Boeing has no plans to walk away from its portfolio of troubled military contracts, which have generated billions of dollars in losses for the company in recent years.
The company’s new chief executive Kelly Ortberg is reiterating his commitment to delivering on Boeing’s existing defence programmes, while acknowledging there is not a clear path to profitability on the most challenging contracts.
“We’ve got some tough contracts and there’s no magic bullet to that,” Ortberg said during a 23 October quarterly earnings call with investors.
“We’re going to have to work our way through some of those tough contracts,” he adds.
In reality, that more than likely means continued financial losses on programmes including the KC-46 tanker, T-7A trainer jet, MQ-25 autonomous carrier-based refueller and VC-25B presidential transport aircraft.
Boeing’s defence and space portfolio generated some $2.6 billion in penalty charges during the recent third-quarter alone, with the KC-46, T-7A, MQ-25 and Starliner crewed space capsule contributing the bulk of that figure.
Some programmes, such as the 767-derived KC-46, were impacted by the ongoing machinists strike that have stopped work at Boeing’s commercial assembly lines in Washington state for more than a month.
However, other military programmes suffer from endemic engineering issues, weighed down by aggressive fixed-price contracts that left little room for cost growth or schedule delays. Boeing previously employed a fixed-price bid strategy to secure military contracts.
Although that approach was successful in securing the company contracts, it has ultimately proven disastrous for Boeing in light of supply chain and labour disruptions generated by the Covid-19 pandemic.
Current and former Boeing executives, including ousted CEO David Calhoun, previous chief of the defence business Ted Colbert and current chief financial officer Brian West, have talked for years of “de-risking” the company’s defence programmes. Ortberg is now deploying similar language.
“These are complicated development programmes and we remain focused on retiring risk each quarter and ultimately delivering these mission critical platforms to our customers,” he says.
How exactly that can be accomplished remains unclear. In the case of the KC-46, engineering and assembly failures within Boeing are largely to blame.
Failures including a fuel transfer boom that originally could not refuel the US Air Force’s (USAF’s) full fleet of aircraft, a defective remote operating system for the boom that required a redesign and quality issues on the 767 production line have all contributed to the more than $7 billion in penalty charges racked up by the KC-46.
Other programmes, such as the low-volume VC-25B, appear likely to never turn a profit for Boeing, based on cost and schedule targets the company committed to in its bid for the contract.
That reality has fuelled speculation Boeing might seek to withdraw from its most problematic military contracts, or the defence business altogether.
Ortberg quashed any notion of that on 23 October, saying he has no plans to “walk away” from any of Boeing’s military commitments.
“Even if we wanted to, I don’t think we can walk away from these contracts,” he says. “These are core customers that need this capability. We’ve got long-term commitments to them.
“Walking away isn’t an answer,” the Boeing chief adds.
That is no doubt welcome news to the company’s global customer base, who collectively had $62 billion worth of defence products on order with Boeing at the end of September.
Instead, much like his bygone predecessors, Ortberg says he will be focusing on adjusting Boeing’s defence portfolio to be “much more balanced, with less risky programmes and more profitable programmes”.
Key to that shift will be a renewed focus on more disciplined bids and proposals, with a realistic assessment of associated risks.
“Burn down the tough ones, get better execution on the future,” is how Ortberg sums up his approach to defence contracting moving forward.
Some examples of that strategy were evident even before Ortberg took over. The former CEO of Boeing Defense, Space & Security (BDS), Ted Colbert, in 2023 withdrew the company from a competition to build the USAF’s new airborne command post jet.
“That was very intentional,” Colbert told FlightGlobal during an interview in July 2024.
“We would not sign up to terms in the deal that… would potentially put us in a similar place that we are on today with some of our other programmes,” he added.
Such prudence was not enough to save Colbert’s job. He departed Boeing in September, shortly after the ill-fated Starliner mission concluded by returning to Earth empty, leaving its NASA astronauts waiting aboard the International Space Station for a ride home from competitor SpaceX.
Ortberg appointed BDS chief operating officer Steve Parker as acting CEO of the defence unit, but a search is ongoing for a permanent candidate to helm the troubled division.
While declining to specifically address what is being done to fill the role of BDS chief, Ortberg says his general approach to hiring is to look for the “right candidate” internally, while also being open to bringing “some outside skills in”.
The man charged with turning around one of the global economy’s most important players says he hopes to have completed his long-range strategy for Boeing, including any potential portfolio divestments, by the end of this year.
