Boeing's billion-dollar blunder: Trump's tough deal costs company over a billion dollars

Written by Jeppe W

Oct.27 - 2023 7:29 AM CET

Photo: Shutterstock.com
Photo: Shutterstock.com

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Boeing's venture into retrofitting two 747 jets to serve as the next generation Air Force One has morphed into a financial nightmare, with losses now surpassing a staggering $1 billion on each jet, according to CNN

The journey to this financial quagmire began with a $3.9 billion contract with the Air Force, a deal that Boeing's CEO, Dave Calhoun, now admits was a grave mistake.

The supplier costs have surged unexpectedly, and the project's timeline has faced repeated delays, with Boeing reporting losses of $1.45 billion in the previous year and an additional $318 million in 2021.

Calhoun described the Air Force One project as a "very unique set of risks" that Boeing probably shouldn't have taken.

Despite this acknowledgment, the company continues to bleed money, with the most recent loss of $482 million attributed to engineering modifications, labor instability, and the resolution of supplier negotiations.

The Trump negotiated deal

Boeing's decision to agree to a fixed price contract under the pressure of then-President Donald Trump, who threatened to cancel the deal altogether, has proven to be a double-edged sword.

While such contracts can provide cost certainty for the government, they place the financial risk squarely on the shoulders of the contractor.

“In a fixed price environment, any unplanned hurdles can introduce unrecoverable costs,” Calhoun explained to investors.

Although the company remains committed to delivering the two jets, the financial hemorrhaging showcases the risks associated with such contracts, especially in the unpredictable realm of defense manufacturing.

The Air Force One debacle is just a fraction of Boeing’s financial woes, with the company reporting losses in almost every quarter since early 2019, totaling $25.5 billion.

These losses stem from a myriad of issues, including the 20-month grounding of the 737 Max jet following two fatal crashes.

Despite these challenges, Boeing is showing signs of recovery with better-than-expected revenue and an increase in 787 jet production.

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