Boeing reports $3.3 billion loss as KC-46, other defense programs drag on

WASHINGTON — Boeing on Wednesday reported a loss of nearly $3.3 billion in the third quarter of 2022, driven by a nearly $1.2 billion charge on the KC-46A Pegasus and problems with some other key defense programs.

Boeing said higher manufacturing and supply chain costs as well as “technical challenges” with the KC-46, VC-25B Air Force One, MQ-25 Stingray and T-7A Red Hawk programs, plus NASA’s Commercial Crew program, were the main reasons for the defense, space and security sector’s $2.8 billion in quarterly losses. Other defense sector programs also had “unfavorable results” that further hurt quarterly results, the contractor said.

In an earnings call with investors later that morning, Boeing Chief Financial Officer Brian West said charges over the KC-46 and Air Force One programs accounted for the bulk of the defense sector’s losses, or nearly $2 billion. The VC-25B had a cost of $766 million, he said.

Boeing is now focusing on stabilizing these two major programs and delivering them to the Air Force, officials said on the call.

“Our goal is to ensure these [KC-46] tankers do the job for our military customer,” Dave Calhoun, Boeing president and CEO, said on the call. “That’s it, that’s all we focus on, and they do.”

Calhoun pointed to recent advances the KC-46 has made in expanding the missions it can perform. The Air Force in September said it had approved Pegasus to perform all refueling missions around the world on all aircraft, except the A-10 Thunderbolt II.

But problems with the KC-46 — particularly in fixing its problematic refueling system — have persisted and led to billions of dollars in cost overruns. Earlier this month, the Air Force said the launch of the KC-46’s redesigned vision system, called RVS 2.0, would be delayed by 19 months due to supply chain issues. That redesign is now expected to be released to the fleet in October 2025.

The latest payloads on the KC-46 bring its payload total to about $6.8 billion.

The results marked a significant decline from how Boeing performed in the same quarter a year earlier, when the company posted a loss of $132 million. Boeing’s defense division posted $436 million in profit during that period.

The company now faces a loss of nearly $4.4 billion so far this year. Its defense sector has lost nearly $3.7 billion in the first nine months of 2022.

The defense unit’s revenue also fell year over year, from $6.6 billion in the third quarter of 2021 to $5.3 billion in the most recent quarter.

During the call, West said Boeing was adjusting for macroeconomic factors to keep the MQ-25, T-7 and Commercial Crew programs largely on track, although he acknowledged the programs sometimes face technical challenges. He said the company remains confident these programs will be successful over time.

But problems with the supply chain and the resulting shortage of parts that hit the KC-46 “have persisted, and they will likely persist longer than we thought,” he added.

Labor challenges remain

Labor issues are likely to continue, West said. “We can hire; it’s getting the workforce trained and up to speed that we had to take into account during this period.”

The labor shortage hit the Air Force One program particularly acutely, West said, because of the program’s security clearance requirements. This has caused the program’s schedule to fall behind, he said.

Calhoun said Boeing has instituted training and development programs to get new hires ready as quickly as possible.

Many of the supply chain problems Boeing experienced were rooted in labor issues, Calhoun said. For example, he noted, casting vital parts used in aircraft “is not a simple process” where new employees can be started on the line immediately.

“There is a real learning curve and cycle needed to increase capacity,” Calhoun explained. “All of us in this business wrestle through these limitations. We try to compare notes.”

Calhoun said Boeing is trying to help its suppliers find the workers they need to get parts made, sending its own staff to subcontractors to help.

But Calhoun doesn’t see the labor market stabilizing until late 2023, as layoffs in other industries begin to bite and create more of a labor market from which the defense sector can hire.

The labor market in the software industry is “already starting to soften significantly,” Calhoun said, giving Boeing opportunities to hire the software engineers it needs.

Calhoun sent a message to employees Wednesday acknowledging the difficulties of trying to turn the company around.

While Boeing “continues[s] to make important progress in our turnaround effort,” Calhoun said, “we remain in a challenging environment and have more work ahead of us.”

“Almost every industry navigates broad supply chain, inflation, labor and macroeconomic challenges — and we’re certainly no different,” Calhoun added. “We are realistic about the environment we face and are taking comprehensive action.”

In the letter, Calhoun talked about the delivery of four MH-139A Gray Wolf test helicopters to the Air Force and Boeing’s receipt of contracts with the US and Israeli air forces for more KC-46s. He also pointed to Poland’s selection of the AH-64E Apache for its new attack helicopter fleet, and the opening of three new facilities including its Advanced Composite Fabrication Center in Arizona.

“We’re doing important work and making meaningful progress together,” Calhoun said. “Turnarounds take time – and we have more to do – but I am confident in our team and the steps we are taking for the future.”