Boeing on Wednesday disclosed a heavy first-quarter loss as it wrote off $1.2 billion related to two defense-side fixed-price aircraft projects and the impact of the war in Ukraine.
The company also announced it will push out delivery of the first giant 777X jet at least a year to 2025 — a delay that it estimates will incur a further $1.5 billion in abnormal production costs in future quarters.
Boeing said it will pause 777X production in Everett through the end of next year to avoid building more inventory. It has already built and rolled out four flight-test models and 20 production 777X jets.
London-based aerospace financial analyst firm Agency Partners summed up Boeing’s announcements in a note to investors as a “dreadful set of results” and wrote that the “general sense of disarray continues.”
Likewise, Rob Stallard of Vertical Research Partners called it “another dreadful quarter from Boeing.”
“What we think will really worry investors is that we keep getting MORE bad news,” Stallard wrote.
The company recorded a net loss for the first quarter of $1.2 billion, or $2.06 per share.
Revenue for the quarter was $14 billion, compared to the S&P Global Intelligence consensus estimate by analysts of $15.9 billion.
Boeing’s cash on hand decreased over the quarter from $16.2 billion to $12.3 billion. As a result, net debt ballooned from $41.9 billion at the end of 2021 to $45.4 billion at the end of March.
On the defense side of the company, Boeing wrote off $660 million for the Air Force One transport jets, the two 747-8 aircraft it is modifying in San Antonio, Texas, for use by the president. It blamed this on “higher supplier costs, higher costs to finalize technical requirements and schedule delays.”
It also wrote off $367 million for the T-7 Air Force trainer jet under development in St. Louis, Missouri, “primarily driven by ongoing supplier negotiations impacted by supply chain constraints, COVID-19 and inflationary pressures.”
Boeing CEO Dave Calhoun, in a memo to employees early Wednesday, reiterated those factors, tying the supply chain disruption and cost inflation to the impact of the pandemic.
And Boeing wrote off a further $212 million related to the Russian invasion of Ukraine and sanctions against Russia.
Calhoun told employees that Boeing has “suspended engineering support, flight training and customer operations, as well as parts delivery and maintenance support services for Russian customers … (and) halted the importation of titanium from Russia.”
“While these actions had an impact on our business, they are the right thing to do,” Calhoun wrote.
Hit to production in Everett
The major hit to Boeing’s commercial airplane operations in Washington came with the delay on the 777X. Delivery of the first jet is now scheduled for at least five years later than Boeing had planned when the jet program was launched in 2013.
Calhoun told employees this was “based on an updated assessment of the time required” to achieve Federal Aviation Administration certification.
In the last quarter of 2020, Boeing took a massive $6.5 billion charge for a previous delay of the 777X, with entry into service then pushed out to 2023.
Then last May, the FAA warned Boeing that it wasn’t even close to meeting the safety agency’s regulatory requirements. An FAA letter informed Boeing that a realistic timeline for the agency to certify the 777X to fly passengers was late in 2023, which would have implied first delivery early in 2024.
In announcing the new delay, Boeing did not say when in 2025 it hopes to deliver the first airplane.
Tim Clark, president of 777X launch airline Emirates, in an interview Tuesday said he met in Dubai Monday with Boeing executives who indicated it could be early that year.
Clark, whose original contract stipulated first delivery in April 2020, is skeptical after multiple Boeing schedule shifts and has told his staff to plan for the first 777X around July 2025.
With 777X production paused, Boeing will build only the 777F cargo jet through the end of next year. That will cut the overall 777 production rate below the current two jets per month.
In late January, Boeing Chief Financial Officer Brian West said that because of high demand for cargo jets, Boeing planned to increase 777 production this year to three airplanes per month.
But Boeing now says production of the freighter version won’t be boosted until late next year.
The market for such big international long-haul jets is expected to recover very slowly from the staggering blow delivered by the pandemic. However, Clark said, Emirates needs “a bow wave” of new planes mid-decade and is “hamstrung” by Boeing’s delays.
By pausing the 777X, Boeing can triage its engineering and certification resources to focus on two more pressing issues: the 787 Dreamliner, built in South Carolina, and the 737 Max, which is built in Renton.
Boeing is seeking FAA approval for fixes to manufacturing defects on the 787 that have largely halted deliveries of that jet for 18 months.
And it’s trying to meet a year-end deadline to certify the final version of the 737 Max — the Max 10 — to avoid having to upgrade that airplane’s crew alerting systems.
On the 787, Calhoun in January indicated that a mid-April resumption of 787 deliveries was a reasonable expectation. Having already blown past that target, on Wednesday he at least offered hope that deliveries will begin again in the second half of the year.
“We have submitted the certification plan to the FAA,” Calhoun told employees, implying that Boeing believes it has a fix for the manufacturing issues and awaits only FAA concurrence.
Calhoun added that Boeing has completed the required work on the first few 787s and that company pilots are conducting check flights on those.
On the 737 Max, Calhoun’s message gave no indication that the Max 10 can be certified by year end. However, he did tout considerable progress getting the earlier versions of the Max into service.
“The 737 Max is now approved to fly in nearly every country, and since late 2020, the fleet has safely flown more than one million flight hours,” Calhoun told employees. “We also steadily increased production and are on track to reach a rate of 31 per month in the second quarter.”