Boeing reports deeper loss on charges in defense business

Oct 26 (Reuters) – Boeing Co ( BA.N ) unexpectedly reported a wider third-quarter loss on Wednesday as cost overruns led to heavy losses at its struggling defense business, underscoring the challenge the company faces in turning around its fortunes.

The Virginia-based planemaker is struggling to emerge from overlapping crises — the pandemic and the grounding of its best-selling model after deadly crashes that have left it with a pile of debt.

However, rising costs of Boeing’s defense contracts, along with ongoing supply chain constraints and regulatory hurdles, have made it difficult to increase its fortunes.

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

The latest write-down came a day after Reuters reported that Boeing had appointed senior troubleshooter Steve Parker to help shore up loss-making programs in its defense unit.

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Rising cost pressures have hampered fixed-price contracts for US aerospace and defense companies in recent months, prompting the industry body to ask the US Congress for relief to reduce inflation.

Because these contracts typically have fixed prices, Boeing has to absorb the cost increase. Agency partners estimate that the firm’s various fixed-price protection contracts have already generated $8.8 billion in fees.

“Every quarter, the hope is that the program-specific bad news is over, but then we get another piece – maybe this is it? Probably not,” analysts at the agency’s partners say.

Boeing shares fell 1.7% to $144.55 in morning trading.

The company further cut its estimate for 737 MAX deliveries this year. It now plans to deliver 375 aircraft this year, down from its previous target of “low 400 aircraft”.

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CEO Dave Calhoun said he was confident the planemaker would get an extension from the US Congress on the key deadline to obtain MAX 7 and MAX 10 certifications.

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

It cited jet engine delivery delays as the primary constraint to stabilizing and increasing the production rate of the 737 jet. It called the supply chain a “key clock unit” for near-term 787 production and deliveries as well.

Boeing expects the supply chain to remain a challenge in 2023. To boost production, the company said it has added more than 10,000 workers this year and is investing in training and development to improve productivity.

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It maintained its cash-flow forecast this year after reporting free cash flow of $2.9 billion in the September quarter, above the $1.02 billion expected by analysts in a Refinitiv survey.

Adjusted loss per share widened to $6.18 in the third quarter from $0.60 a year ago. Revenue for the quarter rose 4% to $15.96 billion.

Demand in the global services business, which provides spare parts and services such as jet conversions, was a bright spot in the quarter to September, with revenue up 5%.

Reporting by Abhijith Ganapavar in Bengaluru and Rajesh Kumar Singh in Chicago; Editing: Arun Koyyur, Kirsten Donovan and Nick Zieminski

Our Standards: The Thomson Reuters Trust Principles.

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