WASHINGTON — Boeing is taking another charge against earnings of $250 million on its CST-100 Starliner commercial crew program as the company’s new leader vowed it will not walk away from troubled programs like it.
In a filing with the U.S. Securities and Exchange Commission Oct. 23, Boeing disclosed it took the charge in its fiscal third quarter “primarily to reflect schedule delays and higher testing and certification costs.” This is in addition to a $125 million loss the company recorded in the second quarter.
The company had warned Oct. 11 that it would take a total of $2 billion in charges in the third quarter on four fixed-price programs in its Defense, Space and Security, or BDS, business unit, including Starliner. The company did not state then how large the Starliner charge would be, although $1.6 billion in those charges were allocated to two military aircraft programs.
The latest charge brings the total losses Boeing has recorded on Starliner to about $1.85 billion. The mounting losses have raised questions about whether Boeing will ever be able to make a profit on Starliner and might instead choose to end it.
The SEC filing coincided with the release of Boeing’s third-quarter financial results and an earnings call with Kelly Ortberg, who took over as chief executive in August. He did not specifically mention Starliner in the call but said that Boeing would continue work on fixed-price program like Starliner despite the losses.
“We’ve got some tough contracts and there’s no magic bullet for that. We’re going to have to work our way through some of those tough contracts,” he said. Boeing, he noted, needed to be better at managing aspects of those contracts, including the level of risk the company assumes. “We’ve been carrying risks with these programs and I don’t think we’ve been doing enough work with our customers to figure out how to de-risk these things before it turns into an EAC [estimate at completion] overrun.”
Later in the call, an analyst asked if Boeing would consider walking away from fixed-price programs where the company doesn’t have a chance to make a profit. Ortberg ruled that out.
“I don’t think that’s a viable option for us,” he said. “Even if we wanted to, I don’t think we can walk away from these contracts.” He noted, though, an exception might be for programs that are going from one contract phase to another, where Boeing might evaluate if it wants to proceed into that next phase.
“I don’t think a wholesale walkaway is just in the cards,” he concluded.
Boeing is also evaluating ways to streamline the business that might mean discontinuing work in some areas outside of commercial aviation and defense. “We’re better off doing less and doing it better than doing more and not doing it well,” he said.
He declined to speculate on what areas it might drop. “Clearly, our core of commercial airplanes and defense are going to stay with The Boeing Company in the long run, but there’s probably some things on the fringe that we can be more efficient with or that just distract us from our main goals.”
“I don’t have a specific list of the things that we’re going to keep and we’re not going to keep,” he said. He said he wanted a “good feeling internally by the end of the year” of what Boeing would seek to divest in some way.
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source: spacenews.com