Boeing defense margins to remain flat in second quarter
June 18 (Reuters) – Margins at Boeing’s (BA.N) defense unit will look similar in the second quarter to its first-quarter results, Boeing Defense CEO Ted Colbert said Sunday.
Margins at its defense unit were negative in the first quarter as Boeing recorded a $245 million pre-tax charge on the KC-46 tanker program. Colbert declined to say whether Boeing would take another charge on the KC-46, which has logged more than $7 billion in losses.
“We’re still assessing where the numbers are going to fall,” Colbert told reporters in a briefing ahead of the Paris Airshow. He added that there is a “ton of activity” to improve performance at Boeing’s defense unit but that it will take time for improvements to be seen.
Boeing remains focused on “starting every program the right way,” including a contract structure that gives Boeing a “fair shake and healthy business,” Colbert said. The defense unit’s large number of fixed-price development programs – including KC-46, the T-7 training jet and new Air Force One planes – have driven billions of dollars in losses.
Deliveries of the KC-46 have been stymied due to a supplier problem, and the company has yet to deliver a reworked KC-46 to the Air Force. Colbert declined to say when it will deliver its next tanker.
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Boeing is “absolutely, positively” committed to the CST-100 Starliner crewed capsule despite continued cost overruns and delays, according to the company’s defence and space CEO. The piloted flight is now set to take place in August or September, following a series of delays due to technical issues with the spacecraft’s propulsion system. Despite the struggles, Boeing remains determined to see the project through, saying it remains committed to NASA’s wider goal of re-establishing a human presence in low Earth orbit.
Boeing ‘Positively Committed’ To Starliner Amid Struggles, Delays
Credit: NASA
LE BOURGET—Boeing is “absolutely, positively” committed to the troubled CST-100 Starliner crewed capsule for NASA, despite continued cost overruns and new problems that have pushed back a long-delayed launch indefinitely, the company’s defense and space CEO says. Ahead of a critical piloted flight…
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PARIS AIR SHOW NEWS: Boeing Defense CEO Sees Better Days Ahead for Beleaguered Company
Air Force photo
PARIS — The president of Boeing Defense, Space and Security sounded an optimistic note the evening prior to the Paris Air Show as the company struggles to emerge from years of high-profile program delays which resulted in the aerospace giant’s profits tumbling and its reputation greatly diminishing.
Along with the company’s woes in the commercial domain with the 737 Max, the defense side of the business has not fared better over the last decade, with delays to the Air Force’s KC-46A Pegasus aerial refueling tanker and the T-7A Red Hawk jet fighter trainer.
Both programs are now on track, the company’s president and CEO Ted Colbert told reporters June 18 at a press briefing.
“We’ve got a lot of work to do across the programs,” he said, which includes the company’s aircraft with fixed-price contracts, the T-7A and the KC-46A.
A supplier quality issue with the center fuel tank is the latest bad news surrounding the KC-46A.
“We haven’t resumed deliveries yet. We will resume as soon as that issue is resolved,” he said. That would be in the second half of the fiscal year, he added.
Boeing is responsible for paying all expenses above the KC-46A’s $4.9 billion cost ceiling and has taken some $6.8 billion in charges since it was awarded the program in 2011.
Colbert steadfastly declined to speculate on whether the company will incur any further charges on the Pegasus program in the year’s second quarter, only saying in terms of profitability, the next period would look a lot like the first quarter.
Boeing reported a loss of $212 million in the first quarter against revenues of $6.5 billion, which reflected the Air Force’s $245 million pre-tax charge for failing to deliver on the KC-46A tanker’s fixed-price contract. The refueling boom was a major reason for the delays.
Colbert said the company is receiving positive feedback from the operators of the KC-46As that have been delivered, including the remote refueling boom that connects the tanker to receiving aircraft.
“It is doing well in the field and in the theater. It is operational, performing and ready,” he said. The exception is that it still cannot refuel A-10 Warthogs, he noted. Seventy-two of a planned fleet of 179 KC-46As have been delivered.
The T-7A program — in which Boeing is partnering with Sweden’s SAAB — has also suffered delays, but the Air Force recently released it to fly sometime this summer, he said.
“We’re excited about moving forward with the program,” he said. The pilot ejection system was a previous cause of delays, but that issue has been solved, he said. “In the end, it’s going to be a strong program.”
