Boeing struggles to steer defence unit in another year of losses.....

Boeing's defence business is proving harder to turn around than executives initially predicted, with supplier errors and high manufacturing costs contributing to $1.7 billion in losses this year on programs like the next Air Force One and NASA's Starliner capsule, reports Valerie Insinna from Reuters.

Despite absorbing $4.4 billion in losses in 2022 – which executives said would lower the risk of future cost overruns – the unit has seen little improvement this year.  Excluding last year, losses on Boeing's defence programs in 2023 exceed those from all years since 2014, according to a Reuters review of Boeing’s regulatory filings.

Boeing is unique among its defence contractor peers, as companies like Lockheed Martin, General Dynamics and RTX are seeing higher revenues due to demand from the war in Ukraine.  Unlike those companies, however, Boeing is locked into a handful of contracts that force the planemaker to take a loss when technology development goes over budget. The defence unit's losses this year include $933 million in charges in the third quarter, mostly comprising a $ 482 million loss in building two Air Force One planes and a $315 million charge on an unidentified satellite program that had not previously lost money.

Boeing's executives said they are putting in place new training and deploying resources to suppliers to ensure the unit moves from negative margins to high-single-digit margins by 2025-2026, when its most troubled programs are slated to be past flight testing and on more stable footing.  

“We're driving lean manufacturing, program management rigour and cost productivity consistently across the division,” Chief Financial Officer Brian West said during a Wednesday earnings call. Boeing declined to comment beyond executives' comments on the call.

Byron Callan, a defence analyst with Capital Alpha Partners, said Boeing's 2025-2026 timeline to get to positive margins is feasible but questioned why it took the company years to institute programs to improve execution. "Someone really dropped the ball on all of this," he said.

Boeing shares have lost 6% this year, compared with the broad-market S&P 500's 9% gain.

Fixed Price Contracts

Analysts also say there is little Boeing can do to offset the financial burden of its long list of fixed-price development contracts with customers like the U.S. Defense Department and NASA, which lock the planemaker into paying all costs above an agreed-upon threshold.

These deals, which make up 15% of Boeing's defence program revenue, were reached before Boeing's commercial aeroplane business was decimated by the MAX crisis and before the pandemic and high inflation caused costs to spike for materials and labour. Other headaches include a recent manufacturing snafu where a supplier improperly coated KC-46 fuel tanks.

The losses suggest Boeing lacks a true understanding of costs as each new charge “is an upward revision to cost expectations, versus only three months prior,” said Seth Seifman of JP Morgan, in a Wednesday note to investors. “Even after excluding charges, BDS (Boeing Defense Space and Security) still did not generate a real profit.”

Boeing has been adamant it won't enter into new fixed-price contracts for the development stage of weapons because the unpredictability associated with designing and testing a new product often brings unforeseen costs.

However, the company's current fixed-price development efforts, which include the U.S. Air Force's KC-46 refuelling tanker and T-7 training jet, new Air Force One planes, the Navy's MQ-25 tanker drone, and NASA's Starliner have all continued to run over budget this year.

The latest charge for Air Force One brought total losses to $2.4 billion on a $3.9 billion contract to develop two planes. The program’s current schedule calls for the first jet to be delivered by September 2027.  West also noted $136 million in additional losses taken during the quarter, including a $ 71 million charge for the MQ-25 program.

While KC-46 appears to be stabilizing and T-7 will eventually make a profit, there's “not much you can do” for costly, low-volume programs like Air Force One or MQ-25, said Richard Aboulafia of AeroDynamic Advisory.

A better bet and one Boeing's defence segment is aggressively pursuing, is inking future contracts for next-generation fighter jets and cutting-edge drones.  “It's a target-rich environment,” Aboulafia said.

Reporting by Valerie Insinna;

Lithuanian Airports passed a historic test - successfully hosting the World's leaders during NATO Summit

 

During the NATO Summit, the Vilnius Airport had become probably the most secure civilian airport in the world. The joint efforts of the specialists of the Vilnius, Kaunas and Palanga Airports and a total of more than 1,000 professionals from various authorities and countries were aimed at ensuring the safe and smooth landing and take-off of more than 50 special aircraft as well as the reception and farewelling of several thousand important guests.

 

According to the calculations of Lithuanian Airports, during the peak of the aircraft traffic, planes (commercial and carrying delegations) took off and landed at the Vilnius Airport every 3–4 minutes.

 

The Kaunas Airport also received more aeroplanes than usual next to the regular commercial flight traffic. Here, the constant receipt and take-offs of delegation aircraft also took place. In addition, the airspace at the Kaunas Airport was not closed, therefore all processes took place continuously throughout the days of the Summit.

 

A significant number of the NATO Summit’s guest planes were large aircraft, categorized as codes E and F which usually visit our airports less often, such as “the flying presidential palaces” Air Force One carrying the President of the United States (and accompanying special aircraft) or an even larger Boeing 747-8I that flew the President of South Korea. At the Kaunas Airport, one of the most exclusive aircraft received was the Japanese delegation’s Boeing 777.

 

“During the active preparation for the event that lasted for more than half a year, every step and detail was carefully thought through, and many processes were aligned and coordinated to ensure the highest level of security and efficiency of the operations. The Vilnius Airport received all the scheduled aircraft, including even the largest ones. Not only that – commercial flights were also conducted in both Vilnius and Kaunas until the scheduled temporary closure of the airspace. No, having seen off the last delegations, we can state that no significant problems arose, and we passed this most important test through cooperation,” said Vidas Kšanas, Interim CEO at Lithuanian Airports.

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