Boeing lowers its 737 MAX delivery expectations after quality lapses

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Boeing said it would not meet its goal of delivering 737 MAX aircraft this year, as well as collecting nearly $800 million in fees in its defense business, including its high-profile program to build Air Force One.

The aircraft maker reported a net loss of $1.6 billion for the third quarter on revenue of $18.1 billion. Adjusted operating loss of $3.26 per share beat Wall Street expectations of $3.18.

CEO David Calhoun said in a memo to employees that “despite the challenges we faced in the third quarter,” Boeing remained on track in its recovery after the MAX was grounded in 2019 following two fatal crashes and declining demand for the planes. During the COVID-19 pandemic.

“However, we still have work to do,” he added.

The company will deliver between 375 and 400 Max jets in 2023. The narrow-body jet makes up a large portion of Boeing’s sales volume, and earlier this year it targeted deliveries of 400 to 450 planes, before two separate quality lapses were discovered in the fuselage supplied by Kansas. – Spirit Aero Systems.

Although aerospace companies make the bulk of their money when they deliver planes to customers, Boeing reiterated its cash guidance for the year. The company still plans to generate $3 billion to $5 billion this year in free cash — the metric investors typically use to judge a stock — but the final number will be at the low end of that range, CFO Brian West said.

While Boeing’s results reflect a “weaker performance” in the third quarter, the company’s reaffirmation of free cash flow guidance “should support a positive reaction to the stock,” Baird analyst Peter Arment said.

Boeing shares rose just over 1 percent in midday trading to $184.65.

The workload to repair the 737’s rear pressure bulkhead defect is larger than Boeing originally estimated. The company has made its quality processes more rigorous, “and as a result, we’ve found items we need to resolve,” Calhoun said.

“These are not recent flaws in the system,” he added. “Instead, thanks to the culture we are building, we have identified nonconformities from the past that we now have the precision to find and fix once and for all.”

Boeing’s plans to increase production remain unchanged. The number of 787 aircraft produced will rise from four aircraft per month to five aircraft, and will reach 38 737 aircraft per month by the end of the year.

The group’s defense business reported a loss of $924 million, which Kay von Rumore, an analyst at TD Coin, described as a “huge” deficit. This sector incurred losses of approximately $1.7 billion this year, after losing $3.5 billion in 2022.

West said the defense’s third-quarter results were “disappointing.” “We are not as far into this recovery as we thought we would be at this point.”

Boeing lost $482 million on Air Force One during the third quarter, due to higher manufacturing costs, the dissolution of negotiations with a supplier, and difficulty recruiting for a project that requires workers with specialized skills and security clearance.

The company struggled to build the presidential plane under a fixed-price contract. It originally cost an estimated $5 billion, but former President Donald Trump attacked the plane maker on Twitter, which has now become X, until Boeing agreed to lower the price.

Boeing also received a $315 million fee for a satellite contract, due to increased program costs.

West said Boeing is seeking to improve profit margins by improving worker training and stopping signing fixed-price development contracts.

But as the war rages in Ukraine and the Middle East, Calhoun told CNBC on Wednesday that “in light of what’s happening in the world, in light of the supply chain rebuilding that has to happen — these stores need to be replaced and they need to be replaced.” Growth — Outlook for our Arms business. . . “Getting stronger every day.”