That history prompted one company executive to say recently that fixed-price contracts for Boeing were a thing of the past. The company currently has seven major programs using this contract vehicle. But what if the customer demands it? Colbert was asked.
The lesson learned is that fixed-price deals for big developmental programs is not the best contract vehicle, he said.
“In general, there is a recognition that doing fixed-price development programs with very, very complex capabilities or capabilities that require a lot of maturity from an engineering and manufacturing perspective can be very, very challenging,” he said.
He couldn’t speak for the government, and acknowledged that fixed-price contracts may not completely go away. But Boeing is working with the acquisition community and the Pentagon to explain this point of view, and he believed that “smarter heads will prevail.”
As for those seven programs, the company will just have to keep plugging away at the developmental problems, and it will get beyond them, he predicted. “They are getting healthier and healthier over time,” he added.
In the future, Boeing will be taking a realistic look at contracts with its customers, including being “massively transparent” about costs, schedule, workforce and all the other inputs that go into a program that will result in different looking contracts, but ones that will allow the company to have a “fair shake and a healthy business,” he said.
Meanwhile, Boeing has taken several steps to put it back on the path of profitability and respectability, including corporate restructuring and implementing lean manufacturing processes to make it more efficient.
The company is also seeing better days with labor and workforce issues in terms of hiring and addressing shortages, he said.
“I would say our stability with the workforce has improved dramatically … the churn in the organization has slowed down. The attrition has slowed down, our acceptance rates are very high,” he said. A stable workforce is another factor that will help improve the company’s performance, he noted.
As for turning the company’s overall performance around, Colbert said it is not going to happen overnight. “It just takes time. We can’t do it fast enough for ourselves and our customers, but we believe we have the right actions in progress,” he said.Topics: Air Power, Global Defense Market
Ted Colbert, CEO of Boeing Defense, Space and Security, in a 2019 file phot. (KARIM SAHIB/AFP via Getty Images)
PARIS AIRSHOW — Boeing’s defense sector is preparing for a likely loss in the second quarter of 2023, the company’s division chief told reporters today.
“We’re still assessing how the numbers are going to fall,” Ted Colbert, president and chief executive officer of Boeing’s Defense, Space & Security sector, said during a briefing with reporters in Paris. “But the profile will look similar to the last quarter. We’ve got work to do across the programs to figure out kind of where we are,” he added.
In this year’s first quarter earnings, Boeing disclosed a nearly quarter-billion dollar loss for its defense division, a shortfall primarily driven by charges on the KC-46A tanker stemming from a supplier quality issue with the 767’s center fuel tanks.
Saddled by fixed-price contracts, Boeing’s Defense, Space and Security business has consistently logged losses in recent quarters, reaching as high as a whopping $2.8 billion in the third quarter of 2022.
Colbert today would not comment on what programs in particular could create fresh losses for the company, nor on a precise timeline for resuming the still-paused KC-46A deliveries. “We will resume delivering, notwithstanding any other issue we find, in the second half [of the year] if we have to, and we’ve kept our commitment to the customer.
“So we’re working through the products that are in the factory today with an intent to get to our commitment this year,” he added. Boeing’s commitment for 2023 is 15 Pegasus deliveries, according to a report in Aviation Week.
Asked whether the delayed deliveries could themselves drive further charges, Colbert replied, “A contract is a contract. We’ll follow the contract with our customer,” adding that “I can’t speak to it until I know when I’m going to deliver and how that will play out.”
As the Air Force weighs whether to proceed with an additional buy of 75 of the tankers to continue recapitalizing the aging KC-135 Stratotanker, Colbert noted that such a decision creates an “opportunity to make the program even more healthy from a financial perspective is in front of us.”
Industry leaders have recently been pushing back against fixed-price development contracts, with L3Harris chief executive officer Chris Kubasik throwing down the gauntlet that the company will not bid on them at all.
Asked whether he expected the Pentagon to ditch the bemoaned contracting model, Colbert said “in general, there is recognition that doing big fixed-price development programs on very complex capabilities, or capabilities that require a lot of maturity from either an engineering or manufacturing perspective, can be very challenging. So I think we are working very hard with the acquisition community and the Pentagon to be smart about every next program that we have together.”
There will be some programs in the future that will be fixed-price, he observed, though he did anticipate some changes.
