The aircraft manufacturer announced on Wednesday that it will temporarily suspend production of its 777X passenger plane, which it plans to begin delivering to customers by the end of 2023. Demand for long-range and wide-range passenger aircraft is key to business with Boeing commercial aircraft, continues to be affected by weak demand for international flights during the pandemic.
Demand for Boeing cargo aircraft remains strong, so it will continue with the recently launched 777X cargo aircraft before starting production of the 777X passenger aircraft. Boeing will continue to build both earlier passenger and cargo versions of its 777 jet, known as the 777 Classic. These models need to be replaced by the 777X.
Postponing plans for the 777X passenger plane will result in a total of $ 1.5 billion in unusual costs for Boeing, starting in the second quarter and continuing until production resumes.
The company also set aside $ 1.2 billion in special fees in the first quarter, including a $ 660 million fee related to higher supplier costs, higher costs to finalize technical requirements and delays in completing aircraft that will be used as the next Air Force One aircraft. It also includes $ 212 million in business-related breaches caused by sanctions against Russia over its invasion of Ukraine, and a $ 367 million charge related to supply chain restrictions, Covid-19 and inflationary pressure on his Red Hawk military aircraft.
“It was a more confusing quarter than any of us would have liked,” CEO David Calhoun told CNBC.
Even excluding these fees, the company reported a major operating loss of $ 1.5 billion in the first quarter, much worse than the operating loss of $ 353 million reported by Boeing in the first quarter of 2021. Analysts polled by Refinitiv predicted a major operating loss of just $ 399 million for the quarter.
The company also has an 8% drop in revenue to $ 14 billion from a year earlier. Analysts forecast revenue to grow to $ 16 billion.
Calhoun said the company remains confident in the 777X, despite the problems. He said the current certification process at the Federal Aviation Administration is one of the reasons for postponing aircraft production.
“We remain confident in the 777 program and our customers continue to see the value,” he said in a note to Boeing staff. “Aircraft programs have been serving our market for decades, and it’s important that we take the time now to position ourselves for long-term success.”
Boeing said it had taken an important step to restart supplies to another wide-body aircraft, the 787 Dreamliner, which had been suspended since June 2021 due to quality control concerns. Boeing revealed on Wednesday that it has unveiled a FAA certification plan that will allow supplies to resume, although it cannot say when that will happen.
“Everyone would like to give you a date,” Calhoun said in an interview with CNBC. “I can’t do that because the FAA controls this process. We are confident and comfortable that we have presented the best that Boeing can present.”
Shares of Boeing (BA), a component of Dow Jones, fell more than 5% at the start of trading on Wednesday.
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