By Abhijith Ganapavaram and Rajesh Kumar Singh
(Reuters) – Boeing Co’s struggling defense unit took a $2.8 billion charge on Wednesday, but the U.S. aircraft maker stuck to its forecast for cash generation this year despite struggling to increase production of commercial aircraft due to labor and supply shortages.
Shares fell 4% after the results as cost overruns in Boeing’s defence, space and security segment hampered the company’s recovery as it tried to emerge from successive crises by taking advantage of growing demand for air travel.
Boeing and its European rival Airbus SE have both ramped up production of narrow-body planes, with Boeing delivering 112 planes in the third quarter compared to 85 planes last year.
This helped it generate free cash flow of $2.9 billion in the quarter. It had recorded a cash burn of $507 million in the same period a year ago.
However, mounting cost pressures in recent months have hampered fixed-price contracts for U.S. aerospace and defense companies, prompting an industry body to ask the U.S. Congress for relief from the inflation.
The aircraft manufacturer said it supported its VC-25B program, commonly known as Air Force One, as well as the KC-46A tanker program, among others.
“Our revenues and earnings were significantly impacted by losses on fixed-price development programs in our defense businesses, driven by higher manufacturing and supply chain costs,” the Boeing chief executive said. , Dave Calhoun, in a message to employees.
The company has appointed senior troubleshooter Steve Parker to help turn around loss-making programs at its defense unit, Reuters reported on Tuesday.
Commercially, Boeing delivered 86 MAX jets in the quarter, or about 29 per month, according to company data. It needs to deliver about 44 jets a month in the fourth quarter to hit its “low 400” 737 MAX delivery target this year.
“We also added more than 10,000 employees this year and are investing in their training and development to accelerate the experience curve and improve productivity,” Calhoun said.
“In our production facilities, we don’t push the system too fast,” he said, pointing to the challenging environment for the aerospace industry.
The sector faces continued supply shortages, particularly of workers and castings, although General Electric Co said on Tuesday it was seeing early signs of easing some supply problems.
Third-quarter revenue rose 4% to $15.96 billion, but adjusted loss per share widened to $6.18 from $0.60 a year ago.
Demand in the global service industry that provides spare parts and services such as jet conversions was a bright spot in the quarter through September, with revenue up 5%.
(Reporting by Abhijith Ganapavaram in Bengaluru and Rajesh Kumar Singh in Chicago; Editing by Arun Koyyur)