“I think we’ve all learned some lessons, and smarter heads are going to prevail going forward,” he said.
Ted Colbert, president and CEO of Boeing’s (NYSE: BA) defense, space and security business, said driving stability and predictability are his top priorities and advancing these priorities highlights the need to have a well-trained workforce and address supply chain challenges.
Colbert told Aviation Week in a podcast aired June 2 that BDS hired about 10,000 employees in 2022 with plans to employ another 15,000 personnel in 2023 and is working closely with its suppliers as part of efforts to achieve stability in operations.
“We’ve deployed talent into the supply chain to help with requirements consumptions, to help with equality, standard implementation. All those efforts are yielding benefits to us on a day-to-day basis,” he added.
The defense chief offered updates on the company’s programs, including the carrier-based MQ-25 unmanned aircraft system, VC-25B presidential aircraft, KC-46 aerial refueling tanker and the T-7 Red Hawk pilot training system.
For the T-7, Colbert said BDS has worked with the U.S. Air Force on the escape system and has carried out tests “that are very positive.”
“We’ll be flying the T-7, EMD flights will be happening in the summer. That’s the plan right now, and we’re very bullish on that,” he added.
Boeing is working on the T-7 program under a potential $9.2 billion contract awarded in 2018.
WASHINGTON — The chief executive of Boeing says his company is still committed to the CST-100 Starliner commercial crew vehicle despite the latest problems that have further delayed the program.
In an interview on the “Check 6” podcast by Aviation Week published June 16, Dave Calhoun said that Boeing was not “shutting the door” on Starliner after the company postponed the first crewed flight of the vehicle that had been scheduled for late July.
“We’re going to do whatever NASA asks us to do,” he said when asked about the program at the end of the podcast. “We do believe in it, and we believe there has to be more than one player.”
NASA is currently relying on its other commercial crew partner, SpaceX, to transport astronauts to and from the International Space Station on its Crew Dragon spacecraft. SpaceX has conducted 10 crewed launches over three years, seven for NASA and three fully commercial ones, including the Ax-2 flight to the station in May.
Boeing had been preparing from its Crew Flight Test (CFT) mission, the first flight of Starliner with astronauts on board, when it announced June 1 that it was postponing the launch. Recent reviews found issues with parts of the spacecraft’s parachute system as well as tape used in wire harnesses that is flammable.
In that briefing, Mark Nappi, vice president and program manager for CST-100 Starliner at Boeing, appeared to raise questions about the future of the overall Starliner effort, saying the company had been talking internally “about the future of Starliner and how we’re going to move forward.” He later clarified that meant long-term evaluations about building another spacecraft and shifting from the Atlas 5. There had not been “serious discussions” about terminating the program, he added.
“We have definitely fallen behind in it,” Calhoun acknowledged in the podcast about Boeing’s work on Starliner compared to SpaceX’s Crew Dragon. “Technically, we think we know what we’re doing. I think ultimately with every next successful launch, we’ll demonstrate that.”
Neither NASA nor Boeing has provided an update on either the parachute or tape issues since the June 1 announcement. At that time, Nappi said he would not comment on how long the CFT mission would be delayed “until we spend the next several days understanding what we need to go do.”
At a June 8 Space Transportation Association event here, Ken Bowersox, NASA associate administrator for space operations, said those reviews were still ongoing. “We’re trying to find the best opportunity,” he said, suggesting at the time it would take an additional one to two weeks. “We want to make sure Starliner launches when it’s ready.”
Both Bowersox and Janet Petro, director of the Kennedy Space Center, said a rescheduled launch for the CFT mission would depend not just on the vehicle’s readiness but also the overall launch manifest. “Because there is such a heavy manifest, it always becomes a discussion between the various NASA programs and between the Space Force and their missions as to when we can fit it in,” she said.
Boeing has not disclosed what additional costs it will incur from this latest delay. The company has recorded nearly $900 million in charges against earnings for the program from past problems and delays, raising questions about whether Starliner will ever break even.
“We’re not shutting the door on it in any way, shape or form,” Calhoun said of Starliner. “We intend to do it — make money on it — but we’re going to let the market and our customer let that play out, and we’ll see what happens.”
