Losses on several defense and space programs combined with a wider loss in the commercial airplane building segment led Boeing [BA] on Wednesday to report a net loss in income despite strong sales growth in the airplane manufacturing and services businesses.
The Defense, Space & Security segment had a $527 million operating loss versus $71 million in income a year ago, largely due to a $257 million loss on NASA’s Commercial Crew program, $189 million on the Air Force T-7A trainer, and $68 million on the Navy’s MQ-25 unmanned aerial refueling aircraft. So far, during the life of these fixed-price development programs they have lost $1.4 billion, $1.3 billion, and $1 billion, respectively.
The MQ-25 has been beset with schedule delays in engineering and manufacturing development, Boeing said. The first aircraft is about 25 percent complete and the static test article fuselage is built and getting ready to begin static testing during the third quarter, Dave Calhoun, Boeing’s president and CEO, said on the company’s earnings call.
Higher cost estimates related to the supply chain and production in the future drove the T-7 loss, Calhoun said, noting that there were no “performance challenges” with the program during the second quarter. The Air Force began flight-testing the T-7 in late June.
Boeing did not deliver any KC-46 aerial refueling tankers to the Air Force during the second quarter, but Calhoun said that the company has completed rework on production aircraft and has resumed deliveries.
The fixed-price development programs make up about 15 percent of Boeing’s defense and space business. About 60 percent of the segment “is generating solid levels of performance in line with historical margins” and another 25 percent is struggling somewhat and is also losing money, Brian West, Boeing’s chief financial officer, said on the call.
West said a “handful of programs” make up the 25 percent of the portfolio that is not performing well, adding that there is a plan to turn them “positive” and the company is expecting defense and space operating margin to get to the high-single digit percent range in the 2025 to 2026 timeframe.
“We continue to see operational impacts from labor instability and supply chain disruption” from some of the other program that is depressing margins, he said, without identifying the programs. Some of the company’s factories “almost went dark during the pandemic and we’ve had to bring them back to life, and that takes time” to get workers and get them trained “to do some very complicated work,” he said.
Boeing’s defense margins “have to get better next year, period, full stop,” to get to the “trajectory” for the 2025 to 2026 goal, West said.
Sales of $6.2 billion at Defense, Space & Security were flat. Defense tallied $6 billion in orders and backlog rose 6 percent to $57.5 billion from $54.4 billion at the end of 2022.
Boeing’s net loss in the quarter was $149 million, 25 cents earnings per share (EPS), versus $160 million (32 cents EPS) in net income a year ago. Adjusted for pension costs, the core earnings loss was 82 cents EPS, six cents better than consensus estimates.
Sales increased 18 percent to $19.8 billion on the strength of higher aircraft deliveries and commercial and government work at the Boeing Global Services segment. The commercial aircraft business posted a $383 million loss while the services segment generated a handsome 18 percent profit increase to $856 million.
Boeing does not provide top and bottom-line financial guidance, but the company still expects $3 billion to $5 billion in free cash flow this year. Free cash flow in the quarter was $2.6 billion and stands at $1.8 billion through the first half of 2023 due to a cash outflow in the first quarter.
Boeing’s total backlog at the end of the quarter stood at $439.6 billion, up 9 percent from $404.4 billion at the end of 2022, driven mainly by a huge increase at the Commercial Airplanes segment on robust orders.