Boeing's Defense, Space & Security division is again anticipating negative charges in the billions as the company continues to reel from last year's International Association of Machinists work stoppage and persistent developmental delays on its firm, fixed-price programs.
"Although we face near-term challenges, we took important steps to stabilize our business during the quarter including reaching an agreement with our IAM-represented teammates and conducting a successful capital raise to improve our balance sheet," Kelly Ortberg, Boeing president and chief executive officer, said in a statement today announcing the company’s pre-tax, fourth-quarter results.
Boeing’s defense division is expected to recognize a greater loss than its commercial business, with a total $1.7 billion in the red on the troubled KC-46A Pegasus tankers, T-7A Red Hawk training jets, VC-25B Air Force One planes, MQ-25 Stingray uncrewed aircraft and Starliner Commercial Crew spacecraft. The charge brings Boeing defense business to an operating margin of 41.9% in the fourth quarter, according to the company.
The Pegasus alone hemorrhaged $800 million due to “higher estimated manufacturing costs, including impacts of the IAM work stoppage and agreement,” Boeing noted in a news release. In July, that aircraft tacked on another category 1 deficiency to its mix of significant or possibly deadly issues -- bringing the total to seven.
The T-7 contract, meanwhile, saw an additional $700 million in part because of “higher estimated costs on production lots in 2026 and beyond,” Boeing said. Former Air Force acquisition chief Andrew Hunter last week told Inside Defense the service is again shifting its development and procurement plans for the new training jet by pushing milestone C back one year to 2026 to lock in initial operational capability by 2027.
As part of the changes, the Air Force is also offering Boeing as much as $250 million that the company can earn over time to address long-standing delivery delays and a need for updated capabilities not already listed in the original contract, including extended range, Hunter said.
The new charges come after the aerospace giant’s defense unit in the third quarter logged a $2 billion pre-tax loss, prompting Ortberg at the time to call for the company to pivot back to prior success via better discipline in its "tough contracts" and a focus on risk management in future ones.
Boeing is scheduled to report its quarterly earnings on Jan. 28.