Boeing's ambitions seem to have outflown its abilities, as the company's plans to reinvent the way jetliners are built keep faltering, forcing it to post a big loss in the third quarter.
Boeing’s ambitions seem to have outflown its abilities, as the company’s plans to reinvent the way jetliners are built keep faltering, forcing it to post a big loss in the third quarter.
The airplane maker has struggled to get its 787 passenger plane and a revamped version of the 747 jumbo jet off the ground. Delays, parts shortages and last-minute fixes have cost it billions in extra expenses and lost years. That’s on top of weak demand for aircraft as air travel and freight shipments take a hit during the economic downturn.
But Boeing’s troubles have arisen partly from a new approach to plane building. In recent years, the company has outsourced manufacturing and engineering work to suppliers around the world. It’s also started using carbon composite parts to reduce weight and improve fuel efficiency.
Those technological leaps have proved popular in the marketplace – the 787 has more orders than any other new plane – but troublesome for the Chicago-based company.
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“We experienced a bridge too far, leading-edge kind of development, which is what we are trying to recover from right now,” Boeing Chief Executive Jim McNerney said in a conference call following the company’s earnings announcement.
During the quarter, Boeing’s sales edged up 9 percent, but charges of more than $3.6 billion for the 787 and 747-8 programs resulted in a loss of $1.56 billion, or $2.23 per share. It was a disappointing shift from a year earlier when the company earned $695 million, or 96 cents per share.
The charges also led Boeing to cut its 2009 profit forecast to $1.35 to $1.55 per share from $4.70 to $5 per share.
Matt Collins, an analyst Edward Jones, said he wasn’t surprised by Boeing’s results.
“Right now, there’s not much they can say to regain investor confidence,” he said. “They just need to execute. The third quarter is almost a non-issue. It’s what’s going to happen with the 787 and 747-8.”
Both the new 747 and 787 have had their original test flights and deliveries to customers pushed back by years. That’s partly because suppliers have botched certain work, such as the installation of fasteners that hold the plane together.
The revamped 747 was unveiled in 2005 and is designed to be larger and more fuel-efficient. The passenger version of the 250-foot plane seats 467 passengers.
Boeing’s other big worry has been the 787, a mid-size aircraft built for fuel efficiency with carbon composite parts. While popular, with 840 orders, the plane was delayed for the fifth time in June. Boeing said parts of the aircraft needed to be reinforced. The aircraft – designed to carry up to 330 passengers in wider seats and aisles – is more than two years behind schedule.
The company must improve the two plane programs by setting more realistic goals and tightening oversight by technicians and engineers, McNerney said. Problems surfaced when Boeing started shipping work from its longtime manufacturing base in Washington state to suppliers worldwide, from South Carolina to Italy to Japan.
“We need to bring some more of the engineering … back into Boeing,” McNerney said.
On Wednesday, the company seemed to move in that direction. It announced it will choose a second assembly line for the 787 in “the next couple of weeks,” having narrowed the choices to Charleston, S.C. – where Boeing is buying a plant once owned by a supplier – and Everett, Wash., where its commercial aircraft business is based.
The problems with the 787 and new 747 appear to have cost some executives their jobs. In August, Boeing said the chief of its commercial aircraft division was leaving. And last week, Boeing announced the president of its finance business planned to retire at the end of the year.
Airline customers and Wall Street have grown skeptical of the company’s timetable for the aircraft’s delivery.
Shares of Boeing fell $1.26, or 2.4 percent, to close at $50.63 on Wednesday. After hours, they gained 7 cents to $50.70.
Quarterly revenue rose to $16.69 billion from $15.29 billion a year earlier. But the comparison was relatively easy. Last year’s revenue was knocked down by $2.1 billion because of a labor strike and supplier problems.
In the latest quarter, sales from Boeing’s defense business, which makes fighter jets, satellites and security systems, rose 3 percent. Commercial aircraft revenue rose 13 percent.