WASHINGTON — Boeing is taking another charge for $250 million in profits from its CST-100 Starliner commercial crew program as the company’s new leader vows it will not walk away from similarly troubled programs.
In a filing with the US Securities and Exchange Commission on October 23, Boeing disclosed that it incurred the charges in the third fiscal quarter “primarily to reflect schedule delays and higher testing and certification costs.” This is in addition to the $125 million loss the company recorded in the second quarter.
The company had warned on October 11 that it would take a total of $2 billion in charges in the third quarter on four fixed-rate programs in its Defense, Space and Security, or BDS, business unit, including Starliner. The company did not mention the size of the Starliner fees at the time, although $1.6 billion of these fees were allocated to two military aircraft programs.
The latest charges bring the total losses recorded by Boeing on the Starliner to about $1.85 billion. The mounting losses have raised questions about whether Boeing will be able to turn a profit on the Starliner and may instead choose to terminate it.
The filing of the SEC report coincided with the release of Boeing’s third-quarter financial results and an earnings call with Kelly Ortberg, who took over as CEO in August. He did not specifically mention Starliner in the call, but said Boeing would continue to work on a fixed-price program like the Starliner despite the losses.
“We have some tough contracts and there’s no silver bullet for that. We’re going to have to work our way through some of those tough contracts,” he said, noting that Boeing needs to be better at managing aspects of those contracts, including the level of risk the company takes on. “We’ve been taking risks in these programs and I don’t think we’ve done enough work with our customers to figure out how to de-risk these things before they turn into EAC. [estimate at completion] Transcend.”
Later in the call, an analyst asked if Boeing would consider moving away from fixed-price programs where the company has no opportunity to turn a profit. Ortberg ruled that out.
“I don’t think this is a viable option for us,” he added. “Even if we wanted to, I don’t think we could withdraw from these contracts.” He noted, however, that an exception might be for programs that move from one contract phase to another, where Boeing may be evaluating whether it wants to move forward to that next phase.
He concluded by saying: “I do not think that a wholesale exit is just a possibility.”
Boeing is also evaluating ways to streamline the business that could mean halting work in some areas outside commercial aviation and defense. “It is better for us to do less and do it better than to do more and not do it well,” he said.
He declined to speculate on areas where it might decline. “Clearly the core of our commercial and defense aircraft will remain with Boeing for the long term, but there are likely to be some things on the margins that we can be more efficient with or that distract from our primary goals.”
“I don’t have a specific list of things we will and won’t keep,” he said. He said he wants “a good internal feeling by the end of the year” about what Boeing will seek to eliminate in some way.
Related to
“Devoted student. Bacon advocate. Beer scholar. Troublemaker. Falls down a lot. Typical coffee enthusiast.”