• Aerospace & Defense

Boeing struggles to steer defense unit in another year of losses

By Valerie Insinna
October 26, 202310:04 PM PDTUpdated 3 months ago


https://cloudfront-us-east-2.images.arcpublishing.com/reuters/B6XMLMWKVNPPBOP7P255A2NAKE.jpgThe Boeing KC-46 Pegasus aerial refueling tanker is seen before a delivery celebration to the U.S. Air Force in Everett, Washington, U.S., January 24, 2019. REUTERS/Lindsey Wasson/File Photo Acquire Licensing Rights, opens new tab

WASHINGTON, Oct 27 (Reuters) - Boeing's (BA.N), opens new tab defense business is proving harder to turn around than executives initially predicted, with supplier errors and high manufacturing costs contributing to $1.7 billion in losses this year on programs like the next Air Force One and NASA's Starliner capsule.
Despite absorbing $4.4 billion in losses in 2022 – which executives said would lower the risk of future cost overruns – the unit has seen little improvement this year.
Excluding last year, losses on Boeing's defense programs in 2023 exceed those from all years since 2014, according to a Reuters review of Boeing’s regulatory filings.
Boeing is unique among its defense contractor peers, as companies like Lockheed Martin (LMT.N), opens new tab, General Dynamics (GD.N), opens new tab and RTX (RTX.N), opens new tab are seeing higher revenues due to demand from the war in Ukraine.
Unlike those companies, however, Boeing is locked into handful of contracts that force the planemaker to take a loss when technology development goes over budget.
The defense unit's losses this year include $933 million in charges in the third quarter, mostly comprising a $482-million loss building two Air Force One planes and a $315-million charge on an unidentified satellite program that had not previously lost money.

Boeing has been adamant it won't enter into new fixed-price contracts for the development stage of weapons because the unpredictability associated with designing and testing a new product often brings unforeseen costs.
However, the company's current fixed-price development efforts, which include the U.S. Air Force's KC-46 refueling tanker and T-7 training jet, new Air Force One planes, the Navy's MQ-25 tanker drone, and NASA's Starliner have all continued to run over budget this year.
The latest charge for Air Force One brought total losses to $2.4 billion on a $3.9 billion contract to develop two planes. The program’s current schedule calls for the first jet to be delivered by September 2027.
West also noted $136 million in additional losses taken during the quarter, including a $71-million charge for the MQ-25 program.