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Cost overruns lead to huge unexpected loss for Boeing

The planemaker is trying to get out of the overlapping crises of COVID-19 and the grounding of its best-selling model.

Boeing Co has unexpectedly reported a deeper loss in the third quarter of 2022 as cost overruns led to huge losses in its ailing defense business, underscoring the challenge the company faces in turning its fortunes around.

The Virginia, US-based planemaker is trying to navigate its way out of overlapping crises: the COVID-19 pandemic and the grounding of its best-selling model after fatal crashes, which have left it with plenty of debts.

However, a rise in the costs of Boeing’s defense contracts coupled with persistent supply chain constraints and regulatory hurdles have made it more difficult to shore up its fortunes.

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In the quarter through September, the company on Wednesday reported a $2.8 billion charge on its Air Force One and refueling tank program, among others.

The latest writedown came a day after Reuters reported that Boeing had appointed senior troubleshooter Steve Parker to help roll back loss-making programs at its defense unit.

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

Since these contracts tend to have fixed prices, Boeing must 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, one hopes that the show-specific bad news has come to an end, but then we get another installment, maybe this is it? Probably not,” analysts at Agency Partners said in a note.

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Boeing shares were down 1.7 percent at $144.55 in morning trading.

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Supply chain delays

The company further cut estimates for 737 MAX deliveries this year. It now expects to deliver 375 planes this year, down from the previous target of “low 400”.

Chief Executive Dave Calhoun said he is confident the planemaker will get an extension from the US Congress of a key deadline for MAX 7 and MAX 10 certification.

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

He highlighted delays in jet engine deliveries as the main constraint to stabilizing and increasing production rates for 737 aircraft. He called the supply chain “a key watchdog” in the near term for the production and deliveries of 787 planes.

Boeing expects its supply chain to continue to be challenged over the course of 2023. To ramp up production, the company said it has added more than 10,000 employees this year and is investing in training and development to improve productivity.

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

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

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

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