Boeing's Defense Sector: A Struggle for Recovery Amidst High Costs and Contractual Challenges

Boeing's defense division has been grappling with a challenging recovery process, with supplier mistakes and elevated production costs leading to a loss of $1.7 billion this year on projects such as the forthcoming Air Force One and NASA's Starliner capsule. Despite enduring losses of $4.4 billion in 2022, which executives believed would reduce the likelihood of future cost overruns, the division has seen minimal progress this year. Excluding 2022, the losses incurred by Boeing's defense projects in 2023 surpass those from all years since 2014, as per a Reuters analysis of Boeing’s regulatory filings. 


Unlike its defense contractor counterparts such as Lockheed Martin, General Dynamics, and RTX, who are experiencing increased revenues due to the Ukraine conflict, Boeing is bound by several contracts that compel the aircraft manufacturer to bear a loss when technology development exceeds the budget.


This year's losses for the defense unit include $933 million in charges in the third quarter, primarily consisting of a $482 million loss in constructing two Air Force One planes and a $315 million charge on an undisclosed satellite program that had not previously lost money. Boeing's executives are implementing new training and allocating resources to suppliers to ensure the unit transitions from negative margins to high-single-digit margins by 2025-2026 when its most problematic programs are expected to have completed flight testing and be on more stable ground.

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Boeing Defense Space and Security (BDS) has failed to generate an actual profit even after excluding charges, indicating that Boeing may not fully comprehend the costs involved. The company has been firm in its stance against entering into new fixed-price contracts for the development phase of weapons due to the unpredictability and potential for unexpected costs associated with designing and testing a new product. For Boeing's defense division, a more promising strategy would be securing future contracts for next-generation fighter jets and advanced drones, given the abundance of opportunities in these areas.

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