By Dan Catchpole
October 25, 2023, © Leeham News: Boeing slashed its 737 MAX delivery forecast for the year to between 375 and 400 in its third quarter earnings report on Wednesday. The company attributed the cut to rework and inspections to fix manufacturing problems in aft pressure bulkhead sections produced by beleaguered supplier Spirit AeroSystems. It maintained its 787 delivery forecast of 70 to 80 airplanes by year’s end.
Boeing recorded a loss of $1.6bn in the third quarter, its worst quarterly performance this year. The company continues to struggle with supply chain and production problems. Boeing’s defense division spilled the most red ink on the ledger book due to problems on its Air Force One (VC-25B) program and losses on a satellite contract. BDS recorded a $924mn loss. Boeing executives acknowledged that the company’s recovery is taking longer than they had expected, but they remained upbeat about stabilizing the aerospace giant in the next couple years.
Despite lowering its 737 MAX delivery target for the year, Boeing will have to hustle to deliver 375 to 400 of the narrow-body airliners. It needs to move about 100 more, but the company only plans to deliver 15 of the planes this October. That leaves the bulk of deliveries in November and December. That will make for a busy holiday season on Boeing’s flight lines and delivery center.
The cut is than what investors expected. As recently as September, though, Boeing CFO Brian West reiterated the company’s previous projection of 400 to 450 deliveries of its cash cow jetliner. At the time, he cautioned that deliveries would likely be on the low end of the range. Ahead of the earnings report, most Wall Street analysts expected the company to deliver about 410 737s this year.
Lowering the delivery target “is a setback, but we’ll regain momentum,” Boeing CEO David Calhoun told Wall Street investment analysts during a conference call covering the earnings report on Wednesday.
“I want to double down on our recovery,” he said. “We’ve had no shortage of challenges… I’ve heard from a few of you, wondering if we’ve lost our step in this recovery.”
The company’s challenges are a sign that it is committed to transparency, and, he said, the focus is on stabilizing the company by 2025/2026.
The company still aims to increase 737 production from 31 per month to 38/month by year’s end
The increase would come even as 737s back up in inventory. At the end of September, Boeing had about 250 737s in inventory. Many of them need rework, and 85 are for customers in China. That country suspended MAX deliveries in 2019 following two fatal crashes of MAXs. Boeing is currently talking to Beijing about resuming deliveries, Calhoun said.
The other 737 delivery shortfalls are due to rework on the aft pressure bulkhead section, not with supply chain struggles, he said. On some, but not all, bulkheads, the holes drilled for the fasteners that attach it to the fuselage are slightly oval, rather than round. The fasteners cannot be put in tightly enough with the oblong holes.
While Boeing works its way through inspecting and fixing 737s with the wrong holes, it already is working with suppliers to ramp up their production rates to keep pace with the MAX’s master schedule, he said.
The company maintained its 787 delivery forecast of 70 to 80 for the year and said that it is “transitioning” 787 production to five/month. Boeing executives previously set the goal of reaching that rate by year’s end. It currently produces four/month. The press release did not say how soon it aims to increase the production rate. It did reaffirm its target of ramping up to 10 787s/month in 2025 or 2026.
Boeing’s third quarter earnings report is its worst of the year so far. It did, however, maintain its projected free cash flow of $3bn to $5bn, despite a FCF loss of $310mn during the quarter. The company recorded a $1.6bn net loss in the third quarter, or $-2.70 per share GAAP and $-3.26 non-GAAP. It had revenues of $18bn. The bottom line was dragged down by a $924mn loss by its defense division and a $678mn loss in Boeing Commercial Airplanes. Boeing Global Services posted a profit of $784mn.
The company recorded a $482mn charge on its Air Force One (or VC-25B) program, which is providing two heavily-modified 747-8s to replace the 30-year-old 747-200s currently used to fly the United States president around. The losses were due to engineering changes, labor instability and the end of negotiations with a supplier, Boeing CFO Brian West said during the call.
Including the latest charge, Boeing has now lost more than $2 billion on the VC-25B program. It is one of several fixed-price defense contracts that Boeing very aggressively bid. The program came with a “very unique set of risks that Boeing probably shouldn’t have taken,” Calhoun said in April.
BDS also posted a $315 million loss on a satellite contract “due to estimated customer considerations and increased costs to enhance the constellation and meet lifecycle commitments,” the release states.
It’s defense division did have a bright spot. The company delivered the first of five T-7 Red Hawk test aircraft to the United States Air Force in September.
The company continued in the third quarter to spend more on research and development this year than it did in 2022. Through the first nine months of the year, Boeing spent $2.5bn on R&D, compared to $2.1bn during the same period last year. Most of that increase is in BCA–$1.5bn through Sept. 30 in 2023 versus $1.1bn during that time a year ago. R&D spending is down at Boeing Defense, Space and Security ($652mn vs $706mn) and Boeing Global Services ($84mn vs $89mn). R&D spending is up in a fourth category simply labeled “Other” ($222mn through the first nine months of 2023 vs $161mn during that time last year).
The airplane maker recorded 398 net orders in the third quarter, including 150 737 MAX 10s for Ryanair, 50 787s for United Airlines and 39 787s for Saudi Arabian Airlines. BCA delivered 105 airplanes during the three-month period.