More bad news for Boeing defense on the horizon

LONDON—Boeing’s defense business will take a fresh charge on the Air Force One program this quarter as the company works through major challenges while building the presidential jets, the division’s head said on Sunday. 

Expect continued bleeding when Boeing reports its financial standing in its second-quarter earnings call next week as it goes “through some more challenges on the fixed-price development programs,” Ted Colbert, CEO of Boeing Defense, Space & Security, told reporters during a briefing in London ahead of the Farnborough Air Show. 

Colbert said the second-quarter results will resemble those of last year’s third quarter—when the defense division took nearly $1 billion in losses. The second-quarter charges will be from a mix of Boeing’s big fixed-price development programs and “continued operational challenges,” he said.

Those third-quarter losses included $482 million from the much-delayed effort to produce two VC-25B presidential jets, which so far has cost the company more than $2 billion. Their delivery date has slipped from this year to at least 2027 and 2028. 

“Our team is fighting through a very, very challenging program there. Two very complex airplanes that have got to be built to a spec that it's beyond anything that one can imagine, with the presidential quality,” said Colbert, who added that other challenges include supply-chain problems, inflation, and workforce shortages.

Colbert said the company had made broader changes that should put it on surer footing.

“I believe that the actions that we put in place to both stabilize our production programs and get our development programs into production are beginning to work, it will just take some time for them to manifest in our financial results over time,” he said. 

Colbert also promised that the next contracts Boeing signs with the Pentagon will use “reality-based assumptions.” 

In the previous decade, the company won some high-profile contracts with lowball bids intended to lose money in early production lots but profit on later lots and decades of support contracts. That strategy has cost them billions of dollars as many programs prove far more costly than anticipated.

Colbert said the deal for E-7 Wedgetail radar planes displayed the company’s new approach.

On Saturday, the Air Force announced that it had reached a deal with Boeing after disagreements over costs dragged out negotiations for over a year. The Pentagon had to even bring in a ringer, Shay Assad, to close the deal. 

The negotiation process “began challenged” because there was a disconnect between the requirements, Colbert said. Boeing and Pentagon negotiators just needed to get into a room together and be “very transparent,” he said. 

“This is an example of doing exactly that by having a conversation with the customer, having transparency around our costs and the supply chain, getting to a place that negotiates in a way that's compliant, and it sets us up, from a healthy business perspective, to perform well going forward and have a healthy business outcome. Now, post-contract, that's going to be on us to execute the assumptions that we put in place, but we are setting ourselves up—and frankly, most importantly, our customer up—for success going forward by taking this approach,” he said. 

To rebuild its defense revenues, Boeing is pouring billions of dollars into new facilities in St. Louis, Missouri, betting that it can win contracts to design and build next-generation air dominance programs for the Pentagon. The company is expected to compete against Lockheed to build the Air Force’s sixth-generation fighter jet. But recent comments from Air Force officials have cast doubt on the program—and may throw a wrench in Boeing’s big bet.

Asked about these comments, Colbert said he still believes that the Air Force will want to field next-gen technology to outmatch U.S. adversaries. 

“We're investing in next-generation materials and automation and artificial intelligence and a workforce and digital to be ready when we get the call to support whatever next objective the customer might have. So while I can't comment specifically on NGAD, we're investing in the future in fighters, and we're a fighters company and we’ll continue to do that,” Colbert said.