WASHINGTON — Boeing on Wednesday reported a nearly $3.3 billion loss 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 causes of the defense, space and security sector’s $2.8 billion in quarterly losses. Other defense sector programs also had “unfavorable performance” that further hurt the quarterly results, the contractor said.
In an earnings call with investors later that morning, Boeing Chief Financial Officer Brian West said charges on 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 $766 million charge, he said.
Boeing is now focused on stabilizing those two major programs and delivering them to the Air Force, officials said on the call.
“Our objective is to make sure these [KC-46] tankers are doing the job for our military customer,” Dave Calhoun, Boeing’s president and chief executive, said on the call. “That is it, that’s all we’re focused on, and they are doing that.”
Calhoun pointed to recent progress the KC-46 made in expanding the missions it can carry out. The Air Force in September said it had cleared the Pegasus to carry out all refueling missions around the world on all aircraft, except for the A-10 Thunderbolt II.
But problems with the KC-46 — particularly in fixing its troubled refueling vision system — have persisted and led to billions of dollars in cost overruns. Earlier this month, the Air Force said the release of the KC-46′s redesigned vision system, dubbed RVS 2.0, would be delayed by 19 months due to supply chain problems. That redesign is now expected to be released to the fleet in October 2025.
The latest charges on the KC-46 bring its total charges 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 recorded a $132 million loss. Boeing’s defense sector reported $436 million in profit during that period.
The company is now facing a nearly $4.4 billion loss so far this year. Its defense sector has lost nearly $3.7 billion during the first nine months of 2022.
The defense unit’s revenue also dropped 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 adjusted for macroeconomic factors to keep the MQ-25, T-7 and Commercial Crew programs largely on track, though he acknowledged the programs sometimes face technical challenges. He said the company remains confident those programs will be successful over time.
But the supply chain issues and resulting shortages of parts that hit the KC-46 “have been persisting, and they likely will persist longer than we had contemplated,” he added.
Labor challenges persist
Labor issues also are likely to continue, West said. “We can hire; it’s getting the workforce trained and up to speed that we had to account for in this particular period.”
The labor shortage hit the Air Force One program especially acutely, West said, due to the program’s security clearance requirements. This has caused the program’s schedule to fall behind, he said.
Calhoun said Boeing has put training and development programs in place to get new hires ready as quickly as possible.
Many of the supply chain problems Boeing experienced have their roots in labor problems, Calhoun said. For example, he noted, casting vital parts that are used in airplanes “is not a simple process” where new employees can be started on the line right away.
“There’s a real learning curve and cycle that is needed to ramp up capacity,” Calhoun explained. “All of us in this industry are wrestling through these constraints. We try to compare notes.”
Calhoun said Boeing is trying to help its suppliers find the employees it needs to get parts made, and sends its own staff to subcontractors to help.
But Calhoun doesn’t see the labor market stabilizing until the end of 2023, as layoffs in other industries start 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 “beginning to soften considerably,” Calhoun said, which is presenting opportunities for Boeing to hire software engineers it needs.
Calhoun sent employees a message Wednesday that acknowledged the difficulties in trying to turn the company around.
While Boeing “continue[s] to make important strides in our turnaround effort,” Calhoun said, “we remain in a challenging environment and have more work ahead.”
“Nearly every industry is navigating broad supply chain, inflation, labor and macroeconomic challenges — and we’re certainly no different,” Calhoun added. “We’re realistic about the environment we face and are taking comprehensive action.”
In the letter, Calhoun touted the delivery of four MH-139A Grey Wolf test helicopters to the Air Force, and Boeing’s receipt of contracts with the U.S. 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 are making meaningful progress, together,” Calhoun said. “Turnarounds take time — and we have more work to do — but I am confident in our team and the actions we’re taking for the future.”
Stephen Losey is the air warfare reporter for Defense News. He previously covered leadership and personnel issues at Air Force Times, and the Pentagon, special operations and air warfare at Military.com. He has traveled to the Middle East to cover U.S. Air Force operations.