Production woes plague earnings for Boeing, RTX and Spirit Aero
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2023-10-23 18:30
By Valerie Insinna and Pratyush Thakur WASHINGTON After a succession of production snafus, investors will question whether U.S.

By Valerie Insinna and Pratyush Thakur

WASHINGTON After a succession of production snafus, investors will question whether U.S. aerospace's "problem children" - Boeing, RTX and Spirit AeroSystems - can stem financial losses and hit year-end targets.

All three companies are expected to report losses in their third-quarter results as they struggle to resolve manufacturing defects on their most profitable aircraft and engine products.

RTX engine subsidiary Pratt & Whitney disclosed in September it will take a $3 billion charge in the quarter after planning to replace components containing contaminated metal powder on as many as 700 Geared Turbofan (GTF) engines.

Meanwhile, Boeing and Spirit, a supplier for the U.S. planemaker and European rival Airbus, are contending with a lapse involving misdrilled holes on Boeing’s 737 MAX. Boeing expanded inspections this month.

Vertical Research Partners analyst Rob Stallard called the companies the sector's “problem children.”

RTX is expected to report a loss of 24 cents per diluted share versus a profit of 94 cents a year ago, according to analysts polled by LSEG.

Boeing is expected to report a loss of $2.23 per diluted share, compared with a loss of $5.49 a year ago. Spirit is projected to report a loss of $1.03 a share, compared to a loss of $1.22 a year earlier, according to LSEG data.

RTX, the first to release results on Tuesday, will face continued scrutiny about the GTF engine issue.

Analysts are concerned shop visits could drag on longer than expected or that a higher volume of engines - or additional engine types - could be affected, triggering higher compensation to customers.

“Some of these customer concessions might come in the form of free services, which are likely staggered and may drag out the cash recognition,” Bank of America analyst Ron Epstein said.

Boeing investors will fixate on 2023 free cash-flow generation, which the planemaker projected would finish between $3 billion and $5 billion. It reports results on Wednesday.

The target may no longer be achievable if Boeing can no longer meet its goal of delivering 400 737s this year.

“It was already looking like it was going to be a struggle to hit that 2023 guidance. It's more of a struggle now, even at the low end,” Vertical's Stallard said.

Spirit, which reports Nov. 1, has already revealed preliminary results as part of a new price agreement with Boeing.

But the earnings call will be a test for newly-named interim CEO Patrick Shanahan, a former Boeing executive and Spirit board member known for fixing tough operational problems.

"The appointment of Pat shows one thing: the criticality of the situation at Spirit right now," said Michel Merluzeau, director of aerospace analysis at AIR consultancy group.

Investors will be looking for details on how Shanahan plans to restore the embattled supplier's balance sheet and get aircraft production back on track, he said.

(Reporting by Valerie Insinna in Washington and Pratyush Thakur in Bengaluru, editing by Ben Klayman and Josie Kao)

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