Boeing logs further losses for fixed-price defense contracts

By Michael Marrow / July 27, 2022

Boeing suffered further losses on several fixed-price defense contracts, with the largest charge for the company stemming from deliveries of the MQ-25 Stingray air refueling drone, the company announced in its second-quarter earnings call today.

The Stingray logged $147 million in charges due to “higher costs to meet certain technical requirements,” Boeing reported in its Q2 earnings summary, which showed a decrease in defense revenues to $6.2 billion from $6.9 billion and a unit operating margin that fell to 1.1% compared to 13.9% during the same quarter last year.

Initial operational capability for the Stingray was recently pushed back six months to September 2025 following delays in building the engineering and manufacturing development aircraft due to “supplier quality issues,” Inside Defense recently reported.

The Government Accountability Office’s 2022 weapon systems assessment also found that “production costs may be significantly higher than currently estimated” in response to engineering and development issues.

The Navy plans to order a total of 76 aircraft with low-rate initial production scheduled to begin in the second quarter of fiscal year 2023.

Other major programs also incurred charges, Boeing CEO David Calhoun said on the call, with the leading ones being the T-7A training jet, the KC-46A refueling tanker and the Air Force One replacement known as the VC-25B.

Calhoun did not specify the exact losses connected with each contract, though he said no single program had over approximately $50 million in charges for this quarter.

The KC-46A program has so far suffered over $5 billion worth of charges. The program’s status recently led Air Force Secretary Frank Kendall to remark the service “didn’t look closely enough” at the aircraft’s design, though recent improvements, such as interim capability releases and a deal to fix the aircraft’s Remote Vision System have restored some confidence.

In its Q1 earning call, the company reported $700 million in losses tied to the T-7A program and warned of potential future losses. The Air Force intends to procure 351 of the aircraft, whose initial operational capability is expected in FY-24. The first training jet rolled off in April.

The VC-25B program has also been a problem for Boeing, leading the company to suffer some of its biggest losses in recent years. The company previously reported a $660 million charge in its Q1 earnings call, where Calhoun said Boeing “probably shouldn’t have taken” risks associated with the contract.

Following the bankruptcy of interiors supplier GDC Technics and pandemic effects, delivery of the two aircraft is now at least two years behind schedule with the added possibility of another full-year delay.

Calhoun pointed to international interest in some programs like the KC-46A and MQ-25 that could boost the company’s revenue but cautioned that no formal decisions have been made.

“It’s not going to happen in the next six months,” Calhoun stated during the call. “It’ll take us probably a year to get to where that demand begins to manifest into real orders.”