He appeared to deemphasize that part of Boeing’s overall space portfolio, highlighting instead its work on the Space Launch System and various defense program. “Low Earth orbit and building out a big presence in that world is not going to be our number one focus,” he said. Boeing is one of the partners on Orbital Reef, a commercial space station project led by Blue Origin and Sierra Space.
Boeing’s defense unit has warned that it expects to report additional losses during the second quarter of this fiscal year thanks to continued struggles on firm-fixed-price development contracts. This news comes as the company looks towards boosting growth in Europe and increasing its space business.
Ted Colbert, CEO of Boeing Defense and Space, announced that the second quarter will look like the earnings of the first, which featured a $212m operational loss on $6.54bn in revenue. This was due in part to another $245m charge on the KC-46 tanker program. Supply chain issues are also said to be resolved, which should help with stability.
The global uncertainty caused by the ongoing conflict in Ukraine is leading to growing investment in Europe, so Boeing is responding by ensuring that it has a strong supply chain and workforce that have the capacity to respond to new requirements.
Boeing Expects More Defense Losses, Addressing Fixed-Price Program Issues
Ted Colbert, president and CEO of Boeing Defense, Space and Security.
LE BOURGET—Boeing’s defense unit expects to report additional losses for the second quarter of this fiscal year as it works through continued struggles on major firm-fixed-price development contracts and looks ahead to growth in Europe and increased space business.
Boeing Defense and Space CEO Ted Colbert told reporters ahead of the Paris Air Show here June 18 that the second quarter will look like the earnings of the first, which included a $212 million operational loss on $6.54 billion in revenue, in part due to another $245 million charge on the KC-46 tanker program.
“We’ve got work to do across our programs, compared to where we are,” Colbert said.
Overhauling Boeing’s defense programs has been a major task for Colbert, who took over the unit in spring 2022. Last fall, he trimmed its eight business divisions down to four as a way to streamline operations and oversight.
For the major developmental programs, Colbert says Boeing is focused on addressing deficiencies and improving performance where needed. For example, KC-46 tanker deliveries are still on hold as Boeing and supplier Daher address an issue with a surface coating nonconformance on center-wing fuel tanks. Colbert did not provide a date for when deliveries would resume, though flight testing has restarted. Boeing still is committed to delivering a full slate of 15 aircraft this year, though just one has been sent to the U.S. Air Force so far.
The company’s T-7 trainer, also for the U.S. Air Force, has faced issues with its egress system that have delayed the start of engineering and manufacturing development tests. The Air Force and Boeing have received a waiver to start flights with military pilots, expected to begin soon.
Colbert said the company broadly has slowed the churn in its workforce, with attrition down. “All the indications of a more sort of stable workforce are beginning to come to fruition, which helps us with performance,” he says. Supply chain kinks are working out as well, which Colbert said will help with stability.
“The performance will look like the first quarter. There’s a ton of activity going on to improve our performance over the next couple of quarters in the next year or so,” he said. “So it just takes time. We can’t do it fast enough for ourselves, and obviously for our customers. I believe we’ve got all the right actions in progress.”
While the top fixed-price contracts—KC-46, T-7, the uncrewed MQ-25 refueling tanker for the U.S. Navy and the Starliner crewed space capsule—are all in the red, Colbert said Boeing is still investing in improving their performance because they are significant to the company. But going forward, the company has said it wants to avoid these types of contracts to not have a repeat of the losses.
“There was recognition that doing big, fixed-price development programs on very, very complex capabilities or capabilities that require a lot of maturity from either an engineering or manufacturing perspective can be very, very challenging, and so we are working very hard with the acquisition community and the Pentagon to be smart about every next program that we have together,” Colbert said.
The ongoing war in Ukraine is driving investment in Europe, and Boeing is responding by ensuring it has strong supply chains and workforce to have the capacity to respond to new requirements, Colbert said. A growth area here is in autonomy, as Boeing works to mature systems such as the MQ-28 Ghost Bat uncrewed aircraft it developed in Australia and the MQ-25. While in the early stages, these could build the base for international programs as requirements emerge, he said.
“The world is interested in autonomy right now, and I think that the sort of future operational approach to flight includes some degree of autonomy,” he said. “Over time, as we work together better around the world, whether its export, bidirectional or [intellectual property] opportunities … I think we’re still in development, and we’ve got a lot to see and a lot to prove, and we’ll see where it goes.”
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