April 27, 2022, © Leeham News: Boeing’s 777X program took another hit Wednesday, when the company said it won’t deliver the first 777-9 until 2025 due to new delays getting the plane certified. It has halted 777-9 production through 2023, which the company expects to incur $1.5 billion in abnormal costs until the assembly line starts moving again.
The aerospace giant’s Q1 earnings report is soaked in red ink: a $1.2 billion net loss, a $3.6 billion loss in free cash flow and a $2.06 GAAP loss per share and a $2.75 core (non-GAAP) loss per share. The results fell far below the roughly 20 cents per share loss and $15 billion expected by Wall Street analysts.
The company said it has filed a 787 certification plan with federal regulators, as it tries to resume deliveries of its premier twin-aisle jetliner.
Boeing Defense booked more than $1 billion in charges from two programs–Air Force One replacement and T-7 Red Hawk trainer for the U.S. Air Force.
Boeing’s posted first quarter revenue of nearly $14 billion, an 8% drop from Q1 2021, when it brought in $15.2 billion in revenue, according to its quarterly filing with the U.S. Securities and Exchange Commission.
It also missed investment analysts’ expectations of $15.2 billion in revenue, according to Fact Set, despite an uptick in first quarter deliveries for Boeing Commercial Airplanes from 77 during the first three months of 2021 to 95, including 86 737 MAXes, this past quarter.
It was “another dreadful quarter from Boeing,” Rob Stallard, an analyst with Vertical Research Partners, wrote in a note to investors.
Despite the setbacks, Boeing President and CEO David Calhoun assured analysts during a conference call following the earnings release Wednesday that better days are ahead. Through the rest of the year, “our financials will accelerate, and going forward, there is an opportunity for the company to return to sustainable growth.”
In a statement with the release, he said, Boeing is “focused on our performance as we work through certification requirements and mature several key programs to production. Leading with safety and quality, we’re taking the right actions to drive stability throughout our operations, deliver on our commitments to customers and position Boeing for a sustainable future.”
The company spent $633 million on research and development during the first quarter, a $134 million increase from the same period in 2021. The year-over-year quarterly increase was roughly evenly split between commercial and defense. However, the total expenditure was less than the $678 million it spent in the last quarter of 2021. Boeing Commercial Airplanes spent $321 million on R&D, slightly less than the $323 million it spent last quarter.
The aerospace giant’s 787 program continues to struggle.
Boeing stopped 787 deliveries 18 months ago after inspectors discovered a 0.004-inch-side gap, just wide enough to slide a sheet of paper through, in new production aircraft in October 2020. The company said it has filed a certification plan with the Federal Aviation Administration. Nonetheless, it recorded $312 million in abnormal costs for the program in the first quarter, and it still expects about $2 billion in costs by the end of 2023, according to the company.
In early 2022, American Airlines executives said they expected deliveries to resume in mid-April, and Boeing’s Calhoun indicated at the time that was accurate. Now, American and United Airlines say they expect to take new 787s later this year, according to SEC filings by the airlines, as LNA recently reported.
One hundred fifteen 787s were parked, waiting for delivery at the end of March. The problem has been fixed in aircraft currently rolling off the assembly line, and “importantly, we completed the rework on the initial airplanes and are preparing them for delivery,” Calhoun said.
Boeing 737 MAX production is “essentially at 31 airplanes per month,” Calhoun said.
However, the pace of “deliveries are slightly below our expectations,” due to supply chain disruptions and how long it takes to take planes out of storage, he said.
The company hopes to deliver most of its 737 MAXes inventory by the end of next year. It had 320 in inventory at the end of the quarter. “The timing of the pace of delivery to Chinese customers and supply chain stability remain key factors to our delivery profile,” he said.
China still has not cleared the MAX to resume flying in the country, and COVID lockdowns have slowed down that process, according to the company.
In the meantime, Boeing is “doing everything we can to complete the certification of the MAX 7 and MAX 10 and ensure their respective first deliveries this year and next,” he said.
Boeing Defense recorded a $660 million charge on the two new Air Force One aircraft it is producing and $367 million in charges on its T-7 Red Hawk trainer program.
The company attributed the Air Force One program charge to supply costs, technical problems and schedule delays. Calhoun said the company should not have agreed to contract’s terms.
“Air Force One, I’m just going to call a very unique moment, a very unique negotiation, a very unique set of risks that Boeing probably shouldn’t have taken, but we are where we are, and we’re going to deliver great airplanes,” Calhoun said during the call.
The contract was negotiated under his predecessor, Dennis Muilenburg. Calhoun was on the board at the time.
Supply costs, the ongoing COVID-19 pandemic and inflation are driving up costs on the T-7 trainer replacement program, according to Boeing’s SEC filing.
Both contracts are fixed-price, meaning Boeing has to swallow any cost overruns.