Boeing on Wednesday reported a loss in its second quarter, but not quite as bad as a year ago, as sales fell sharply on fewer commercial aircraft deliveries due to continued weakness in the 737 MAX passenger jet program, temporary shutdowns of some facilities in the spring, and the ongoing impacts to airlines from the novel coronavirus 2019.
The net loss of $2.4 billion, $4.20 earnings per share (EPS), was less than the $2.9 billion ($5.21 EPS) loss a year ago. The adjusted net loss of $3.3 billion ($4.79 EPS), which excludes various pension adjustments, was worse than the $2.57 EPS loss expected by analysts.
Sales tumbled 25% to $11.8 billion from $15.8 billion a year ago, driven by a steep decline at the Commercial Airplanes segment and a sharp drop at the Global Services segment due to a drop in commercial business.
Boeing’s Defense, Space & Security segment reported flat sales of $6.6 billion and a 38% drop in operating income to $600 million.
Backlog at the defense segment was $64.3 billion at the end of the quarter, up a percent from $63.7 billion at the end of 2019. International business makes up 31% of the current backlog.
The outlook remains grim.
“The reality is the pandemic’s impact on the aviation sector continues to be severe,” Dave Calhoun, Boeing president and CEO, said in a letter to employees. “Though some fliers are returning slowly to the air, their numbers remain far lower than 2019, with airline revenues likewise reduced. This pressure on our commercial customers means they are delaying jet purchases, slowing deliveries, deferring elective maintenance, retiring older aircraft and reducing spend—all of which affects our business and, ultimately our bottom line. While there have been some encouraging signs, we estimate it will take around three years to return to 2019 passenger levels.”
In 2019, Boeing exited the competition to build the Air Force’s fleet of next-generation intercontinental ballistic missiles, the Ground-Based Strategic Deterrent (GBSD). That left rival Northrop Grumman as the sole company in contention.
However, Boeing does hold a contract worth roughly $124 million to provide new cryptography systems for the silos that hold the current fleet of Minuteman III ICBMs, which the company built.
Revenue from government services partially offset a decline in commercial sales at Global Services, and the segment swung to a loss on the decline in sales, a shift toward lower-margin products and services, and $923 million in charges and severance costs related to the COVID-19 market environment.
In his letter to employees, Calhoun said the company’s diverse portfolio is helping to cushion the blow.
“The diversity of our portfolio and our government services, defense and space programs provide some stability in the near term as we take these tough but necessary steps.”
Those tough steps include further cuts to production in some of commercial airplane programs, potential adjustments to facility footprints, and further potential workforce reductions on top of a net 10% cut in 2020, he said.
On the earnings call, Calhoun said the job reductions this year will amount to 15% of the commercial workforce. The defense business continues to hire, he said. The ongoing job cuts are through a combination of voluntary layoffs, attrition and involuntary layoffs.
Total backlog at the end of the quarter stood at $408.7 billion, down 12% from $463.4 billion at the end of 2019, driven primarily by a decline at Commercial Airplanes followed by Global Services. The drop in backlog at Commercial Airplanes is due to order cancellations and removal of orders.
Boeing has a commercial aircraft backlog of more than 4,500 planes valued at $326 billion, Smith said on the call.
Free cash flow was a $5.6 billion outflow during the quarter.
This story first appeared in Nuclear Security & Deterrence Monitor Affiliate Publication Defense Daily.
