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Boeing reports huge loss on defense contract woes

October 29, 2022 00:00:00

NEW YORK, Oct 28 (AFP): Aerospace giant Boeing reported a surprise $3.3 billion third-quarter loss Wednesday as it struggled with swelling costs on several defense programs, including the US presidential jet Air Force One.

The performance woes in defense -- which also affected the KC-46 refueling and military transport aircraft and the T-7A Air Force pilot training system -- reflect the drag from supply chain problems that have plagued the broader economy, as well as the restrictive nature of government contracts.

Investors initially took the disappointing news in stride, but shares fell sharply after a conference call in which Boeing executives predicted a very slow ramp-up of commercial plane output and expressed doubts about resuming plane deliveries to China anytime soon.

Locking Boeing into fixed-price government contracts was unwise, Chief Executive Dave Calhoun acknowledged in an interview with CNBC that touched on the company's troubled execution of an Air Force One procurement revamp negotiated with Donald Trump.

"The biggest, probably, mistake on... Air Force One was the fixed price nature of it," Calhoun said, adding that a "cost-incentive" type contract would have been better for such a project.

The difficulties in Boeing's defense program came as the company saw a jump in revenues in its commercial airplane division following the resumption of deliveries of the 787 Dreamliner and an increase in deliveries in the 737 MAX.

The aviation giant reported a four-percent rise in revenues to $16 billion, which also missed analyst estimates.

On the up side, Boeing reaffirmed it is on track for positive free cash flow in 2022, a statement that temporarily boosted shares. The company also described demand for commercial planes as robust in spite of worries about the broader global economy.

But executives offered a cautious timetable on ramping up commercial jet production, noting that engine suppliers continued to struggle to lift output.

"I am confident that the industry will step up, but it will take more time than I probably had hoped," Calhoun told financial analysts. "And I suspect it won't be until we get to the sort of end of next year before we can really make sizable rate increases."

Separately, Boeing announced that Alaska Airlines had exercised options for an additional 52 737 MAX planes.

The Alaska Airlines order includes 42 of Boeing's latest MAX plane, the 737 MAX 10, which has still not been certified by US authorities.

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