Boeing’s ongoing problems with a crippling machinist strike and costly fixed-price development contracts left the company — and especially its defense sector — hemorrhaging cash in the third quarter of 2024.
The troubled aviation firm reported nearly $6.2 billion in net losses in its quarterly earnings call with investors. That included a $2.4 billion loss for its Defense, Space and Security sector, whose former head, Ted Colbert, was fired Sept. 20.
Boeing defense reported $2 billion in charges on major programs, including the KC-46A Pegasus tanker, as the company reeled from the effects of the nearly six-week International Association of Machinists strike.
Members of the union are voting Wednesday on a proposed contract for about 33,000 machinists that would include a cumulative 35% raise, which could end the strike.
The KC-46′s roughly $661 million charge stems partly from the work stoppage that began Sept. 13, the company said, which hit work on the 767 airliner that form the foundation of the refueling aircraft.
The strike also led the company to decide to wrap up most of its 767 production, and beginning in 2027, only produce 767-2C aircraft to support the KC-46 program, Boeing said. This decision to cease production of most 767s also contributed to the program’s charges.
Boeing also racked up a roughly $908 million charge on the Air Force’s T-7 Red Hawk trainer, which was driven by expected higher costs on production contracts beginning in 2026. The Commercial Crew space capsule program had a $250 million charge, and the Navy’s MQ-25 Stingray program had a $217 million charge, its first of the year.
When combined with $250 million in previous charges on the VC-25B Air Force One program, Boeing defense’s five major fixed price development programs have incurred $3.3 billion in losses so far this year.
Under a fixed-price contract, the government agrees to pay a company a certain amount of money to produce an aircraft or other system. If the company gets the job done cheaper than expected, it can pocket the remaining payments as profit.
But if the fixed-price program experiences delays or cost overruns, the company is on the hook for losses — which can sometimes run into the billions of dollars, as in the case of the KC-46.
Boeing’s fixed-price losses expanded in magnitude as the company closed the books on the third quarter, chief financial officer Brian West said, as higher estimated production costs on the T-7 in 2026 and beyond came into focus.
“While acknowledging these are disappointing results, these are complicated development programs, and we remain focused on retiring risk each quarter and ultimately delivering these mission-critical capabilities to our customers,” West said.
Chief executive Kelly Ortberg said Boeing has no choice but to “work our way through some of those tough contracts,” and that “there’s no magic bullet to that.”
The company needs to keep a closer eye on such “problematic” contracts, he said, and work with customers such as the military to reduce the risk on those programs before their costs start to run over expectations.
“We’ve gone from today’s problem, to today’s problem, to today’s problem, and that’s because we’re not looking around the corner enough on these programs,” Ortberg said. “Some of that means that you’ve got to be better at working with your customer to define success on these programs. … We know how to run these programs. We just have lost a little bit of discipline.”
But cutting losses and exiting those troubled programs isn’t an option for Boeing, Ortberg said, since the company has made long-term commitments to customers such as the Air Force.
“We do have to get in a position where we’ve got a portfolio much more balanced with less-risky programs and more profitable programs,” Ortberg said. “But I don’t think a wholesale walk-away is in the cards.”
With current global turmoil and rising defense spending, demand for Boeing’s defense products remains strong, West said, and the company expects it will be able to improve financial performance in the medium to long term.
Until then, however, more financial pain remains on the horizon. Boeing expects its overall performance next year to be much better than in 2024 — but still expects to be in the red for all of 2025. The company has so far lost $8 billion in 2024.
Ortberg is still traveling to Boeing facilities and having in-person conversations with rank-and-file employees, and said he believes the company has “fantastic people” on its staff.
“We just got to get everybody in the right position, running the right plays,” Ortberg said, adding that he and top Boeing leaders have “talked explicitly about what we’re going to do to change the culture, but it’s going to take time. This isn’t something that there’s just a light switch that flips. It’s a never-ending process.”
Ortberg declined to comment on who might be the next head of Boeing defense, but said he would look outside the company if Boeing can’t find the right internal candidate.
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.
Read the full article here
