing and conditions of the 737 MAX’s return to service. At June 30, 2019, we
have assumed that regulatory approval of 737 MAX return to service in the U.S. and other jurisdictions begins early in the fourth quarter of 2019. We
have further assumed a gradual increase in the production rate from 42 per month to 57 per month in 2020, and that deliveries of 737 MAX airplanes
in inventory will occur over several quarters following return to service. The resulting impacts increased estimated costs to produce aircraft included
in the current accounting quantity by $1,016 million and $1,748 million in the first and second quarters of 2019 and reduced 737 program and overall
BCA segment operating margins. If the timing and conditions surrounding a return to service differ from our assumptions, it could have a material
effect on our financial statements.
We recorded an earnings charge of $5,610 million, net of estimated insurance recoveries of $500 million, in the second quarter in connection with an
estimate of potential concessions and other considerations to customers for disruptions related to the 737 MAX grounding and associated delivery
delays. This charge represents our current best estimate of future concessions and other considerations we expect to provide to customers. This
estimate relies on the exercise of judgment by management and is significantly impacted by the assumptions described above, as well as the status
of negotiations with our customers. Any delays in return to service, further disruptions to our production system, supplier claims or assertions, or
changes to estimated concessions and other considerations we expect to provide to customers could have a material adverse effect on our financial
position, results of operations, and/or cash flows...
...The 737 MAX fleet is currently grounded, and we are subject to a number of risks and uncertainties related to the timing and conditions
surrounding the aircraft’s return to service, including potential future reductions to the production rate and/or additional delivery delays,
as well as risks associated with assumptions and estimates made in our financial statements regarding the 737 program.
On March 13, 2019, the Federal Aviation Administration (FAA) issued an order to suspend operations of all 737 MAX aircraft in the U.S. and by U.S.
aircraft operators following two fatal 737 MAX accidents. Non-U.S. civil aviation authorities have issued directives to the same effect. We are working
closely with the relevant government authorities to support both accident investigations and are fully cooperating with other U.S. government
investigations related to the accidents. Multiple legal actions have also been filed against us as a result of the accidents. While production continues
on the 737 MAX, deliveries have been suspended until clearance is granted by the appropriate regulatory authorities. The grounding has reduced
revenues, operating margins, and cash flows, and will continue to do so until deliveries resume and production rates increase. In connection with the
effort to restore the 737 MAX to service, we have been developing a software update to the Maneuvering Characteristics Augmentation System, or
MCAS, on the 737 MAX, together with an associated pilot training and supplementary education program. Further, on June 26, 2019, the FAA
directed us to address a specific condition of flight, unrelated to MCAS, that the planned software update did not previously address. We agreed with
the FAA's decision, and are currently working on the software to address this requirement, and we will not offer the 737 MAX for certification until we
have satisfied all requirements for certification and the safe return of the 737 MAX to service. Any unanticipated delays in certification and/or return
to service or other liabilities associated with the accidents or grounding could have a material adverse effect on our financial position, results of
operations, and/or cash flows.
On April 5, 2019, we announced plans to reduce the 737 production rate from 52 aircraft per month to 42 per month effective April 15, 2019. In
addition to being unable to deliver completed aircraft until the required certifications are obtained, impacts related to the reduced production rate
have increased costs to produce aircraft included in the current accounting quantity and reduced 737 program and overall BCA segment operating
margins. If we are unable to return the 737 MAX aircraft to service in one or more jurisdictions or begin deliveries to customers in a timely manner,
we would incur additional costs and/or further reduce the 737 production rate. In addition, unanticipated delays in certification and/or return to
service of the 737 MAX in one or more jurisdictions could result in significant additional disruption to the 737 production system, including further
reductions in the production rate and/or a temporary shutdown in 737 production, delaying efforts to restore and/or implement previously planned
increases in the 737 production rate. Cash flows could also be negatively impacted through a combination of delayed payments from customers and
higher costs and inventory levels. In addition, we have experienced claims and assertions from customers in connection with the grounding, and we
recorded an earnings charge of $5,610, net of estimated insurance recoveries of $500, in the second quarter in connection with an estimate of
potential concessions and other considerations to customers for disruptions related to the grounding and associated delivery delays. Any such
delays in return to service, further disruptions to our production system, supplier claims or assertions, or changes to estimated concessions or other
considerations we expect to provide to customers could have a material adverse effect on our financial position, results of operations, and/or cash
flows. The FAA and other civil aviation authorities will determine the timing and conditions of return to service. However, for purposes of our second
quarter financial results, we have assumed that regulatory approval of 737 MAX