Cost overruns lead to an unexpectedly large loss for Boeing | Business and economic news

The aircraft maker is trying to get out of the overlapping crises of COVID-19 and the foundation of its best-selling model.

Boeing Co has unexpectedly reported a larger loss in the third quarter of 2022 as cost overruns resulted in heavy losses in its ailing defense operations, underscoring the challenge the company faces to turn its fortunes around.

The aircraft maker, based in Virginia in the United States, is trying to recover from overlapping crises: the COVID-19 pandemic and the grounding of its best-selling model after deadly crashes, leaving it with a pile of debt.

However, a rise in costs in Boeing’s defense contracts, along with ongoing supply chain constraints and regulatory hurdles, have made it more difficult to sustain its fortunes.

In the quarter through September, the company reported $2.8 billion on Wednesday for its Air Force One and tanker program, among other things.

The latest write-off came a day after Reuters reported that Boeing has appointed senior troubleshooter Steve Parker to help reverse loss-making programs in its defense unit.

Rising cost pressures over the past few months have hampered fixed-price contracts for US aerospace and defense companies, prompting an industry association to petition Congress for inflation relief.

Since these contracts usually have fixed prices, Boeing has to absorb cost increases. Agency Partners estimates that the company’s various fixed-price defense contracts have already resulted in $8.8 billion in charges.

“Every quarter, they hope the show-specific bad news is over, but then we get another episode – maybe this is it? Probably not,” Agency Partners analysts said in a note.

Shares of Boeing fell 1.7 percent to $144.55 in morning trading.

Delays in the supply chain

The company further lowered estimates for deliveries of 737 MAX this year. It now expects to deliver 375 aircraft this year, lower than a previous target of the “low 400s”.

Chief Executive Dave Calhoun said he is confident the aircraft maker will receive an extension from Congress on a key deadline to get the MAX 7 and MAX 10 certified.

The company said that while demand for commercial aircraft remains strong, supply chain constraints continue to challenge the industry.

It cited delays in jet engine deliveries as the main impediment in stabilizing and increasing production rates for 737 jets. It called the short-term supply chain “an important watch item” for the production and delivery of 787 jets.

Boeing expects its supply chain to remain challenging through 2023. To ramp up production, the company said it added more than 10,000 employees this year and is investing in training and development to improve productivity.

It maintained its forecast to generate cash this year after free cash flow of $2.9 billion in the September quarter, surpassing the $1.02 billion analysts had expected in a Refinitiv survey.

Adjusted loss per share increased to $6.18 in the third quarter from $0.60 a year ago. Quarterly revenue increased 4 percent to $15.96 billion.

Demand in the global service business that provides spare parts and services, such as jet conversions, was a bright spot in the quarter through September, with sales up 5 percent.

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