A KC-46A Pegasus arrives at McConnell Air Force Base, Kan., Jan. 31, 2019. (Airman 1st Class Alexi Myrick/US Air Force)
WASHINGTON — Boeing disclosed today that its KC-46A Pegasus tanker incurred a new $245 million charge in the first quarter of 2023, driving a $211 million loss for the company’s defense sector saddled with fixed-price development contracts.
Boeing’s charges on the KC-46A are now up to over $7 billion, according to a Boeing spokesperson. Company executives previously warned that the charge, which Reuters noted is linked to supplier quality issues with the 767’s center fuel tanks, would be coming but did not share the sum ahead of the earnings call today.
The KC-46A loss was the only one disclosed by Boeing in the company’s quarterly report to investors, where numerous other fixed-price contracts have previously squeezed Boeing’s defense sector. Just last year, Boeing revealed a $2.8 billion loss on its defense programs in the third quarter of 2022 alone stemming largely from charges on the KC-46, T-7A training jet, the Air Force One replacement VC-25B and the Navy’s MQ-25 Stingray drone.
Troubles with Boeing’s defense business unit eventually prompted an overhaul that slashed the unit’s eight divisions to four last year, following a decision by leadership to relocate the company’s global headquarters to Arlington, Va. just blocks away from the Pentagon.
In all, booming demand for air travel coupled with greater defense orders helped drive Boeing’s revenue up by 28% to over $17.9 billion compared to the first quarter of 2022, Chief Financial Officer Brian West said on the call. Still, the company didn’t turn a profit, as commercial issues remain a challenge and Boeing logged a core loss of about $1.27 per share. West noted that the loss demonstrated an improvement over a core share loss of $2.75 in the first quarter of 2022, but that was still reportedly larger than analyst forecasts.
Boeing still sees a “strained” environment through 2023 and much of 2024, Calhoun confirmed, as the defense industrial base seeks to regain its footing from pandemic-induced supply shocks and soaring demand prompted by Russia’s invasion of Ukraine. His comments in some ways echoed those of Raytheon CEO Greg Hayes, who yesterday said that the company’s supply chain was “getting a hell of a lot better” despite continued shortages for some components.
Supply chain woes have contributed to Boeing’s losses on its fixed-price contracts, as have design issues on platforms like the T-7A and KC-46A. During a separate earnings call today, Saab CEO Micael Johansson said that profitability for the T-7A, produced by Boeing and Saab, will suffer until its delayed production phase kicks off in 2025.
Despite issues with the KC-46A, most notably its Remote Vision System whose revamp is due in October 2025, Calhoun touted its ability to “perform its mission well” and lauded the Air Force’s likely move to buy 75 more of the tankers in lieu of a competitive KC-Y contract.
“[The] customer’s decision on the KC-Y is a great opportunity for us, and it reflects the capabilities the tanker is delivering for the United States Air Force,” he said.
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