Strikes and fixed-price contracts cause Boeing's defense to lose money

Boeing's ongoing problems with a crippling machinists' strike and costly fixed-price development contracts left the company – and particularly its defense arm – losing money in the third quarter of 2024.

The troubled airline company reported net losses of nearly $6.2 billion in its quarterly conference call with investors. That included a $2.4 billion loss for the defense, space and security sector, whose former boss Ted Colbert was fired on September 20.

Boeing's defense reported $2 billion in charges on key programs, including the KC-46A Pegasus tanker, as the company suffered the impact of the nearly six-week strike by the International Association of Machinists.

Union members will vote Wednesday on a proposed contract for about 33,000 machinists that would include a cumulative 35% pay increase that could end the strike.

The KC-46's cost of about $661 million was due in part to the work stoppage that began Sept. 13, the company said, affecting work on the 767 airliner that forms the basis for the refueling aircraft .

The strike also led the company to decide to halt most of its 767 production and only produce 767-2C aircraft in support of the KC-46 program starting in 2027, Boeing said. This decision to end production of most 767 aircraft also added to the cost of the program.

Boeing also raised about $908 million for the Air Force's T-7 Red Hawk trainer aircraft, reflecting expected higher costs for production contracts beginning in 2026. The Commercial Crew space capsule program had a cost of $250 million and the Navy's MQ-25 Stingray program had a cost of $217 million, the first this year.

Combined with the $250 million in previous charges on the VC-25B Air Force One program, Boeing Defense's five major fixed-price development programs have suffered losses of $3.3 billion 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 completes the work for less than expected, it can pocket the remaining payments as profit.

However, when the fixed-price program experiences delays or cost overruns, the company faces losses—sometimes running into billions of dollars, as was the case with the KC-46.

Boeing's fixed-price losses widened as the company closed the books for the third quarter, Chief Financial Officer Brian West said, as higher estimated production costs for the T-7 in 2026 and beyond came into focus.

“While we recognize that these are disappointing results, these are complex development programs and we remain focused on de-risking on a quarterly basis and ultimately delivering these business-critical capabilities to our customers,” West said.

Chief Executive Kelly Ortberg said Boeing had no choice but to “work through some of these difficult contracts” and that “there is no magic bullet for this.”

The company needs to keep a closer eye on such “problematic” contracts, he said, and work with customers such as the military to de-risk these programs before their costs begin to exceed expectations.

“We've gone from today's problem to today's problem to today's problem, and that's because we don't think outside the box enough with these programs,” Ortberg said. “Some of this means you need to work better with your customers to determine the success of these programs. …We know how to run these programs. We just lost a little bit of discipline.”

But cutting losses and exiting these troubled programs is not an option for Boeing, Ortberg said, because the company has long-term commitments to customers like the Air Force.

“We need to be able to have a much more balanced portfolio with less risky and more profitable programs,” Ortberg said. “But I don’t think a complete exit is in sight.”

Given the current global turmoil and rising defense spending, demand for Boeing's defense products remains strong, West said, and the company expects to improve its financial performance in the medium to long term.

Until then, however, further financial problems are to be expected. Boeing expects overall performance next year to be significantly better than in 2024 – but still expects to be in the red for all of 2025. The company has lost $8 billion so far in 2024.

Ortberg still travels to Boeing facilities and has one-on-one conversations with rank-and-file employees and said he believes the company has “fantastic people” among its employees.

“We just have to get everyone in the right position and take the right actions,” Ortberg said, adding that he and top Boeing executives “have spoken explicitly about what we are going to do to change the culture, but it will take time.” time. This isn’t just a light switch being flipped. It’s a never-ending process.”

Ortberg declined to comment on who might become Boeing's next defense chief, but said he would look outside the company if Boeing couldn't find the right internal candidate.