Supply chain, inflation woes hurt Boeing’s defense profit

WASHINGTON — Boeing reported lower sales and profit at its defense unit in the latest quarter as allegations over several key programs dragged it down.

Boeing Defense, Space and Security reported revenue of $6.2 billion in the latest quarter, down 10% from the nearly $6.9 billion reported in the same quarter last year.

Boeing’s defense division also reported $71 million in profit for the quarter, representing a margin of 1.1% and a significant decline from the $958 million in revenue reported in the second quarter of 2021.

In its announcement, the company attributed the decline in its profit to fees on fixed-price development programs. Boeing Chief Financial Officer Brian West said on the company’s earnings call that lower volume and operating results also contributed. Labor availability remains a challenge, he said.

West said Boeing booked about $400 million in charges, including a $147 million charge for the Navy’s MQ-25 drone refueling program stemming from higher costs to meet technical requirements.

Boeing reported a $93 million charge for the commercial crewed space capsules it makes for NASA due to updates to the launch manifest.

West said the T-7A Red Hawk trainer, VC-25B Air Force One and KC-46 tanker programs also recorded charges, mostly as a result of supply chain and inflation issues.

In its filing with the Securities and Exchange Commission, Boeing said it took a $51 million fee for the T-7 related to production options and another $36 million for engineering and production development. Boeing also said its KC-46 program faced a $44 million charge, while the VC-25B suffered a $26 million charge.

Boeing already reported a $660 million charge for the VC-25B last quarter; Company filings attribute the problem to higher supplier costs, higher costs to meet some technical requirements and schedule delays.

The contractor warned in its SEC filings that there could be more losses for its Air Force One and KC-46 programs.

“While this performance was disappointing, we are making progress in narrowing our development risk profile and remain confident over the long term,” West said.

He noted that the company is seeing support for increased military spending both in the US Congress and among NATO allies.

Boeing got a boost in the quarter from Germany’s selection of the CH-47F Chinook Block II as its military’s next heavy-lift helicopter. Germany will buy 60 Chinooks in a deal worth more than $4 billion, the nation’s defense ministry announced in June.

Boeing CEO Dave Calhoun said he is increasingly bullish on international sales opportunities for defense equipment such as the KC-46 and MQ-25. But he said it would take several years to translate emerging global threats, including Russia’s invasion of Ukraine and aggressive posture toward the West, into actual orders and commitments.

The exception, Calhoun said, was the German Chinook selection, which he said “came faster than we might have imagined.”

But supply chains continue to put Boeing under “real constraints,” West noted. He outlined the steps the company is taking to try to ease the crisis and stabilize production, particularly in key areas such as engines, raw materials and semiconductors.

West said Boeing is keeping more of its people on the ground with suppliers and has assembled teams of experts to figure out how to resolve the supply shortages affecting the entire industry. Boeing also manufactures some parts in-house so it can overcome supply chain issues and maintains safety stocks of key components or keeps extra parts on hand in the event of a supply chain disruption.