WASHINGTON — Boeing’s defense unit recorded a $924 million loss within the third quarter of 2023, primarily dragged down by rising costs on its VC-25B Air Force One program.
Greater than half of Boeing Defense, Space and Security’s loss stemmed from a $482 million loss on the corporate’s work constructing two latest VC-25B aircraft for the U.S. Air Force. The corporate attributed the upper costs to engineering changes and labor instability in addition to the resolution of supplier negotiations last quarter.
With the $660 million charge Boeing previously recorded on the VC-25B program in the primary quarter of 2022 and a $168 million charge in early 2020, this system’s losses have now topped $1.3 billion.
The division’s nearly $5.5 billion in quarterly sales was “essentially flat” 12 months over 12 months from the third quarter of 2022, Brian West, Boeing’s executive vp and chief financial officer, said in a Wednesday earnings call.
The corporate’s chief executive, Dave Calhoun, expressed dissatisfaction with the pace at which the defense unit has improved, but said the sector is on course to see improvement in the subsequent two or three years.
“We’re seeing some early signs of progress,” Calhoun said throughout the call. “But financial improvement at BDS’ lower volumes takes time. Recovery in BDS is slower than we’d like; slower than I’d like. But we’re confident in the long run, and our path to normalizing BDS margin performance by that ’25 and ‘26 timeframe is unbroken.”
West said Boeing desires to get its defense sector back to returning high single-digit profit margins by that timeframe. He expects the defense unit’s money flows to indicate improvement in 2024, but cautioned that lingering effects of repeated charges on the corporate’s programs can be “still likely a drag.”
As signs of strong demand for the defense business, executives pointed to Boeing’s delivery of the primary T-7A Red Hawk trainer to the Air Force and its contract to construct 21 Apache helicopters for the Army,
Boeing’s defense unit has been plagued in recent times with delays in necessary programs, rising costs, repeated losses, and concerns over the standard of its work on key aircraft equivalent to the KC-46A Pegasus tanker and VC-25B, which is now years behind schedule.
In March 2022, the corporate moved considered one of its top executives, Ted Colbert, to take charge of the defense unit and reshape it. Eight months later, Colbert revamped the unit and consolidated its eight divisions into 4 in an effort to get the sector back on course.
Boeing originally expected it might lose about 9% within the quarter, West said, however the Air Force One costs drove that margin right down to a 16.9% quarterly loss. One other $315 million loss on a satellite contract further sank Boeing defense’s profits.
“These are disappointing leads to the quarter and 12 months so far,” West said. “This performance is below our expectations, and we acknowledge that we aren’t as far along on this recovery as we expected to be at this stage.”
Calhoun said Boeing is working to stabilize its operations in its defense sector, including on the lookout for ways to operate more efficiently, put money into engineering and approach contracting in a more disciplined way.
West said Boeing can also be investing in latest training programs to hurry up factory staff and has sent resources to its suppliers to support their recoveries. He also told investors they will “rest assured” that Boeing has not signed any further fixed-price development contracts, nor does it plan to.
It’s not the primary time Boeing has expressed regret for stepping into such contracts. Previously, Calhoun in April 2022 said Boeing shouldn’t have accepted the Trump administration’s terms because it aggressively renegotiated the corporate’s Air Force One contract in 2018.
West and Calhoun said Boeing is working through the challenges of constructing latest Air Force Ones and that the key steps of turning the brand new planes’ power on and flying them for the primary time shall be largely finished before the 2025/2026 timeframe.
“In a fixed-price environment, any unplanned hurdles can introduce unrecoverable costs,” Calhoun said. “At the tip of the day, we’ve two airplanes to construct. We’re getting past these hurdles and are committed to delivering two exceptional airplanes for our customers.”
Stephen Losey is the air warfare reporter for Defense News. He previously covered leadership and personnel issues at Air Force Times, and the Pentagon, special operations and air warfare at Military.com. He has traveled to the Middle East to cover U.S. Air Force operations.