Cost overruns for the new Air Force One jets continue to pile on massive losses for Boeing.
Boeing on Wednesday reported another $482 million in red ink on the contract to retrofit two 747 jets into the next generation of the presidential plane. Boeing has now lost more than $1 billion on each of the two jets.
The company has been reporting losses on the planes for years, as CEO Dave Calhoun admitted last year that the company should never have signed the contract with the Air Force to produce the jets for $3.9 billion. Supplier costs have soared since then, and the delivery date has been continually pushed back. Boeing took $1.45 billion in losses on the planes last year, and $318 million in 2021.
“Air Force One, I’m just going to call a very unique moment, a very unique negotiation. A very unique set of risks that Boeing probably shouldn’t have taken,” Calhoun said in April last year when discussing $660 million of those losses reported at that time. “But we are where we are.”
The company said the latest loss on the program is a result of engineering changes, labor instability, as well as the resolution of negotiations with one of its suppliers.
Very often higher costs on defense contracts can be passed onto US taxpayers, but under pressure from then-President Donald Trump, who was threatening to cancel the contract for the planes, Boeing agreed to a fixed price contract on the two new jets.
“In a fixed price environment, any unplanned hurdles can introduce unrecoverable costs,” Calhoun told investors Wednesday. “At the end of the day, we have two airplanes to build. We’re getting past these hurdles and are committed to delivering two exceptional airplanes for our customer.”
Technically the program is known as the VC-25B, since the famous “Air Force One” designation is reserved for when the president is actually on any US Air Force-operated plane, not when it is on the ground, let alone under construction.
The latest loss on the Air Force One jets is only a fraction of the losses reported by the troubled aircraft manufacturer, which has reported losses in all but two quarters since early 2019. Total losses at the company now total $25.5 billion since the grounding of its 737 Max jet for 20 months starting in March of 2019, following two fatal crashes that killed 346 people.
Wednesday it reported another core operating loss of $1.1 billion, or $3.26 a share. While that’s down 65% from the loss reported in the same quarter a year earlier, it’s worse than the $2.96 a share loss forecast by analysts surveyed by Refinitiv. The company had reported a bigger than expected loss almost every quarter since its problems began.
Revenue was slightly better than forecasts though, rising 13% to $18.1 billion. And while the company trimmed the number of 737 Max jets it expects to deliver this year, it announced it is increasing the number of 787 jets it is building to five per month, and it plans to complete its increase in 737 production to 38 a month by the end of the year.
That guidance, and the company saying it still expects to be cash flow positive for the year, helped lift Boeing shares 3% in premarket trading.
